Chevron Canada Limited v. Minister of National Revenue, [1986] 2 CTC 495, 86 DTC 6595

Pratte, J.:—This section 28 application is directed against a decision of the respondent rejecting an application made by the applicant for the refund of an amount of sales tax allegedly paid by error during 1983. Its outcome depends on the interpretation to be given to clause 26(6)(c)(ii)(B) of the Excise Tax Act:

26.(6) For the purpose of determining the consumption or sales tax payable under this Part,

(c) in calculating the sale price of goods manufactured or produced in Canada, there may be excluded

(ii) under such circumstances as the Governor in Council may, be regulation, prescribe, an amount representing

(B) the cost of transportation of the goods incurred by the manufacturer or producer in delivering the goods from his premises to the purchaser where the goods are sold at a price that includes delivery to the purchaser,

determined in such manner as the Governor in Council may, by regulation, prescribe.

The parties have agreed on a statement of facts, the main parts of which read as follows:

1. Definitions

Agencies — Bulk storage facilites owned by Chevron which are equipped to provide interim storage of Manufactured Products belonging to Chevron and operated by a commission agent — all inventory of Manufactured Products stored in these facilities is owned by Chevron.

Manufactured Products — Gasolines, diesel fuels, heating fuels and aviation and jet fuels refined and blended by Chevron at the Refinery or purchased by Chevron from Other Supply Points.

Refinery — Chevron-owned refinery where the Manufactured Products are refined and blended, located at 355 North Willingdon Avenue, Burnaby, British Columbia.

Other Supply Points — Refineries owned by other oil companies from which Chevron purchases Manufactured Products for resale for areas beyond the economic range of its Refinery.

Retail Outlets — Includes:

(a) Dealer Operated Service Stations — these facilities are either owned or leased by Chevron or by the dealer. In all cases the dealer purchases the inventory of Manufactured Products from Chevron.

(b) Self-Service Stations — these facilities are usually owned by Chevron and operated by a Chevron agent. In some cases the facilities are owned and operated by a dealer. In all cases the inventory of Manufactured Products remains under the ownership of Chevron until sold to the purchaser.

(c) Cardlock/Keylock — these are unattended facilities making sales to approved customers. In most cases Chevron owns and operates the facilities. In all cases the inventory of Manufactured Products is owned by Chevron; and

(d) Marine Agencies — these are smaller storage facilities which are usually owned by Chevron, but are sometimes owned by dealers. In all cases the inventory of Manufactured Products is owned by Chevron.

Terminals — Main bulk storage facilities owned and operated by Chevron where Manufactured Products are stored for subsequent transportation to Chevron Agencies, Retail Outlets or to final consumers. There are two in British Columbia, one located near Duncan and one at Kamloops — all inventory of Manufactured Products stored in these facilities is owned by Chevron.

Transportation — Delivery of Chevron's Manufactured Products by rail, barge or vehicles owned by Chevron, its commission agents or commercial carriers.

2. Chevron Canada Ltd. (hereinafter called “Chevron") is a federally incorporated company with its head office at 1500 1050 West Pender Street, Vancouver, British Columbia.

3. Chevron is licensed under the Excise Tax Act as a manufacturer of petroleum products. It was granted a sales tax license under the provisions of Part VI of the Act on June 19, 1967 and an excise tax license under the provisions of Part III and VI of the Act on June 24, 1975.

4. Chevron's operations include the refining of petroleum products such as gasolines, diesel fuels, heating fuels and aviation and jet fuels and the marketing of these products throughout British Columbia.

5. Raw crude oil is received by Chevron at its Refinery in Burnaby, British Columbia, through a pipeline operated by Trans Mountain Pipe Line Company Ltd. There the crude oil is processed, converted and blended with chemical additives to produce the Manufactured Products marketed by Chevron.

6. Chevron also purchases for resale some of the Manufactured Products it markets in British Columbia from refineries belonging to other oil companies (Other Supply Points). Chevron is the deemed manufacturer of these products by virtue of paragraph 2(1)(e) of the Excise Tax Act.

7. Chevron operates a distribution network in British Columbia for the purpose of distributing Manufactured Products to outlying market areas. The distribution network includes Terminals, Agencies and Retail Outlets. The primary function of the distribution network is to facilitate the transportation of Manufactured Products to the outlying market areas for the Retail Outlets or purchasers.

8. Distribution of the Manufactured Products from the Refinery or Other Supply Points is effected by the following distribution routes:

Route 1 — from the Refinery or Other Supply Points direct to Retail Outlets or purchasers:

Route 2 — from the Refinery or Other Supply Points to bulk storage at a Terminal, followed by shipment direct to Retail Outlets or purchasers:

Route 3 — from the Refinery or Other Supply Points to storage at an Agency, followed by direct shipment to Retail Outlets or purchasers;

Route 4 — from the Refinery or Other Supply Points to bulk storage at a Terminal, followed by shipment to storage at an Agency, and followed by shipment to Retail Outlets or purchasers.

9. The total cost of transportation from the Refinery or Other Supply Points to Chevron’s Terminals, Agencies and Retail Outlets is included in the price paid by the Retail Outlets or purchasers to Chevron.

10. Chevron is required by the Excise Tax Act to pay sales tax on its Manufactured Products based upon the sale price less applicable deductions for excise tax payable and other allowable deductions and exclusions from sale price permitted under the Act.

11. Chevron accounts for sales tax on its Manufactured Products based upon the sale price where such sales are made to independent Retail Outlets.

12. Where sales are made to Retail Outlets owned by Chevron or operated on an agency basis, Chevron accounts for sales tax on its Manufactured Products based upon the sale price established by Chevron in respect of its sales to independent Retail Outlets in the immediate market area.

13. In accounting for sales tax on its Manufactured Products, Chevron is permitted a deduction from sale price in respect of the cost of transportation of the goods incurred by it in delivering the goods from its premises to the purchaser where the goods are sold at a price that includes delivery to the purchaser, as is provided in subclause 26(6)(c)(ii)(B) of the Excise Tax Act.

16. During 1983, . . . Chevron, in calculating the deduction from sale price for transportation costs, deducted only the costs for transporting its Manufactured Products from the final storage point to the Retail Outlet or purchaser and did not include in computing the deduction the costs for transporting the Manufactured Products from the Refinery or Other supply Points to Chevron’s Terminals and Agencies.

17. On August 15, 1985 Chevron filed a Refund Claim (No. 2281) in the amount of $396,108.96 for sales tax overpaid on sales of its Manufactured Products during the period from January 1, 1983 to December 31, 1983.

18. This refund claim was made upon the basis that Chevron, in calculating its sales tax payable, is entitled to a deduction from sale price for the costs of transporting its Manufactured Products from the Refinery and Other Supply Points to Chevron’s Terminals and Agencies as well as from those facilities to the Retail Outlets or purchasers.

19. By a decision dated September 6, 1985, Refund Claim No. 2281, in the amount of $396,108.96, was disallowed.

20. The refund claim was rejected by the Minister on the basis that, in calculating sales tax payable, the costs of transportation other than those costs incurred in respect of transportation from the final storage point to the Retail Outlet or the purchaser are not deductible from the sale price under the Excise Tax Act.

22. The only issue between the parties in these proceedings is whether Chevron, in determining the sales tax payable, may exclude from the sale price of the Ma- nufactured Products sold, the total cost of transportation incurred in transporting the Manufactured Products by means of Routes 2, 3 and 4 of paragraph 8 herein.

The contention of the applicant is that under clause 26(6)(c)(ii)(B), it may deduct not only the costs of transporting its products from their final storage point to the Retail Outlet or purchaser but also the costs of transporting those products from the Refinery or Other Supply Points to the applicant’s Terminals and Agencies. In support of that contention, applicant’s counsel argued that the price paid by the purchaser of the applicant’s products includes all those transportation costs which must be incurred in order to deliver the products from their place of manufacture to the purchaser. As the sales tax imposed by the Excise Tax Act is a tax imposed on manufacturers, it is only normal, said he, that the statute be interpreted so as to enable them to deduct the costs incurred by them in order to bring their products to their customers. He added that such an interpretation is necessary in order to avoid giving an unfair advantage to the manufacturers who do not possess storing facilities outside of the locality where their manufacture is situated.

Counsel for the respondent answered that the tax here in question is not a tax imposed on manufacturers but a tax imposed on wholesalers and that the interpretation proposed by the applicant would not ensure equality of treatment between the wholesalers who are manufacturers and those who are not. His main argument, however, was that this interpretation cannot be reconciled with the words of the statute.

This last argument is, in my opinion, unanswerable. The transportation costs of which the statute authorizes the deduction are those incurred by the manufacturer “in delivering the goods from his premises to the purchaser”. Now, it is clear that when the applicant transports its products from its Refinery to one of its storage facilities it does not deliver the goods "from his premises” since, at that time, its goods do not leave its premises. Moreover, it is also clear that, in those circumstances, the applicant does not deliver goods “‘to [a] purchaser” since, at that time, the goods have not yet been sold to anyone.

I would, for these reasons, dismiss the application.

Application dismissed.