The Becker Milk Company Limited v. Minister of Revenue, [1978] CTC 744

Estey, CJ:—This is an appeal from two assessments made by the Comptroller of Revenue of Ontario under The Retail Sales Tax Act of Ontario against the appellant with reference firstly to the taxation period commencing November 1, 1964 and ending October 31, 1967, and secondly the taxation period commencing November 1, 1967 and ending April 30, 1970.

By reason of the assertion of unconstitutionality of The Retail Sales Act of Ontario by the appellant, notice was given to the Attorney General of Canada and the Attorney General of Ontario. Counsel for the appellant advised that the Attorney General of Canada has stated that he would not be appearing in these proceedings. L E Weinrib appeared before the Court for the Attorney General of Ontario.

The appeal raises many issues with respect to the recovery of taxes under this Statute and the factual considerations surrounding .these questions are very complicated. It therefore will be helpful to first describe briefly the factual situation against which these assessments were issued. The appellant, hereinafter referred to as Beckers, at the time in question operated a number of convenience store Outlets; that is to say stores which are located in neighbourhoods, are open long hours, and which sell milk, cigarettes, a limited range of grocery items, soft drinks, ice cream and sundries. About half of these sales is made up of milk and cigarettes. At the opening of the first taxation period Beckers operated about 81 stores and by the close of the second taxation period, the number had increased to 293 stores. The average sale in these stores involved about $1.60 and the sales involve tax exempt items, items which are in all circumstances taxable and items which when sold for less than 21 cents, are not taxable.

The application of the Act to the operation of these stores is complicated by many factors such as the sale of items which sometimes attract tax and sometimes do not; for example, insecticides used inside the house are exempt and those used outside the house are not exempt. A further complicating fact is the high volume of individual sales involving small amounts. The staff of the store is small and there is a high incidence of turnover among both managers and clerks. In many instances the stores are staffed by persons with limited knowledge of the English language and the stores are located in regions where the clientele is similarly limited in its capacity in English.

The stores are equipped with rather rudimentary machines for the recording of sales and the taxes collected. The clerk first records the customer’s order on an adding machine, which produces a single copy of tape on which taxable and non-taxable items are grouped and sub-totalled and the tax applicable to the former is set out. This tape is given by the clerk to the customer when the customer leaves with the purchased merchandise. The clerk at the same time posts on an adjoining cash register the total cash sale and the tax collected with reference thereto. The customer is not given a copy of this tape. At the end of each day the Manager of the branch completes a summary Sheet setting out total sales, taxes collected with reference thereto, monies deposited in the bank, cash float retained and information referable to the inventory such as goods received during the day.

At the Beckers’ Head Office, the daily summary sheets and the information from the cash register tape are recorded on a computer and the bank deposits are reconciled. After the information has been so recorded from the cash register tape, the tapes are destroyed. It should be pointed out in passing that the destruction of these tapes is almost a physical necessity because even a ten day accumulation from all branches fill a substantial amount of office space at Beckers’ Head Office.

The testimony of Beckers’ witnesses (and it is not controverted) is to the effect that it is not economically feasible for the clerk to issue individual invoices for all sales, or, indeed, to do more than record the sales in the manner outlined above. The evidence is also clear that after the customer leaves the store, there is no way of verifying whether:

(a) tax has been levied on all taxable goods;

î -(b). the-amount of tax levied was correct:

(c) assuming the tax was correctly collected, it was correctly reflected in the cash register tape.

In any event it is clear from the record at trial that all monies reported in the branch accounting to the head office as tax collected from customers at the point of sale, was transmitted by Beckers to the respondent. In fact, the evidence is that usually the branch was charged by Beckers’ Head Office with tax greater than the amount of cash collected as tax and that Beckers had remitted to the respondent as tax, more money than was collected as tax by Beckers’ branches. This was because of a formula adopted by Beckers for ^elfassessment with respect to tax liability under The Retail Sales Tax Act relating to the sales in its branches, and about which more will be said later.

In a summary way it can be said that these proceedings originated from two assessments issued by the respondent in respect of the two taxation periods mentioned, and based upon a different formula of tax calculation than that employed by Beckers in the aforementioned self-assessment ‘process. The parties contend in favour of their respective formula but the larger question arises as to whether or not taxation by formula prospectively or retrospectively is permissible under the Act at all, and if so is the tax claimed recoverable by this assessment procedure. The determination of these issues is further complicated by the fact that the respondent took the position throughout that it did not have to advise either the appellant or the Court as to the section of the Statute which was relied upon by the respondent in issuing these notices of assessment.

If their respective positions can be summarized shortly it might be done as follows:

(a) The appellant takes the position that he is not a taxpayer and cannot be a tax payer either under the Tax Statute as it now stands or under a variation thereof within the constitutional limitations on provincial legisla- ion under the British North America Act, and, therefore, the contest between the parties hereto is one between a principal and its agent for accounting for monies had and received, and that the appellant has accounted for at least the monies collected by it under the Tax Act.

(b) The position of the respondent is that the Tax Act places an onus upon the vendor Beckers; who is a tax payer under the Act and that Beckers must either pay the amount assessed, or discharge its onus by demonstrating some lesser tax• liability consistent with the terms of the Act, and the respondent says the appellant has not been able to do so.

I turn now to the assessments themselves. To begin with, it must be observed that the respondent did not issue a notice of assessment for the taxation periods in question on a total liability or global assessment basis, but rather a net assessment without revealing this fact on the face of the assessment. In. the case of the first taxation period ending October 31, 1967, the respondent issued a notice of assessment claiming a net balance of $179,925.16. This assessment is dated February 9, 1968. The assessment is not accompanied by any explanation. On May 30, 1968 a further notice of assessment with reference to the period ending October 31, 1967 was issued, wherein a net balance of $340,115.71 was claimed to be due and payable. The liability of the appellant is then reduced, on what appears to be a second page of the assessment, but which, in fact, is a second form identical to that dated May 30, and already summarized, to an amount of $160,190.55. Nowhere in these assessments is the taxation period revealed, nor is any mention made of payments received in respect of such taxation period from the appellant. Counsel agreed at the outset that the first taxation period assessment now under appeal is the second page of the two documents dated May 30, 1968, and the amount claimed by the respondent from the appellant is $160,190.55.

The second taxation period, being the thirty month period commencing November 1, 1967 and ending April 30, 1970, is the subject of an assessment dated December 16, 1970 wherein the respondent claims from the appellant $272,776.24. Attached to this notice of assessment is an explanatory computation wherein the amount claimed is broken down into that portion computed by the respondent on the appellant’s own formula, an additional amount calculated by the respondent using the respondent’s formula, and two amounts claimed with respect to minor items relating to the appellant’s machinery and equipment, to which reference will be made later.

This second notice of assessment was varied by a notice of assessment issued on June 4, 1976 which granted to the appellant a credit with respect to the second assessment of $34,413.33. The accompanying letter states:

The credit adjustment is based on:

(a) Allowance for tax previously charged on returnable bottles.

(b) Allowance for price changes during the audit period.

It is agreed by the parties hereto that the net amount assessed and Claimed by the respondent against the appellant in respect of the second taxation period is $238,362.91.

The respondent, as I have said, has steadfastly declined to identify the section of the Statute under which these assessments were issued. This reluctance may spring from the fact that the Statute on close examination throws up many difficult questions surrounding its application to the circumstances now before the Court. In order to reach the answers to these questions, it is necessary to look at the general plan of the Act and its detailed implementing provisions.

It is trite to say that the Statute imposes a direct tax on purchasers of “tangible personal property’’ at the rate of 3% and later at the rate Of 5%. For the purpose of this proceeding it should be noted that there is an exemption from this tax in the case of the sale of food products, excluding candy and soft drinks, and an exemption for the sale of items otherwise taxable when the total purchase price is less than 21 cents.

The basic taxing provision of the Act is found in section 15 which reads as follows:

15. The purchaser is liable for the tax imposed by this Act until it has been collected, and, in the event of failure on the part of the vendor to collect the tax. he shall immediately notify the Comptroller and the purchaser may be sued therefor in any court of competent jurisdiction.

No doubt this clause, in addition to setting forth the primary basis of the taxation scheme, is included for constitutional certainty. There can be no doubt that the plan of the Act is to impose a direct tax on the purchaser and to impose a collection burden on the vendor. The section does not impose a tax liability on the vendor and this aspect of the proceeding is discussed below in the context of the judgment in F W Woolworth & Co Limited v The Queen, [1957] SCR 738.

The vendor in the sale transaction is required to obtain a permit under the Act before making any such sales. The vendor is defined as a “collector’’ under the Act. The vendor’s status is further defined in section 6, which provides:

6.(1) Every vendor is an agent of the Treasurer and as such shall levy and collect the taxes imposed by this Act upon the purchaser or consumer.

The vendor is directed by the Statute to:

(a) collect all taxes imposed by the Act at the time of the sale, and

(b) remit taxes collected as directed, and

(c) keep “such records ... as are prescribed by the regulations . . and “to keep records of all purchases and sales made by him . .

By section 16 of the Statute it is provided that a collector of tax under the Act “shall be deemed to hold it in trust for Her Majesty in right of Ontario . .

The assessment provisions are found in section 13 and require a more detailed examination. Subsection (1) relates to the assessment of a vendor who has failed to remit taxes after a sale, or “the tax collected by such vendor for which he has not accounted . . .”. The section reads as follows:

13.(1) When a vendor having sold tangible personal property fails to make a return or a remittance as required under this Act or if his returns are not substantiated by his records, the Comptroller may make an assessment of the tax collected by such vendor for which he has not accounted and such assessed amount shall thereupon be deemed to be the tax collected by the vendor.

It is to be noted at once that the Comptroller may make an assessment “of the tax collected by such vendor for which he has not accounted . . only in two circumstances: firstly when a vendor has sold property and fails to make a return or remittance as required by the Act, or secondly if the vendor’s returns are not substantiated by the vendor’s records. The respondent makes no claim that Beckers collected tax which it did not remit. One witness testified that in the course of one investigation he observed that an employee of Beckers did not record the tax collected on a sale on the cash register available for this purpose, but no attempt was made by the witness to identify the transaction, the amount of the sale, or the tax collected. The evidence led by the respondent included more than one acknowledgement that the respondent has no record, and has made no claim in respect of any tax collected but not remitted by Beckers.

Subsection (1) prescribes as a condition precedent to an assessment thereunder a failure to make ‘a return or a remittance” but the respondent has directed the Court to no regulation or statutory provision violated by Beckers with respect to sales made by Beckers in the conduct of its business. Reference will be later made to the regulations with respect to records and returns. The second and alternative condition precedent to an assessment under this subsection is a failure by a vendor to substantiate his return by his records. The evidence reveals that Beckers, during these lengthy taxation periods in question, remitted tax monthly in prescribed form and no assertion was made by the respondent that these returns were unsubstantiated by the Beckers’ records. Again reference will be made later to the response by the respondent to the Beckers’ filings.

The concluding portion of this subsection, of course, does not become operative until a valid assessment has been issued thereunder. When this has been done, and only when this has been done, does the amount stipulated in the assessment become the tax “deemed to be the tax collected by the vendor”. The constructive collection of taxes by a vendor occurs only when the Comptroller assesses the vendor in the manner and under the conditions precisely prescribed by the subsection. On the facts here, the respondent has not done so. These assessments therefore cannot find their roots in subsection (1).

Subsection (2) is to the same effect except that it extends to the assessment of a purchaser for the tax payable but not paid at the time of the sale. It is academic to speak of assessing purchasers from Beckers or any business conducting trade in the manner of the Beckers’ business, because once the purchaser has left the store, it is impossible to find him, or to recast the transaction for the purpose of recovering any tax properly payable by the purchaser under the Act. This subsection relates as well to the recovery of collected tax and is discussed further with reference to the Woolworth case below.

Subsections (4) and (5) have no application as they relate to assessments made under subsection (1), which, in my view, is not the case here. Subsection (7) purports to maintain liability for tax under the Act despite “an incorrect or incomplete assessment” or a failure to make an assessment. The assessments herein under examination do not appear to suffer from incorrectness or incompleteness in the ordinary sense of these terms. A similar saving clause is found in section 23 of the Act which directs that an assessment “shall not be vacated or varied on appeal by reason only of any irregularity, informality, omission or error . . .”. Again that provision would appear to have no application in this proceeding. This leaves for consideration only subsection (3) and the related subsection (6) of section 13. Subsection

(3) provides:

(3) The Comptroller may, at any. time he considers reasonable, assess or re-assess any tax collectable by a vendor or any tax payable by a purchaser under this Act.

By inference the Comptroller here must be taken to have found it “reasonable” to assess the vendor Beckers in May 1968 for the three year period ending October 31, 1967, and in June 1970 for the thirty month period which ended on the previous April 30. Obviously the tax was not then “collectable” by the vendor or anyone else with respect to purchases and sales which had by then occurred in the respective taxation periods. By reason of the nature of the retail business carried on by Beckers, the identity of the purchaser is not recorded. No invoice is issued and the evidence of the appellant is unchallenged that after the purchaser leaves the store the transaction cannot be verified or examined. Tax recovery after the departure of the purchaser is out of the question. The Comptroller of course may not act arbitrarily in invoking a statutory provision; Pioneer Laundry & Dry Cleaners Limited v MNR, [1942] Ex CR 179; [1942] CTC 201; 2 DTC 595; and a court should not assume that a public authority in a given instance has done so. I therefore assume that the Comptroller has not done so here and note again that the respondent does not claim the assessments issued under subsection (3).

The wording of subsection (3) is inappropriate to these transactions and to the appellant’s position in trade. Furthermore, the respondent has never asserted that the assessments were made under subsection (3). Notwithstanding the direction in subsection 19(1), the Treasurer has not delivered to the appellant or filed in Court a reply “containing a statement of such further allegations of fact and of such statutory provisions and reasons as he intends to rely on”. Under the circumstances described in the evidence now before the Court, and bearing in mind that we are here concerned with the construction of a taxation statute, the plain meaning to be accorded to subsection (3) in my view requires the Comptroller to assess for “tax collectable by a vendor” and “tax payable by a purchaser” at a time when the assessor can demonstrate that the tax was collectable in the case of the vendor. An interpretation of subsection (3) which would allow the Comptroller to assess a vendor for “collectable” tax, without any reference to the purchaser or the special circumstances wherein the vendor may have chosen to risk liability, may open up the question of the constitutionality of the subsection. Where alternative interpretations are available, the one leaving the provision constitutional should be adopted. McKay v The Queen (1965), 53 DLR (2d) 532 at 536-7, per Cartwright, J. A preferable interpretation of subsection (3) is one that limits its application to circumstances wherein a vendor has by improper conduct or neglect, put the purchaser and indeed the transaction beyond the reach of the act and thus has rendered himself liable under subsection (3).

This is a taxing statute and thus calls for a strict construction. Rex v Gooderham & Worts Ltd (1928), 62 OLR 218. Unless the statute in question otherwise provides, the onus is upon the Crown to show that the person assessed comes within the taxing provisions. The Attorney-General v The Earl of Selborne, [1902] 1 KB 388: The respondent here has not met the onus with reference to subsection (3). For these reasons subsection (3) is not available to the Comptroller in the circumstances before the Court. Alternatively, if subsection (3) has some application, it becomes necessary to consider whether the respondent is not, as will be discussed later, estopped from objecting to the method and amount of remittance by the vendor after receiving its remittance on a known basis for a 36 and a 30 month period. In any case, I do not find subsection (3) applicable to these assessments.

I return to subsection (5) which, as has been said, is conditional in its application upon a notice being served under subsection (4) which, in turn, is operative only if the assessment in question is made under subsection (1). Since subsection (5) is the only provision in the assessing section which purports to ‘‘constitute[s] prima facie evidence” that the amount assessed is owing, and, since it is the only provision purporting to place on the vendor the “onus of proving otherwise”, the appellant Beckers is not under any special statutory burden to demonstrate that the assessment is defective or that the amount owing is different from that claimed in the assessment. Reference will be later made to the prosecutorial provisions of the Act where the question of onus again arises, but nowhere other than in subsection

(5) is an onus of proof placed upon a vendor.

I turn now to section 14 which authorizes the Comptroller to assess a vendor where “in the opinion of the Comptroller a vendor or a purchaser is attempting to avoid payment of tax imposed by this Act . .

No allegation has been made and no evidence has been led to show that the vendor is “attempting to avoid payment” of the tax imposed by the Act. The contest between the parties is as to the appropriate formula to be adopted for the calculation of tax, if any, remittable by the vendor over and above that already remitted by the vendor pursuant to its self-assessment procedures. The evidence is clear that the respondent is not aware of any collected and unremitted tax. It is also clear that the respondent is not asserting that in specific instances of transactions of purchase and sale the vendor neglected, or refused to collect the tax established under this Act. It therefore appears that the provisions of section 14 are likewise inapplicable in these circumstances.

Finally the Act provides in section 29 for a civil action by the Treasurer to recover any tax collectable or payable under this Act. Elsewhere in the Statute the Comptroller is authorized for the further protection of the revenue to be collected under the Act, to require any vendor to deposit cash or other security with the Treasurer, and which security may be applied by the Comptroller to the amount that ‘‘should have been collected, remitted or paid by the vendor”.

These and similar provisions already mentioned are part of a tax collection plan established under the Act to protect the Public Revenue in the course of the operation of the Statute and not as an independent scheme of taxation to tax a vendor without reference to any intended impact on the purchaser in the transaction. The constitutional aspect of this Statute will be examined later. Similarly, the Act creates a system of fines to prevent breaches of the Act by anyone including the vendor. The fine may be equal to the amount of taxes which should have been collected. Again this is part of a provincial taxing Statute aimed at collecting taxes at the situs of the purchase from the purchaser through the vendor as the collecting agent of the province. In. passing it should be noted that by section 36 of the Statute, the onus in any prosecution thereunder of proving “that the tax was paid, collected or remitted . . .” is upon the accused. There is no mention anywhere in the Statute of onus on a vendor to show that any amount was “not collectable”. Furthermore, no proceedings have been launched against Beckers throughout the taxation periods, or thereafter, for any breach of the Act.

Pursuant to section 39 of the Statute, regulations were issued by the Lieutenant Governor in Council “prescribing the method of collection and remittance” of tax. The principal regulation directly applicable to these proceedings is section 13 (O Reg 232/61 as amended). Section 13 requires that every vendor shall keep books of account, records and documents sufficient to furnish the Comptroller with particulars of, inter alia, sales of tangible personal property and the amount of tax collected. Section 12 of the regulations directs that a vendor shall “charge the tax to be collected on each taxable sale separately from the sale price and shall show such tax separately from the sale price on any record, receipt, bill, invoice, ticket or other document kept or issued by the vendor”.

The records of the respondent include an audit report dated October 28, 1970 and signed by the departmental auditor, group leader and supervisor. Box 6 of this report refers to the tax payers records as “good” with the associated comment ‘except that the cash register tapes which support the daily sales for each store are not retained”. The principal witnesses for the respondent, including Mr Fisher, a departmental auditor and one of the signatories to the above mentioned report, agreed that the retention of the cash register tapes after they had been incorporated into the appellant’s computer and earlier records, would have added nothing to the respondent’s knowledge of the transactions and would not have afforded any better basis for accounting for the tax collected and remitted by the vendor Beckers. By a letter from the respondent to Beckers dated November 18, 1970 a reference is also made to the retention of these cash register slips until permission for destruction is obtained. By the time this letter was written, the taxation periods were completed as were the audits and assessments thereof by the respondent. In an earlier letter from the respondent to Beckers, dated January 31, 1968, during the currency of the taxation periods in question and prior at least to the audit of the second period, the respondent made no mention of any failure by Beckers to maintain adequate records and books of entry.

Returning to the audit report of October 28, 1970 a further reference is made under the heading “tax payers compliance with Act” to the vendor’s failure “to account for tax correctly assessed on: (1) taxable Sales, particularly soft drinks and under 21 cent items”. The report further observes that excess hours were involved in this audit because of complexities and necessity to make ‘‘physical tests for seven day periods at ten stores . . .”. It is evident from this internal report that the respondent was endeavouring to assess Beckers not with reference to Beckers’ records and tax remittance. forms, but on the basis of sample tests made after the close of the taxation period in question, whereby the respondent purported to deduce that Beckers had failed to collect the proper taxes. The respondent was unable to direct the Court to any provision in the Statute or the regulations which authorized the assessment of a vendor on the basis of tests, samples or observations made by the Comptroller and particularly when made after the expiration of the audit period in question and long after the completion of the sales transactions under review.

In essence the parties hereto, recognizing the difficulty if not the impossibility or at least the economic impossibility of a vendor in the position of Beckers, maintaining procedures including record keeping procedures which would be self-auditing or susceptible to retroactive audit, adopted a method of calculation which produced an amount of tax remittable by the vendor in respect of all its sales in a given period. The formula adopted produced the taxes to be remitted by applying to the gross sales of the appellant one or more percentages relating to the different categories of sale transactions. For example, the amount of tax to be collected and remitted with reference to soft drinks was determined by applying a predetermined percentage to gross sales of taxable goods and to the resulting amount was applied the tax rate from time to time applicable. The same procedure was adopted with reference to the tax remittable on sales of taxable goods, so as to make allowance for sale transactions where the gross price was less than 21 cents and therefore not taxable.

Beckers established these ratios in the first instance pursuant to a self-assessment procedure and remitted the greater of the amount determined by the self-assessment formula or the monies reported as tax collections by the branch managers to the head office of Beckers. In February of 1968 the respondent adopted a different set of ratios or percentages after analysing the purchase records of 50 stores selected at random. This calculation was made with respect to the taxation period commencing November 1, 1964 and ending October 31, 1967 and thus was made after the close of the period under assessment. Beckers had 81 stores at the beginning of the tax period and 156 stores at the end of the period. The assessment was then produced by subtracting the tax remitted by Beckers pursuant to its collection records and self-assessment formula, from the amount of tax collectable as calculated by the application of the respondent’s formula to gross sales of taxable goods developed in 1968.

The respondent in mid-1970 surveyed ten of Beckers’ stores and developed percentages or ratios as above which the respondent then applied to the second assessment period, that is the 30 month period commencing November 1, 1967 and ending April 30, 1970. Again the assessment issue was the difference between the remittances made by the vendor Beckers under its self-assessment formula and the amount of collectable tax produced by the formula evolved as stated in 1970. This assessment formula was also applied retrospectively to the second taxation period then closed. In each case there were subsequent adjustments but the foregoing describes the plan followed by the respondent in making these two assessments.

A great deal of evidence was led by both parties concerning proper techniques of sampling, appropriate time bases for analysis of purchases, the appropriate sampling techniques for determining revenues, sales and categories of sales, as well as the appropriateness or inappropriateness of the statistical and analytical approaches of both the appellant and the respondent. In the view taken of these assessments, conclusions need not be drawn as to whether such techniques are open to either party under this Statute in the circumstances of this proceeding.

The case of F 1/V Woolworth & Co Ltd v Her Majesty the Queen in the right of the Province of British Columbia, supra is remarkably apt. That case likewise involved an appeal by a vendor against an assessment for tax liability under a British Columbia Statute very similar to the Act here in question. The appellant vendor, by reason of the nature of its business (as was the case here) did not issue individual itemised invoices for each sale, but rather relied upon a cash register tape and a system of coupons which the cashier used to identify the amount of tax recovered from the purchaser on each sale. The records of the appellant did not assist an audit made by the tax collector to determine the amount of tax which should have been collected on each transaction, the amount of tax in fact collected, and the accuracy of the amount of the tax remitted by the appellant vendor. As was stated by Rand, J at 740:

In the result, with such a recording system, it was impossible, from the tape of the register, to make any check of the taxes collected based on the individual sales.

The respondent tax collector assessed a three year taxation period retrospectively after analyzing the returns for each of the three taxation years and comparing the ratio between taxes remitted and total sales in these years, with the same ratio during comparable periods in a period subsequent to the close of the taxation period under assessment. In the result, the assessor issued an assessment based upon the difference between these two percentages or ratios.

It should be observed that there is significant factual difference between the Woolworth case and the situation before this Court. Beckers proceeded prospectively to collect and remit tax after an arrangement had been established with the representatives of the respondent to remit tax based upon a self-assessment technique utilizing percentages of taxable sales. This technique was predicated upon assumed ratios of tax exempt sales to total sales of taxable items; for example, the ratio of soft drink sales and other sales of items under 21 cents, to total sales of taxable items. The stores managers remitted to Beckers’ Head Office on a daily basis, as has been stated above, the tax actually collected according to the manager’s report. Where the self-assessment procedure produced for the branch store in question a higher amount of tax than that remitted by the manager, the former was charged against the branch and remitted by Beckers to the respondent. In other words, where the self-assessment calculation made each month during the taxation periods in question produced a greater amount of tax than that paid over by the branch to Beckers’ Head Office, Beckers remitted to the respondent the greater sum. Differences arose between the parties to this proceeding because of the retrospective establishment by the respondent of percentages or ratios of taxable transactions, after the respondent had throughout the period knowingly accepted from the appellant tax remittances based upon the prospective understanding between the principal (the respondent) and its agent (the appellant).

In the Woolworth case the parties agreed that the correct amount of tax has been collected at source by the appellant. Here the respondent’s auditors testified that in some instances the appellant’s staff had failed to collect tax, or collected the wrong amount; and in other instances the correct amount had been collected but was not recorded as tax collected on the cash register tapes. In the Woolworth case the Court confirmed an assessment made under a section almost identical with subsection 13(2) of the Ontario Statute but with one significant difference mentioned below. It is helpful in understanding the difference between that case and the one now before this Court, to refer to the judgment of the British Columbia Court of Appeal delivered by Coady, JA Fie Social Services Tax Act; Re F W Woolworth Company Limited (1956), 18 WWR 322 at 326:

The appellant admits that the tax was collected on such sales from the purchaser, and the tax, it must be kept in mind, is a tax imposed on the purchaser and not on the vendor. It seems to me, as the learned trial judge has held, that whether under the Act the tax is collectable on 15 and 16 cents sales or not, that is not a matter that has to be determined in these proceedings. The fact is that the appellant did, as agent for the Minister of Finance, collect such tax on such sales, and the commissioner, in making an assessment, included that tax already collected from the purchaser by the appellant. If the appellant had not collected a tax on these sales, and the commissioner contended that he should have, then it would be open to the appellant to contend that the Act did not authorize the collection of a tax on these items and consequently the assessment was invalid. But the tax has been collected and it is part of the amount which has been assessed, and in my view the appellant cannot in these proceedings question the assessment on that basis.

The evidence in this appeal includes, as I have said, testimony from the auditors for the respondent that in reviewing the second assessment period, observations were made by their representatives, and in one instance by the auditor himself, of failure by Beckers to collect the correct amount of tax and failure to post the tax collected as such on the cash register tapes. Despite the presence of two audit representatives of the respondent in ten Beckers stores during seven day periods in December 1970 and January 1971 for the purpose of checking oh the procedures followed by Beckers’ staff in complying with the: Statute, no record was made by such representatives of the actual sales made during their presence in the stores, of the price paid by the purchaser, the tax properly collectable in respect thereof by the vendor from the purchaser, the amount of tax actually collected by the vendor, and the amount of cash and tax posted on the cash register tapes by the vendor’s clerk. The audit witnesses of the respondent testified, when asked by appellant counsel if they had any record of tax collected by the appellant and not remitted, that they had no such record. In the Woolworth case, the parties agreed that the appropriate tax was collected and the appellant did not seem to challenge seriously the mathematics applied by the respondent tax collector to determine the amount of tax which had been collected and should have been remitted. Furthermore, there does not seem to be in the British Columbia proceeding the subjective difficulties in determining the tax applicable to a variety of sales which are here present, and which were mentioned earlier.

The British Columbia Statute has one other significant difference from the Ontario Act. In subsection 25(2) of the BC Statute (the Ontario subsection 13(2) discussed above) the Commissioner is authorized to calculate the tax collected or due . . .” and pursuant to that authority the respondent in the Woolworth case did calculate the tax due from the vendor notwithstanding the fact there was no physical record that the tax had been collected by the vendor. Subsection 13(2) in the Ontario Statute limits the assessment by the Comptroller thereunder to a calculation of the ‘tax collected by the vendor’’. The section goes on to refer to the purchaser but does not purport to make the vendor liable under an assessment pursuant to that subsection for taxes payable by or due from the purchaser, but not collected by the vendor. It may be that this feature was omitted from the Ontario Statute to avoid a constitutional contest concerning the provincial right so to provide. The constitutional issue was not raised in the Woolworth case.

In disposing of the appeal from the assessment, the Supreme Court confirmed the assessment, two of the majority doing so by reason of a finding of compliance with the Statute in question by the Commissioner and the third agreeing with the Court of Appeal of British Columbia that the operative section comparable to the Ontario subsection 13(2) was indeed retrospective because of its procedural character. Two members of the Court dissented on the issue of re- trospectivity of subsection 25(2).

The judgment of Rand, J concurred in by Fauteux, J included the following passage at 743-5 of the report:

What is confused is the nature of the claim: it is taken to be an action for taxes. But it is not such an action at all: in substance, it is the simple claim by a principal against his agent for money had and received by the latter. nothing more; and it is agreed that the taxes were properly collected. In determining the amount we are at large with the statute and the long- established principles governing an agent’s obligation to account.

It should be emphasized that the statute creates two distinct liabilities: that of the purchaser of goods to pay the tax, and that of the seller to collect and remit. Throughout the provisions these obligations are dealt with as disparate both substantively and procedurally and different remedies are provided for their enforcement.

section 13 deals with the recovery of collected taxes from a seller. As can be seen from the facts of this dispute, the determination of the amount after some time has elapsed from the collection will necessarily depend

upon the seller’s records: and if these are such as do not furnish all the essential evidence there must necessarily be something less than mathematical correctness. Here is a good example of a business, in its own interests, adopting a mode of recording transactions which prevents a strictly accurate check and which puts the Government at the risk of the performance of duty by clerks.

To meet that known situation, s 13 enables the Commissioner, once on reasonable grounds he has come to the conclusion that a seller has failed to “make a return or remittance under this Act, or if his returns are not substantiated by his records” to make “an estimate of the amount of the tax collected” and that estimate is declared to be, prima facie, the amount of the collected taxes and to be due and owing, with the onus of proving ‘otherwise’ placed upon the seller. It is unnecessary to point out that the seller is in possession of all the available facts, that they are his facts, and that if they can be used to falsify the estimate he is the person possessing the best, if not the only, means of doing it.

Under the provisions of s 25, where it appears “that this Act or the regulations have not been complied with” the person making the examination shall “calculate the tax collected or due in such manner and form and by Such procedure as the Commissioner may deem adequate and expedient”. This deals likewise with collected taxes which have not been paid over to the Crown. By s 8 the moneys are to be ‘remitted to the Commissioner at the times and in the manner prescribed by the regulations’. The ‘tax collected or due’ is a description of moneys so collected and not paid over in accordance with the regulations. From the language of the section, it is confined to cases of a failure to remit: it does not create a new means of proceeding against a seller for failing to collect the tax. Section 30(2) deals specifically with that liability by way of summary conviction and the clear and precise terms in which that procedure is made available against default excludes that liability from the scope of s 25. In this view of the section, there is created only additional procedure and the objection that it is not applicable to prior transactions must be rejected. But even if the word “due” extends to uncollected tax the objection raised would go only to an action on such a breach and would not affect a proceeding to recover collected tax, which this is.

Unlike the Woolworth situation, the respondent (principal) is here asserting a claim as principal against his agent for moneys the agent has not received. The principal-respondent in the proceedings before this Court, by its first and second assessments has admitted to varying its implied or approved arrangements with its agent retrospectively. The effect of such a change in arrangements, if successful, would be to impose a tax on the vendor which, under the Statute is imposed on the purchaser, but to do so under the guise of an action for money had and received. Furthermore, the Ontario Statute does not authorize the assessment of the vendor for taxes “due” as distinct from “collected” and hence the concluding observation of Rand J quoted above is significant. The subsections of section 13 of the Ontario Act under which the assessment must be made, do not authorize the respondent to assess and reassess in these circumstances.. In the Woolworth case the claim is treated as one for-“collected tax”; in these proceedings the claim has been presented and is here dealt with on the footing of tax “collectable” but not collected by the appellant. For these two reasons the Woolworth case is not here directly applicable, but buttresses the result by determining the true relationship in law between the appellant and the respondent.

So far as the respondent rests its claim to assess the vendor Beckers for failure to collect properly applicable taxes, the respondent must come within subsection (3). So far as the respondent rests its claim to assess the vendor Beckers for failure to remit collected taxes, the respondent’s assessment must come within subsection (1). The respondent has not made any claim under either subsection and I cannot find any evidence which would support a claim to: assess the appellant on either basis. Because there is no evidence of failure to remit collected taxes, subsection (2) does not apply. Because a failure to collect tax does not expose the appellant to assessment under section 13, the assessments cannot stand under that provision. In the end, therefore, there is no basis for these assessments in the Statute and the appeal must succeed unless other bases for these assessments can be found in the Statute.

The appellant advances two additional arguments arising out of the peculiar facts of this case. Firstly, it is submitted that the respondent is estopped from making a further claim against its agent, the vendor, after the end of the two taxation periods during which the vendor performed its duties pursuant to the arrangement reached with the respondent. It is further submitted by the appellant that its claim in estoppel is supported by the documentary evidence indicating an acceptance by the respondent during the tax periods in question of the procedures followed by the appellant. In Robertson v Minister of Pensions, [1949] 1 KB 227, Denning, J, as he then was, stated at 231:

The next question is whether the assurance in the War Office letter is binding on the Crown. The Crown cannot escape by saying that estoppels do not bind the Crown, for that doctrine has long been exploded. Nor can the Crown escape by praying in aid the doctrine of.executive necessity, that is, the doctrine that the Crown cannot bind itself so far as to fetter its future executive action.

Although this authority may be limited by reasons of the remarks of the learned author, S A de Smith in Judicial Review of Administrative Action, 3d ed, 90, in some of its applications, it appears to have survived to this day in the law of estoppel as relating to departments of government and their dealings with other parties.

As has been stated, the self-assessment procedure was the subject of a meeting of the minds of the audit staff of the Comptroller and Beckers and its auditors from the early application of the Act and certainly well before the advent of the first assessment period. Returns and remittances by Beckers were, therefore, made throughout the first assessment period on this basis and without any apparent reaction by the respondent. After the respondent’s audit staff proposed in late 1967 and early 1968, some adjustments to the ratios of tax exempt sales, the appellant modified the self-assessment procedure and applied the modified procedure throughout the second assessment period. Again, the Beckers’ returns and remittances throughout the second period were on the basis of the arrangements reached with respect to self-assessment formulas arising out of the first assessment period and no critical response was received from the respondent until after the close of the second assessment period. Factually, the evidence reveals the constituents necessary for the application of the doctrine of estoppel. Therefore, alternatively to the conclusion reached upon the examination of section 13 above, and applying the principles of agency as followed in the Woolworth case, the respondent-principal may not in an action for money had and received recover either “collected” or “collectable” tax on a basis which it is estopped from advancing.

A somewhat related submission was made by the appellant based upon the revelation in the evidence that the respondent had accorded a competitor of the appellant Beckers a more generous treatment as a vendor under the Act than that proposed for Beckers in the assessments under appeal. No authorities were placed before the Court for the sweeping proposition that the executive branch of government must apply a taxing statute evenly across the community. No doubt, that is a truism but the remedy is not in reducing the impact of the Act to the lowest level of all assessments issued by the tax collector pursuant thereto. The remedy in all such cases is to apply the taxing Statute according to the plain meaning thereof and as it applies to the circumstances revealed in the evidence. In the determining relationship interpartes, I prefer to apply in these circumstances the doctrine of estoppel pursuant to Robertson v Minister of Pensions, Supra.

Being unable to find any statutory authority for the issuance of the notice of assessment under appeal, it is unnecessary to deal with the extensive submissions by the appellant to the effect that the statute, if applied to the vendor Beckers as proposed in the assessments by the respondent, would be unconstitutional in that the Province of Ontario would thereby be imposing an indirect tax contrary to section 92 of the British North America Act. The Court was referred to Cairns Construction Limited v Saskatchewan, [1960] SCR 619; Atlantic Smoke Shops Limited v Conlon, [1943] AC 550; Bank of Toronto v Lambe (1887), 12 AC 575; Simpsons-Sears Ltd v New Brunswick Provincial Secretary (1975), 14 NBR (2d) 289; A G Canada v Reed, [1926] 1 DLR 821. It would appear that none of the provisions of The Retail Sales Act applicable in these proceedings and as examined hereinabove, are inherently a transgression by the Province of Ontario of the limitation of sovereignty applied under the British North America Act, section 92 to the provincial authority. In any event, in view of the line of reasoning adopted above in disposing of these assessments this submission need not be answered.

Finally, in the second assessment, reference is made in the explanatory attachment to “tax deficiency based on vendor’s own method of tax accountability” and to tax applicable to trucks transferred between Beckers and one of its subsidiaries. In the course of the trial the respondent acknowledged that this aspect of the assessment was improper as the transaction was not taxable and so in any event the second assessment should be reduced by the amount of $13,150.68.

For these reasons, therefore, the appeal will be allowed and an order shall issue pursuant to subsection 20(3) of the Act vacating the assessments. The Order shall further provide, pursuant to subsection (4) of section 20 that there shall be a refund of taxes paid by the appellant to the Treasurer under or by virtue of the said assessments and for the return of any bond or other security filed in respect thereof by the appellants. I can find no provision in the Statute for payment of interest to the appellant on payments made pursuant to these assessments, and no claim is made by the appellants for any such interest. Costs shall be to the appellant against the respondent. By reason of the disposition made of the constitutional issue there shall be no costs for or against the Attorney General of Ontario.