Bristol Myers Canada Inc v. Her Majesty the Queen, [1983] CTC 228, [1983] DTC 5312

Addy, J:—The plaintiff is suing for a declaration that it is a person to whom a refund of $102,559.26 should be granted for overpayments of sales tax made to the defendant in error under the Excise Tax Act* [1]

The main facts are uncontradicted. For many years the plaintiff, engaged in the business of manufacturing and selling lotions and other products, had been manufacturing and selling “Alpha-Keri bath oil” and “Keri lotion”, without paying or being called upon to pay any tax. On January 7, 1975, an official of the Customs and Excise Branch of the Department of National Revenue (hereinafter called “the Department”) wrote to the plaintiff claiming that the products in question were cosmetics and, as such, fell within subsection 2(1) of the Excise Tax Act, hereinafter referred to as the Act, and were, therefore, subject to a 12 per cent sales tax effective January 1, 1975. The plaintiff complied but on February 26, 1976, it filed an appeal with the Tariff Board under section 59 of the Act claiming exemption from the tax pursuant to subsection 29(1) on the grounds that the products, being therapeutic in nature, fell within section 1 of Part VIII of Schedule III of the Act. The Tariff Board heard the appeal in May 1977, reserved its decision and eventually rendered it on October 27 of that year, ruling that the products were therapeutic as claimed by the plaintiff and as such were exempt from the tax imposed by section 27 of the Act. The decision of the Tariff Board was eventually upheld by the Federal Court of Appeal and leave to appeal to the Supreme Court of Canada was refused.

Meanwhile, the plaintiff had, as originally requested, paid and continued to pay taxes resulting with a total of $550,186.64 in sales taxes being paid for the whole period both before and after the Tariff Board hearing.

During a conversation with one of the employees of the defendant in September 1977, the plaintiff was informed that it was under no obligation to pay tax pending the decision of the Board. As a result of that conversation no further payments were made and a letter was written, on October 21, 1977, to the Department stating that a refund was being claimed for all amounts paid from the date of the appeal to the Tariff Board as the amounts were paid in error or by mistake of law or fact. Normally, moneys paid under a mistake of law would not be recoverable. However, subsection 44(7) of the Act contains the following provisions:

(7) If any person, whether by mistake of law or fact, has paid or overpaid to Her Majesty any moneys that have been taken to account as taxes imposed by this Act, such moneys shall not be refunded unless application has been made in writing within two years after the moneys were paid or overpaid.

The evidence adduced on behalf of the plaintiff, which evidence I accept, was to the effect that up until September 1977 its officer truly believed that there was a legal obligation to pay the tax.

Eventually the Department reimbursed a total of $447,627.38 of the total of $550,186.64 originally claimed. The amounts reimbursed covered the taxes paid as follows:

The disputed amount of $102,559.26 represents the taxes paid for the period from February 27, 1976 to October 21, 1976. The defendant claims that this amount is not refundable because of a one-year limitation provided for in subsection 59(4) of the Act. The plaintiff on the other hand alleges that its claim is not subject to the one-year limitation provided for in subsection 59(4) but rather to the two-year limitation mentioned in the above-quoted subsection 44(7) of the Act as it read at that time. (The limitation is now four years. SC 1976-77, cc 6, 10, 15, 28.)

Section 59 provides for the adjudication of differences as to whether any tax is payable or what rate of tax might be payable. Subsection (4) of that section reads as follows:

(4) Notwithstanding the provisions of section 44 relating to the time within which an application for a refund or deduction may be made, no refund or deduction shall be made under that section as the result of any declaration of the Tariff Board under this section or an order or judgment under section 60 in respect of taxes paid prior to such declaration, order of judgment unless the application mentioned in section 44 is made within twelve months after such taxes were paid.

I have already cited subsection 44(7). The other relevant provisions of that section as it existed in 1977 read as follows:

44. (1) A deduction from or refund of, any of the taxes imposed by this Act may be granted

(a) where an overpayment has been made by the taxpayer;

(c) where the tax was paid in error;

Should subsection 59(4) and not section 44 apply to the situation in issue, then the amount of $102,559.26 paid between February 27 and October 21, 1976, would not be refundable. On the other hand, should subsection 44(7) apply it would, of course, be refundable as the period falls fully within the two-year period preceding the letter of October 21, 1977.

The defendant argues that by reason of the combined effect of paragraph 28(1 )(a) and subsection 50(1) of the Act, every person who is a manufacturer is obliged to pay the tax notwithstanding any dispute and notwithstanding the fact that he might be exempt. It would follow therefore that payment of tax by an exempt person would not constitute a mistake in law. The relevant portions of the two above-mentioned sections read as follows:

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

(a) produced or manufactured in Canada

(i) payable, in any case other than a case mentioned in subparagraph (ii), 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, and

50. (1) Every person who is required by or pursuant to Parts III, IV or V to pay taxes shall make each month a true return of his taxable sales for the last preceding month, containing such information in such form as the regulations require.

(3) The return required by this section shall be filed and the tax payable shall be paid not later than the last day of the first month succeeding that in which the sales were made.

Counsel for the defendant also relied on the following statement of Abbott, J (dissenting) in the Supreme Court of Canada decision of Her Majesty the Queen v Premier Mouton Products Inc [1961] SCR 361; [1961] CTC 160; 61 DTC 1105 at 365 [173, 1112]:

There is no doubt that the officers of the Department were in good faith in claiming payment of the tax from respondent and the trial judge so found. They were doing no more than their duty in insisting upon payment of a tax, which they believed to be exigible from respondent as well as from all other like processors. To have allowed those who were unwilling to pay, to postpone or avoid payment of the tax, while receiving payment from those who did not dispute liability, would have been manifestly unfair, since it is reasonable inference that those who paid would be obliged to try to recover the tax paid in the resale price of the finished product.

Section 27 is found in Part V of the Act. Subsection 50(1) obliges every person to pay who is required to do so under Part V, but section 29 is also found in Part V and it is precisely section 29 which provides for the exemption of the articles in question. Section 50 must therefore be read in the light of the whole Part V and not merely of section 27. It is obvious that a manufacturer or distributor of therapeutic products is not a person “required by or pursuant to Part . . . V to make a tax return and pay taxes in accordance with same.”

The Act does not as, in the case of the Income Tax Act, contain any specific provision for an assessment by the Minister or any other authorized person creating an immediate liability to pay, nor does it as in the case of that Act contain an additional specific provision to the effect that, notwithstanding any dispute as to liability, the taxes must in the meantime be paid. Taxing statutes must be strictly interpreted against the taxing authority and, as there is no provision for assessment and no specific provision that the taxes must be paid, if claimed, notwithstanding that there is no liability to do so under the taxing provisions of the Act, I am prepared to hold that the moneys paid following the appeal to the Tariff Board were not due and payable under the Act and that the moneys paid under the mistaken belief that they were, constitute moneys paid under a mistake of law.

Furthermore, the limitation of one year on past payments provided for in subsection 59(4) relates to payments which are under dispute before the Tariff Board. Such is not the case here. The claim was made by letter and without any reference to the Board but pending the decision of the Board on previous payments made affecting the same subject-matter. Conversely, subsection 59(4) does not in any way relate to payments made subsequently to any application before the Tariff Board.

The purpose of the limitation in subsection 59(4) is to require the taxpayer to act quickly and to prevent him from raising a right to reimbursement years after payments have been made by mistake. Such was obviously not the case here: the Department knew that the payments in issue before me were being contested at the time that they were made, as payments of precisely the same nature affecting identical products had been contested and were sub judice at the time.

I therefore conclude the two-year limitation provision of section 44 applies to the facts in issue and that the limitation is not affected by the provisions of subsection 59(4).

This Court in effect, is merely being asked to declare whether the Department can, in the particular circumstances of this case, in accordance with the provisions of the Act, properly pay to the plaintiff the amount of $102,559.26. The requested declaration will be granted. The plaintiff will be entitled to its costs.