Date: 19980706
Docket: A-281-98
CORAM: STONE J.A.
BETWEEN:
BASF COATINGS & INKS CANADA LTD.
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
Heard at Toronto, Ontario, on Monday, June 29, 1998.
Judgment delivered from the Bench at Toronto, Ontario, on Thursday, July 2, 1998.
REASONS FOR JUDGMENT OF THE COURT BY: DESJARDINS J.A.
Date: 19980706
Docket: A-281-98
CORAM: STONE J.A.
STRAYER J.A.
DESJARDINS J.A.
BETWEEN:
BASF COATINGS & INKS CANADA LTD.
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Toronto, on Thursday, July 2, 1998)
DESJARDINS, J.A.
[1] This is an appeal from a decision of the Trial Division1 which concluded that the appellant was not permitted to deduct from the "sale price" contemplated in sections 42 and 50 of the Excise Tax Act ("the Act")2, which are Federal Sales Tax provisions (FST), adjustment payments paid by the appellant to its jobbers who sold the appellant's goods to certain specialty purchasers at a discount price.
[2] A clear understanding of the relationship between the appellant and its jobbers is essential to the disposition of this appeal.
[3] At all relevant times, the appellant carried on the business of selling automotive solvents, thinners and various reducers. It operated only a small number of retail stores. It did not maintain its own distribution network but relied instead on a network of independent jobbers to distribute its products.
[4] When jobbers entered into a wholesaler relationship with the appellant, they were given a manual outlining the rights and obligations existing between them. The manual outlined the entitlement to an abatement of the sale price for products sold by the jobbers to certain specialty purchasers called "Special Market Purchasers" which were fleet purchasers, automotive body builders, government and educative institutions. These purchasers bought in larger quantities and therefore typically paid less for the products than the appellant's primary purchasers such as body shops. The appellant designed this program, the "Specialty Market Program", for the protection of the jobbers. The appellant's competitors sold directly to purchasers in the specialty markets without using intermediaries such as jobbers. The appellant proceeded in this way so as to allow it to sell to specialty markets without by-passing its jobbers.
[5] When jobbers purchased inventory from the appellant, they did not know to whom they would ultimately sell the product. They paid the appellant according to the standard jobber list price which was based on the assumption that the sales would be made by the jobber to an end user which would pay the full list price. If a jobber made a sale to a Specialty Market Purchaser without having to reduce its prices, the jobber was not entitled to a price reduction from the appellant. Where a jobber actually sold a product to a Specialty Market Purchaser at or below the suggested discount rate, the jobber was entitled to apply to the appellant for a reduction of the selling price it has previously paid. For this purpose, the jobber completed a Monthly Request for Credit Form which had to be approved by the sales manager. Random monthly checks were done to ensure that no false claims were made. After a credit was granted to the jobber, the appellant reduced its taxable sales by an amount equal to the subsidy, thereby reducing its tax liability.
[6] The Minister of National Revenue refused to allow the sale price reductions given to jobbers and assessed the appellant for the full sales price. The amount of the assessment, including interest and penalties was $178,487.99 less a credit of $104,807 for a net amount owing of $73,680.99. The Minister later confirmed this assessment.
[7] The Canadian International Trade Tribunal ("the Tribunal") which heard the appeal by the appellant, disposed of the matter in favour of the taxpayer.3 The trial judge reversed the Tribunal's decision on the following ground:
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[11] In my view, the wording of these legislative provisions is clear, unambiguous and capable of interpretation according to the plain and ordinary meaning rule. Section 50 of the Act provides that the point at which the sales tax is to be calculated is "when the goods are delivered to the purchaser or at the time when the property in the goods passes, whichever is the earlier". Accordingly, it is the sale of a commodity from the manufacturer to the first purchaser in the distribution chain and the "sale price" paid on that transaction which determines the tax exigible. Here, title in the goods passed from BASF to the jobber at the time of receipt of the goods by the jobber. It is this transaction which gives rise to the defendant's tax liability and which forms the basis for calculation of the amount of tax owing. |
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[13] I am satisfied therefore, that there is no basis in law for BASF to retroactively reduce its sale price and as a result, its tax liability. It is clear that tax was exigible on the price charged by BASF to the jobbers and that the subsidies later provided by the defendant to the jobbers did not reduce the "sale price" as that term is defined in the legislation. Accordingly, the defendant was properly assessed federal sales tax on the price paid by the jobber to BASF at the time of the sale between them. |
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[8] The trial judge stated in obiter that, in any event, the subsidies provided by BASF to the jobbers were promotional expenditures and, therefore, had no relation to sale price:
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[12] Furthermore, in determining the actual "sale price", it is necessary to look behind the initial transaction to the substantive nature of the commercial relationship between the contracting parties. The nature of the commercial relationship here is very different to that in Timmins Tire Sales v. M.N.R., [1992] 5 T.C.T. 1092, a case upon which the defendant relies in support of its position. Unlike the Timmins case, the subsidies paid by BASF to the jobbers under the Specialty Markets Program were promotional expenditures and therefore, have no relation to the sale price between the respondent and the jobbers. Both of the defendants witnesses testified that the Special Markets Program was devised by BASF Marketing Division in order to break into new markets through the employment of a network of jobbers. The subsidies paid by BASF to the jobbers was simply an incentive designed to encourage jobbers to participate in the program. |
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We are all of the view that the trial judge erred in deciding as he did.
[9] Paragraph 50(1)(a) of the Act, the charging provision, imposes a consumption or sales tax on the "sale price... of all goods produced or manufactured in Canada payable... by the producer or manufacturer at the time when the goods are delivered to the purchaser or at the time when the property in the goods passes, whichever is the earlier". The "sale price" is defined in paragraph 42(1)(a) of the Act as "the aggregate of the amount charged as price before any amount payable in respect of any other tax under this Act is added thereto".4
[10] It is difficult, on the basis of these provisions, to accept the respondent's submission that because the Act does not expressly provide for any reduction in the "sale price" such as that contemplated in section 46 of the Act (or in sections 181.1 and 232 of the Act with regard to the Goods and Service Tax (GST)), a taxpayer's tax liability cannot be affected by a reduction in the "sale price" subsequent to the original sale. The respondent submits that the trial judge was correct in concluding that the wording of paragraph 50(1)(a) dictated that the amount of tax owing had to be quantified at the time when either of the two events set out in that paragraph occurred, namely the earlier of either when the goods are delivered to the purchaser or when the property in the goods passes. Such reading, She says, is in accordance with the plain and ordinary meaning of the paragraph, and is determinative of the issue. The purposive approach to the Act or the economic and commercial reality of a transaction cannot alter the result when the words of the statute are clear.5
[11] Such an interpretation, in our view, brings unnecessary inflexibility to a reading of the relevant sections. Even a plain and ordinary reading of the charging paragraph 50(1)(a) of the Act suggests that what Parliament intended was to impose a tax on the "sale price" of goods sold. The phrase "sale price" does not by necessary implication exclude the calculation of a price reduction, if a reduction is later given on a "sale price". The fact that such a phrase is qualified immediately by the words "payable ... at the time when the goods are delivered ... or ... when the property in the goods passes, whichever is the earlier", does not establish a rigid rule with regard to the time at which the calculation of the sale tax is to be made. Paragraph 50(1)(a) relates to a point in time when the "sale tax" is "payable" not when it is "calculated". We think the Tribunal had it right when it said:
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... The Tribunal considers that the wording of paragraph 50(1)(a) of the Act does not, as the respondent contends, mean that the amount of tax owing must be quantified at the time that either of the events set out in the subsections occurs, i.e. when the goods are delivered to the purchaser or when the property in the goods passes. Rather, the Tribunal believes that, while this wording crystallizes the obligation to pay the tax, it is not determinative of the amount of tax to be paid. The quantification of tax owing is dependent upon the phrase "sale price" in subsection 50(1), and this phrase is given meaning under section 42, not paragraph 50(1)(a) of the Act. In the Tribunal's view, determination of the amount of tax payable relates to the actual amount received by the vendor, and, in the instant case, such amount can only be determined after the occurrence of those events which are fundamental to establishing what the appellant actually receives, even if such events occur subsequent to the events referenced in paragraph 50(1)(a) of the Act6. |
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[12] But even if we were to accept that the word "payable" relates not only to the time when a vendor is liable for tax, but also to the moment of calculation, it should be noted that at the time when the property passed between the appellant and its jobbers, they were bound by a valid contract by which a rebate or subsidy on the sale price would be owed. The only element left was the actual calculation. The reduction in price was therefore implicit at the time the property passed.
[13] As an alternative argument, the respondent pleads that if we find that paragraph 50(1)(a) of the Act does not require that the calculation of the sale tax be ascertained at the time when the property is passed or the goods are delivered, the facts in this case do not support the conclusion sought by the appellant. The credit received by the jobbers, She says, are separate from the "sale price" and are in reality incentives, rewards or promotional expenditures in no way related to the "sale price" of the goods.
[14] We do not agree with the contention of the respondent nor with trial judge's conclusion that the adjustment payments were promotional expenditures. These credits were not, in our view, paid to the jobbers to promote and reward their participation in the appellant's Specialty Market Purchasers program. The jobbers were not given a "bonus", an incentive, or a commission for the number of sales they were able to make to Specialty Market Purchasers. The subsidy awarded was more in the nature of a credit meant to enable the jobbers to compete effectively in sales to Specialty Market Purchasers who normally expected to buy at a lower price than that paid by ordinary retail customers. If the jobbers had been able to determine the exact quantity of products they would sell to Specialty Market Purchasers at the time they purchased them from the appellant, it is clear that the appellant's original sale price for those products would have been lower. Because of the impossibility for the jobbers to determine in advance the volume of sales made to the Specialty Market Purchasers, it was necessary for the appellant to charge the jobbers the full listed prices and then, in effect, subsequently reduce the price once a final sale was made.
[15] The appeal will be allowed with costs, the decision of the trial judge will be set aside and the appeal against the decision of the Canadian International Trade Tribunal will be dismissed. Although costs in the Trial Division have been requested by the appellant, we note that the trial judge, presumably in the exercise of his discretion under Rule 1312, did not see fit to award any. We do not see any "special reasons" to disturb his finding in this regard.
"Alice Desjardins"
J.A.
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1 The Queen v. BASF Coatings & Inks Canada Ltd., (6 April 1998), T-1092-93 (F.C.T.D.).
2 R.S.C. 1985, c. E-15.
3 BASF Coatings & Inks Canada Ltd. v. M.N.R. [1993] C.I.T.T. 5.
4 These provisions read in part:
42. In this Part ... "sale price", for the purpose of determining the consumption or sales tax, means (a) except in the case of wines, the aggregate of (i) the amount charged as price before any amount payable in respect of any other tax under this Act is added thereto.
...
50(1) There shall be imposed, levied and collected a consumption or sales tax at the rate prescribed in subsection (1.1) of the sale price or on the volume sold of all goods (a) produced or manufactured in Canada (i) payable, in any case other then a case mentioned in subparagraph (ii) or (iii), by the producer or manufacturer at the time when the goods are delivered to the purchaser or at the time when the property in the goods passes, whichever is the earlier.
...
5 Canada v. Antosko, [1994] 2 S.C.R. 312 at 326-27; Canadian Turbo (1993) Ltd. v. Minister of National Revenue (Customs & Excise) (1996), 206 N.R. 164 at 169, Friesen v. The Queen, [1995] 3 S.C.R. 103. .
6 The Tribunal, relying on its decision of Timmins Tire Sales Ltd. v. M.N.R., [1992] C.I.T.T. No. 20; (1992), 5 T.C.T. 1092 (C.I.T.T.), had earlier stated that, in its view, the terms "sale price" in subsection 50(1) of the Act referred to "actual price" or "net realized value".
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