Aoco Limited v. Minister of National Revenue, [1984] CTC 366, 84 DTC 6371

Heald, J:—This is an application pursuant to subsection 44(7.3)* [1] of the Excise Tax Act and section 28 of the Federal Court Act to review and set aside the refusal by the Minister of National Revenue to approve two refund applications made by the applicant, one being dated November 11, 1978 and the other dated December 14, 1981. When the application came on for hearing on April 6 of this year before a panel of the Court constituted differently from the present panelf [2] this Court directed, inter alia, the exchanging and filing of memoranda on

(a) the question as to whether the Court has jurisdiction to entertain the section 28 application having particular regard to the provisions of subsection 44(7.3) of the Excise Tax Act, (supra), and to section 28 of the Federal Court Act; and

(b) whether or not, in the circumstances of this case, there were two “decisions of the Tribunal requiring two separate section 28 applications’’^ [3]

At the hearing before us, counsel for both parties submitted that this Court has jurisdiction to deal with this application. After considering the matter, the Court agreed and directed counsel to proceed with the hearing of the application on its merits. We were satisfied upon perusal of the record herein that the two applications for refund detailed, supra, were examined and treated by the Department as though they were a single application. By letter dated February 17, 1983 the applicant’s solicitor wrote a letter to the respondent asking for an indication as to whether the respondent’s advice to the applicant constituted a rejection by the Minister pursuant to subsection 44(7.3) of the refund claims filed by the applicant. Under date of May 26, 1983, the respondent replied to that letter, confirming in the last paragraph thereof that the rejection of the applicant’s two refund claims was considered a rejection by the Minister under subsection 44(7.3). Thus the single decision of May 26, 1983 rejecting both refund claims can properly be the subject of one section 28 application in our view. We were also persuaded that, since subsection 44(7.3) specifies a ninety-day period within which a section 28 application may be brought under that subsection, notwithstanding the general provision contained in section 28 providing for a much shorter period of time within which to bring a section 28 application, this application was timely. We have the further view that said subsection 44(7.3) creates the refund remedy without regard to the question as to whether the Minister’s decision on the refund application is judicial, quasi-judicial, or administrative and confers jurisdiction on the Court to review that decision.

In so far as the merits of the application are concerned, as a result of concessions made by counsel for both parties in their memoranda and in oral argument, the issues to be decided by the Court have been reduced considerably.

The appellant, an Ontario corporation, manufactures in Ontario, pursuant to licence, “Cool-Ray Polaroid” sunglasses. The sales of sunglasses are made through sales of “merchandising centres”. These merchandising centres consist of various quantities of sunglasses loaded upon a display stand and are sold at an all-inclusive price to the retailer, such price including the display stand, the sunglasses and the advertising with the display. The display stands are not normally re-used and approximately 90 per cent of the sunglasses sold are shipped on the display stands.

The second refund application herein, dated December 14, 1981, arose because of the Department’s assessment of the applicant for federal sales tax liability in the sum of $39,200.63 (plus a penalty for arrears) in respect of the purchase by it of subject display stands during the relevant period (September 1, 1976 to August 31, 1979). The basis of the assessment was that the applicant was not the manufacturer of the display stands in issue nor were the component parts of the display stands “partly manufactured goods” which could be purchased tax exempt.

In his memorandum and in oral argument, counsel for the respondent conceded that the applicant was the manufacturer of the display stands and, as such, was entitled to purchase “knocked down” display stands and component parts free of sales tax provided that the applicant paid sales tax on the completed display stands at the time they were sold by the applicant. Accordingly he agreed that the Minister’s assessment in the sum of $39,200.63 was in error. Counsel for the applicant, however, conceded that one of the items making up the total figure of $39,200.63 was not in error, namely an item in the sum of $4,019.64 representing the value of imported display stand components from the USA. Thus counsel agreed that the Minister’s assessment was in error to the extent of $35,180.99.

Turning now to the first refund application herein dated November 11, 1981, the amount of tax paid under protest by the applicant and in respect of which a refund was claimed, amounted to the sum of $71,335.49. That figure represents sales tax paid by the applicant on the sales price of the merchandising centres during the relevant period. At the hearing before us, counsel for the applicant conceded that if the refund referred to, supra, in the sum of $35,180.99 is held by the Court to be payable to the applicant, then the refund application in the sum of $71,335.49 cannot be claimed by it. His basic position was that if the sales tax was properly payable on the purchase of the component parts for the display stands, then the applicant was not the manufacturer of the display stands and was therefore not liable for sales tax levied on that portion of the full sales price attributable to the display stands. He submitted that only one tax is exigible on the same article which tax is payable at the time of sale and that double taxation would result if both refund applications were rejected. It was his further position that double taxation is not authorized or intended by the Act. However, since the respondent now concedes that the Minister’s determination in respect of the refund application of December 14, 1981 was in error, applicant’s counsel agrees that the basis for his objection to the decision in respect of the refund applica- tion of November 11, 1981, has been removed, since there is no longer any double taxation.

In my view, counsel for the respondent correctly conceded that the applicant was the manufacturer of subject display stands since the record establishes that the applicant held a proprietary interest in the knocked down display stands produced specifically for the applicant by CDA Industries of Scarborough, Ontario thus satisfying the definition of “manufacturer or producer” contained in section 2 of the Excise Tax Act. I think he was also right to agree that since the applicant was the manufacturer of the display stands no sales tax was exigible at the time of purchase of the component parts of the display stands.

Accordingly, it would seem that the section 28 application should be dismissed in so far as it seeks to attack the rejection of the refund application dated November 11, 1981. In so far as the refund application dated December 14, 1981 is concerned, on the basis of the concessions by counsel, it appears that the section 28 application should be allowed and the matter should be referred back to the Minister on the basis that the applicant is entitled to a refund of $35,180.99.* [4]

However, counsel for the respondent submitted that the record discloses one issue between the parties which cannot be resolved in this section 28 application. He characterizes that issue as whether the applicant is obliged to pay additional sales tax on the display stands sold to customers in “merchandising centres”. He holds this view because the applicant says that it paid sales tax on the display stands at the time of sale to its customers while the Department maintains that since the same price was charged for glasses with or without display stands, the net result was that the applicant did not pay sales tax on the display stands. Accordingly, the respondent submits that the applicant’s claim to refund in the sum of $35,180.99, supra, should be subject to any claim for set-off to which the respondent might be entitled.

I am unable to accept this submission. There is no material before the Court establishing the applicant’s liability to pay additional sales tax. The matter was not addressed in the assessments being impeached in this section 28 application. What the respondent is really seeking is a further assessment or a reassessment of the applicant’s liability for sales tax based on information or material which is not before us. The sole issue before us is whether or not the Minister’s rejection of the applicant’s two refund claims is well-founded. In my view the Court is without jurisdiction on this application to make the direction for set-off which the respondent seeks.

Accordingly, and for the foregoing reasons, I would dismiss the section 28 application in respect of the applicant’s refund application dated November 11, 1981. In respect of the applicant’s refund application dated December 14, 1981, the section 28 application should be allowed, the Minister’s decision in respect thereof should be set aside and the matter referred back to the Minister for determination on the basis that the applicant is entitled to a refund in the sum of $35,180.99.

The applicant made an application under Rule 344(1) for an order as to costs. Rule 344 is found in Part III of the Rules which is entitled “General Rules Applicable to Proceedings of the Court”. Subsection (1) thereof reads as follows:

(1) The costs of and incidental to all proceedings in the Court shall be in the discretion of the Court and shall follow the event unless otherwise ordered. Without limiting the foregoing, the Court may direct payment of a fixed or lump sum in lieu of taxed costs.

However, Rule 1408 is a specific rule and is applicable to applications under section 28 of the Federal Court Act. It reads:

No costs shall be payable by any party to an application to another unless the Court, in its discretion, for special reason, so orders.

Since Rule 1408 applies in this case, no costs are payable to any party unless the Court is satisfied that special reasons exist to warrant the imposition of costs. Despite the able submissions of applicant’s counsel, I am not persuaded that “special reasons’’ within the meaning of Rule 1408, are present in this case. I would accordingly make no order as to costs.