Walt Disney Music of Canada LTD v. The Deputy Minister of National Revenue for Customs and Excise, [1984] CTC 685, 85 DTC 5022

Mahoney, J:—This is an appeal by leave from a decision of the Tariff Board on the following question of law:

did the Tariff Board err in law in declaring that the sale price of the Walt Disney book and record sold together as a package by the applicant company is subject to and not exempt from the tax imposed by section 29(1) of the Excise Tax Act and that the portion of the sale price that is attributable to the book alone when sold as part of such book and record package is subject to and not exempt from sales tax?

The goods in issue are accurately described in the Board’s decision as follows:

The subject goods consist of a 24 page “Read-Along’* book and accompanying seven inch 33'4 RPM record which recount one of the well known children’s stories such as “Three Little Pigs’’ or “Winnie the Pooh’*. The book and corresponding record are wrapped and sold together as a package for an all inclusive price, the record being contained in a special pocket on the inside back cover of the book.

By definition, under paragraph 2(1 )(0 of the Excise Tax Act, RSC 1970, c E-13, as amended, “manufacturer or producer’’ includes “any person who . . . packages . . . goods for sale’’. The other pertinent provisions of the Act are:

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

(a) produced or manufactured in Canada

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

Schedule III, Part III exempts, inter alia,

3. The following printed matter, articles and materials:

(a) . . . printed books that contain no advertising and are solely for education, technical, cultural or literary purposes; . . .

The Board made the following findings, which are amply supported by the evidence:

1. The applicant is engaged in the manufacturing, marketing and selling of book and record products and has its head office in Toronto.

2. The book and the record, individually and together, clearly meet the test of being solely for educational purposes as required by section 3 of Part III.

In concluding that the goods were “neither a book nor a record’’ but that “used together they comprise a new product’’, the Board applied WT Hawkins Ltd v DMNR for Customs and Excise, [1958] Ex CR 152, and Charbonneau v The Queen, [1979] CTC 82; 79 DTC 5008, which involved, respectively, mixtures of popcorn kernels, salt and shortening and of sand, gravel, and salt marketed as popping corn and an anti-skid material for application to ice and packed snow. It was, in my view, much clearer in those cases that the combinations resulted in goods different from their several components. Here, the discrete character of the book is not changed by inserting a phonograph record in a pocket in the back cover nor is that character of the record thereby changed. They remain a book and a record and may be used as such individually as well as used together. It is certainly more plausible to argue that they remain discrete goods, albeit goods invariably packaged and sold together, than, for example, to argue that the anti-skid mixture remained discrete quantities of salt, sand and gravel sold together, rather than a combination with a character of its own necessarily to be used as such mixture.

That said, the Board, after referring to the Hawkins and Charbonneau decisions, held:

Similarly, the book and record combinations that are the subject of this application are neither a book nor a record. They are never sold or invoiced separately and the record is not marketable alone. Their effect depends upon their use in combination. Used together they comprise a new product that appeals to both the sense of sight and the sense of hearing, with an enhanced educational result that could not be accomplished by either when used alone. As stated in the Charbonneau judgment the combination of the two results in a distinctive package having a market value. The same must be said of the Walt Disney Book and Record which, when sold together as a package, cannot be regarded as a printed book for educational purposes.

It is, with respect, a matter of speculation whether or not the record is “marketable” alone. It is not, in fact, marketed alone although a different book, one with the same text but a different format, is.

It was open to the Board, on the evidence, to find as a fact that “the book and record combinations . . . are neither a book nor a record” but “a new product”. It cannot be said to have erred in law in applying the principle of Hawkins and Charbonneau to more equivocal facts in reaching that conclusion.

After arriving at the foregoing conclusion, the Board observed that it was beyond its jurisdiction “to attempt to apportion the price of the book and the record package in order to declare that the part of the sale price attributable to the book is exempt from tax”. With respect, I do not see that that issue was ever before the Board. Had the Board concluded that, as a matter of fact, the package was a book and a record rather than a combination that was neither, the sale of the record would have given rise to tax and the sale of the book would not. The Board was not, in this appeal, called upon to apportion anything. DMNR for Customs and Excise v Steel Company of Canada, [1983] CTC 258; 83 DTC 5301, dealt with a single item put to two uses, one of which rendered its sale non-taxable, not with two items sold together as here. It seems clear, on a fair reading of its reasons, that this misconception did not influence the Board’s decision.

I would dismiss the appeal.