Docket:
T-1024-12
Citation: 2014 FC 175
Ottawa, Ontario, February 24, 2014
PRESENT: The Honourable Mr. Justice de Montigny
|
BETWEEN:
|
|
DOREL INDUSTRIES INC.
|
|
Applicant
|
|
and
|
|
THE PRESIDENT OF THE
CANADA BORDER SERVICES AGENCY
|
|
Respondent
|
REASONS FOR JUDGMENT AND JUDGMENT
[1]
This is an application for judicial review of
the decisions of the Canada Border Services Agency (“CBSA”) dated April 25,
2012 in which the Respondent, CBSA, refused the drawbacks the Applicant, Dorel
Industries (“Dorel”), had claimed on the basis that their futon covers imported
from China and exported to the United States remain in the “same condition” and
are subject to s 113 of the Customs Tariff Act, SC 1997, c 36 (“the Act”).
The Respondent refused the drawbacks on the basis that the tufting process used
on the futon covers disqualifies them from the “Same Condition Status”. The
Applicant contests this decision as CBSA had previously rendered another
decision on September 14, 2011 declaring that the futon covers have met the “Same
Condition Status” as per s 303(6) of the North American Free Trade Agreement (“NAFTA”).
[2]
For the reasons that follow, I have come to the
conclusion that this application for judicial review ought to be granted.
Facts
[3]
The parties have agreed on the facts, and the
following is primarily based on their Agreed Statement of Facts.
[4]
The Applicant is a public company which, inter
alia, imports futon covers from China. Three sides of the cover are closed
and the fourth is outfitted with a zipper. In Canada, a mattress is inserted in
the cover. The zipper is then closed and by machine, plastic jiffies are
punched through the covered futon mattress such that the ends of the plastic
jiffies are visible on the two exterior sides (upper and lower) of the covered
futon mattress. This process is called “tufting”. No sewing is involved. The
covered futon mattress is then packaged, together with a metal frame, and
exported to the United States.
[5]
The Applicant paid custom duty on the imported
futon covers. On May 11, 2010, the Applicant requested a Same Condition Process
Ruling as provided by s 509 of the NAFTA for the futon covers imported
from China and submitted to the tufting (jiffying process). This request was
allegedly accompanied by five photographs, although this is contested by the
Respondent. There is no suggestion by the Respondent that the Applicant failed
to disclose any information when requesting the “Same Condition” ruling.
[6]
In two separate claims dated April 29, 2011 and
September 6, 2011, the Applicant applied for drawbacks on the said goods based
on the “Same Condition Status” of s 303(6) of the NAFTA. These claims
were for a drawback of the customs duty paid on imported goods between May 1,
2007 and March 22, 2011 and exported between June 1, 2007 and June 30, 2011. On
September 14, 2011, the Respondent issued the Same Condition Process Ruling
stating that the futon covers for which the ruling had been sought met the
“Same Condition Status”. The ruling noted that the CBSA “finds this re-packaging
of the goods is allowable and has not materially altered the characteristics of
the goods. As such, the goods are exported in the “same condition” so full duty
relief is available”. Following the September 14, 2011 ruling, the Respondent
paid, partially, the drawback claims to the Applicant.
[7]
The Respondent then initiated an audit of the
drawback paid and visited the Applicant’s manufacturing facility. The
Respondent concluded that the tufting process, as performed by the Applicant,
did not in fact qualify for the “same condition” treatment. Accordingly, the
Respondent issued a new ruling on February 23, 2012, replacing the ruling of
September 14, 2011.
[8]
On April 25, 2012, the Respondent issued two
decisions under s 114 of the Act demanding the return, by the Applicant,
of the drawback payments in the amounts paid of $389,912.77 and $79,536.40
together with interest.
The impugned
decision
[9]
The two decisions being challenged were rendered
by the Respondent on April 25, 2012. These decisions do not provide much
information, essentially being assessments under the Act following the “Same
Condition” ruling of February 23, 2012.
[10]
In that ruling, CBSA found that the tufting
process changes the condition of the goods imported and that the futons
exported to the United States are therefore not exempt from duties as they are
not “in the same condition” in which they were imported for the purposes of s 89(1)
of the Act. The rationale underlying this decision is found in the
following paragraphs of the letter sent to the Applicant on February 23, 2012:
The goods in this
request are imported futon covers which are subsequently tufted to mattress
pads and then zipped closed while in Canada prior to exportation to the United States. The process of tufting permanently attaches the futon cover to the mattress
pad. The process of tufting in Canada has materially altered the
characteristics of the imported futon covers. Specifically, the act of tufting
is more than an incidental operation as it changes the condition of the
imported article from being a futon cover to a completed mattress.
With respect to the
imported frames, that are subsequently repackaged with the other futon
components while in Canada prior to exportation to the United States, we find
that this specific process (repackaging the frames) would be considered as a
“same condition” process as it has not materially altered the characteristics
of the frames.
Applicant’s Amended
Record, pp 53-54.
[11]
A further letter sent by the Respondent to
counsel for the Applicant on April 13, 2012, is also of interest to understand
the February 23, 2012 decision. Responding to submissions made by counsel for
the Applicant dated March 15, 2012 objecting to the new ruling, a Senior
Program Officer of CBSA wrote:
On the application
for a same condition ruling dated May 11, 2011, Dorel declared that the process
included the insertion of a firm fibrous pad into a cover which would then be
packaged with a futon frame to form a ready-to-assemble sofa. Our ruling, dated
September 14, 2011, approved this repackaging as an allowable process with the
caveat that no sewing would be involved.
It was later brought
to our attention that an additional process of tufting was being performed.
Accordingly, we issued a second ruling on February 23, 2012, to identify
tufting as part of production, which is not considered an allowable process as
the act of tufting is more than an incidental operation. Tufting is defined as:
“To draw together (a
cushion or the like) by passing a thread through at regular intervals, the
depressions thus produced being usually ornamented with tufts or buttons.”
The process of
tufting changes the mattress cover into a completed mattress. The sewing
involved is not considered as an allowable process identified in Article 303 of
the NAFTA.
Therefore, the CBSA
has not changed its position in the ruling dated September 14, 2011, based on
the fact that the process of tufting was not mentioned in the original
application and that our ruling specifically stated that sewing was not
allowed. As you are aware, under section 118 of the Customs Tariff, failure to
comply with a condition requires that any relief or remission be repaid.
Applicant’s Amended
Record, p 69.
Issues
[12]
It is worth emphasizing from the outset that
this Court is not called upon to determine the legality of the second “Same Condition”
ruling of February 23, 2012 on the merit. In other words, this application for
judicial review does not challenge the decision whereby CBSA concluded that the
tufting operation as performed by the Applicant did not qualify for “Same Condition”
status pursuant to s 89(1)(a) of the Act.
[13]
The only question to be determined in the case
at bar is the one identified by the Respondent in its written memorandum of
fact and law:
Does the Same Condition
Process Ruling of September 14, 2011 preclude the Respondent from refusing the
drawback claim for the futon covers as per the decision of April 25, 2012?
Analysis
[14]
There is no doubt that the issuance of a “Same Condition”
ruling involves a mixed question of fact and law and must therefore be reviewed
on a standard of reasonableness. As previously mentioned, however, this is not
the issue in the case at bar. What is at stake is whether the Respondent is
estopped from issuing its assessments under s 114 of the Act and from
reversing a prior “Same Condition” ruling, thereby refusing the drawback claim
made by the Applicant on the basis of the first “Same Condition” ruling.
[15]
I agree with the Respondent that such an issue
goes to the procedural fairness of the decision and must therefore be reviewed
on a standard of correctness. The Supreme Court of Canada has made it clear in Dunsmuir
v New Brunswick, [2008] 1 S.C.R. 190, 2008 SCC 9 and Canada (Citizenship
and Immigration) v Khosa, [2009] 1 S.C.R. 329, 2009 SCC 12 that issues
involving procedural fairness are to be reviewed on the basis of a correctness
standard.
[16]
The Applicant submits that the doctrine of
promissory estoppel prevents the Respondent from demanding the refund of the
drawbacks. The Applicant argues that the Respondent was precluded from
rejecting the drawback claims because of the September 14, 2011 ruling in which
it confirmed that the futon covers that had been through the tufting process qualified
for the “Same Condition Status” as described in s 303(6) of the NAFTA.
[17]
I agree with the Respondent that the
requirements for the promissory estoppel common law doctrine are not met in the
case at bar. These requirements are most explicitly spelled out in Maracle v
Travellers Indemnnity Co of Canada, [1991] 2 S.C.R. 50, a decision upon which
both parties relied in their submissions. In that case, Justice Sopinka stated
(at para 13):
The principles of
promissory estoppel are well settled. The party relying on the doctrine must
establish that the other party has, by words or conduct, made a promise or
assurance which was intended to affect their legal relationship and to be acted
on. Furthermore, the representee must establish that, in reliance on the
representation, he acted on it or in some way changed his position. …
[18]
In the case at bar, the Applicant cannot
seriously contend that he relied on the September 14, 2011 ruling when he chose
to import the futon covers or subsequently re-export them. The futon covers had
all been imported by July 5, 2011 and almost entirely re-exported by September
14, 2011. As a result, the Applicant did not rely or act upon any
representation by the Respondent when he imported or exported the goods on
which duties are now claimed. Therefore, the Applicant cannot rely on the
principles of promissory estoppel to contest the legality of the April 25, 2012
decisions demanding the return of the drawback payments already made.
[19]
An advanced ruling certificate is generally
provided prior to any transaction being undertaken. If a party takes whatever
action it takes and then requests such a ruling, it is no more an “advanced”
ruling. Indeed, a reading of s 509 of the NAFTA, pursuant to which such
rulings are issued, clearly states that the issuance of a written advanced
ruling certificate should be provided “prior to the importation of a good into
its territory, to an importer in its territory or an exporter (…) in the
territory of another Party”. This is clearly not what the Applicant did in the
case at bar. If he was concerned about the tariff classification of the futon
covers, he would have waited to receive the advanced ruling certificate before
importing and exporting the goods in dispute.
[20]
The Applicant further claims that s 114 of the Act
has a temporal aspect and that the eligibility for a drawback is conditional on
the Applicant having a “Same Condition” ruling at the time of the payment of
the drawbacks. Section 114 reads as follows:
|
Overpayment of refund or drawback
114. (1) If a refund or drawback is
granted under section 110 or 113 to a person who is not eligible for the
refund or drawback or in an amount exceeding the amount for which the person
is eligible, that person shall pay to Her Majesty in right of Canada, on the
day that the refund or drawback is received,
(a) any amount for which the person is
not eligible; and
(b) any interest granted under section
127 on the amount referred to in paragraph (a).
Debt to Her Majesty
(2) An amount referred to in subsection
(1), while it remains unpaid, is deemed to be a debt owing to Her Majesty in
right of Canada under the Customs Act.
|
Restitution
114. (1) En cas d’octroi du remboursement
ou du drawback prévu aux articles 110 ou 113 à une personne qui n’y est pas
admissible, en tout ou en partie, cette personne est tenue, dès réception du
remboursement ou du drawback, de payer à Sa Majesté du chef du Canada la
somme à laquelle elle n’a pas droit et les intérêts reçus sur celle-ci en
application de l’article 127.
Créance de Sa Majesté
(2) Toute somme visée au paragraphe (1)
qui demeure impayée est réputée, pour l’application de la Loi sur les
douanes, une créance de Sa Majesté du chef du Canada au titre de cette
loi.
|
[21]
I agree with the Applicant that s 114 cannot
apply if, at the time the refund or drawback is made, the person to whom it is
made was eligible for same. The purpose of that provision is essentially to
allow for Her Majesty in Right of Canada to recover any amount of money
mistakenly paid to a person who was not entitled to a refund or drawback. This
is quite different from the situation in which the Applicant found himself in
the case at bar. At the time the drawback refunds were made, the Applicant was
entitled to those payments as his two duty drawback claims had been approved. Accordingly,
I find that s 114 would not apply in the present case.
[22]
This is not to say that the Respondent cannot
revise its decisions. It most certainly may do so, not as a result of s 114 of
the Act, but pursuant to s 90, which states as follows:
|
Certificate
90. (1) Subject to regulations made under
paragraph 99(e), the Minister of Public Safety and Emergency Preparedness may
issue a numbered certificate to a person of a prescribed class referred to in
section 89.
Amendment, suspension, etc., of
certificate
(2) The Minister of Public Safety and
Emergency Preparedness may, subject to regulations made under paragraph
99(e), amend, suspend, renew, cancel or reinstate a certificate issued under
subsection (1).
Release of goods
(3) Goods in respect of which relief is
granted under section 89 may be released without payment of the duties
relieved under that section if the number of the certificate issued under
subsection (1) is disclosed when the goods are accounted for under section 32
of the Customs Act and the certificate is in force at that time.
|
Certificat
90. (1) Le ministre de la Sécurité
publique et de la Protection civile peut, sous réserve des règlements visés à
l’alinéa 99e), délivrer un certificat numéroté à une personne appartenant à
l’une des catégories réglementaires énumérées à l’article 89.
Modification du certificat
(2) Le ministre de la Sécurité publique
et de la Protection civile peut, sous réserve des règlements visés à l’alinéa
99e), modifier, suspendre, renouveler, annuler ou rétablir le certificat.
Dédouanement des marchandises
(3) Les marchandises faisant l’objet de
l’exonération prévue à l’article 89 peuvent être dédouanées sans le paiement
des droits visés par l’exonération, si le numéro indiqué sur le certificat
est présenté au moment de la déclaration en détail exigée par l’article 32 de
la Loi sur les douanes et si le certificat est valide à cette date.
|
[23]
The Minister of Public Safety and Emergency
Preparedness is undoubtedly entitled to change a ruling and is not bound by its
previous decisions. However, in the absence of a clear indication that
Parliament intended to give the Minister the power to withdraw retroactively a
certificate granting relief of duties that has validly been issued, I am unable
to agree with the Respondent that it may now reassess the Applicant under a second
“Same Condition” ruling purporting to modify the first one.
[24]
It may have been different had the Applicant
made false representations or concealed relevant information that could have
materially affected the first decision. Despite some suggestions in the Record that
Dorel did not disclose the process of tufting, it was clearly not the case. A
Detailed Adjustment Statement dated March 14, 2011 issued by the Respondent
clearly refers to tufted futon covers, and was provided to the Senior Program
Officer who made the first ruling. The Respondent also issued an internal
memorandum dated May 27, 2010 which clearly recognized the presence of the
tufting. At the hearing, counsel for the Respondent acknowledged that no
misrepresentation was made on behalf of Dorel, and that the second ruling can
only be the result of a new interpretation, contrary to what was stated in the
April 13, 2012 letter (see para 11, above)
[25]
It could have been argued (although it was not),
that paragraph 90(2) of the Act, by using the word “cancel”, allows the
Minister to void a certificate ab initio and to replace it with a new
certificate which shall, for all intents and purposes, be applied as if it had
been issued as of September 14, 2011. Such an interpretation, however, would
run against the time-honoured presumption of statutory interpretation that Parliament
does not intend to confer a power on subordinate authorities to make
regulations or orders that are retroactive: Sullivan and Driedger on the Construction
of Statutes, 4th ed., (Ottawa: LexisNexis, 2002), at 546. It
would take much more explicit and categorical language than that found in s 90
of the Act to displace this rule of legislative construction. Commenting
on that section, Justice Blais (as he then was) wrote as follows in Dominion
Sample Ltd v Canada (Customs and Revenue Agency), 2003 FC 1244:
[62] Parliament
cannot have intended such an interpretation. If it had intended for the
cancellation of the certificate to be retroactive, without the holder having
done anything to bring about the cancellation, Parliament would no doubt have
provided explicit provisions to give retroactive effect.
(…)
[66] In the case at
bar (…), a financial advantage was obtained with the full knowledge and consent
of the Crown. The Minister may, as the Customs Tariff provides, cancel
the certificate. He may not, however, absent clear authority to the contrary,
retroactively charge the importer-exporter for duties which had previously been
remitted under a valid certificate, and where both parties were content that
the conditions for the certificate were being fulfilled.
[26]
Indeed, the Act does provide, in other
provisions, for the possibility of an order made by the Governor in Council to
have a retroactive effect. Section 14(3) allows the Governor in Council to give
retroactive effect to an order amending the schedule to reduce a rate of
customs duty on goods imported from a country. Section 82 of the Act is
even more telling of Parliament’s knowledge of that cardinal rule of statutory
interpretation:
|
Amendment of List of Tariff Provisions
and the “F” Staging List
82. (1) The Governor in Council may, on
the recommendation of the Minister, by order, amend the List of Tariff
Provisions and the “F” Staging List in respect of goods used in the
production of other goods or the provision of services, subject to any
conditions and for any period that may be set out in the order.
Repeal or amendment
(2) At any time before the expiration of
an order made under subsection (1), the Governor in Council may, on the
recommendation of the Minister, by subsequent order, repeal or amend the
order subject to any conditions and for any period that may be set out in the
subsequent order.
(…)
Retroactivity
(4) An order made under subsection (1) or
(2) may, if it so provides, be retroactive and have effect in respect of a
period before it is made, but no such order may have effect in respect of a
period before this section comes into force.
(…)
|
Modification
des taux
82. (1) Sur
recommandation du ministre, le gouverneur en conseil peut, par décret,
modifier la liste des dispositions tarifaires et le tableau des
échelonnements en ce qui concerne les marchandises utilisées pour la
production d’autres marchandises ou la fourniture de services, sous réserve,
le cas échéant, des conditions ou de la durée d’application précisées dans le
décret.
Modification ou
abrogation
(2) Sur
recommandation du ministre, le gouverneur en conseil peut, par décret,
modifier ou abroger, avant son expiration, un décret pris en application du
paragraphe (1) et fixer les conditions ou la durée d’application de la
modification ou de l’abrogation.
(…)
Rétroactivité
des décrets
(4) Les décrets
pris en application des paragraphes (1) ou (2) peuvent, s’ils comportent une
disposition en ce sens, avoir un effet rétroactif et s’appliquer à une
période antérieure à la date de leur prise, mais non antérieure à la date
d’entrée en vigueur du présent article.
(…)
|
[27]
If Parliament had intended to confer on the Minister
the power to cancel a certificate not only for the future but also for the
past, it could have said so as explicitly as it did in those other sections of
the Act. In the absence of such clear language, it is to be presumed
that Parliament did not intend to give the Minister that power to reverse a
certificate retroactively.
[28]
For all of the foregoing reasons, I am therefore
of the view that the decisions of the Respondent dated April 25, 2012 whereby
the Applicant was reassessed and ordered to return the drawback payments he had
previously received were not only unreasonable, but also incorrect in law.
Accordingly, this application for judicial review is granted, with costs in
favour of the Applicant.
Email this Content