Excise Act, 2001

Section 2

Cigarette

Cases

Rothmans of Pall Mall Canada Ltd. v. MNR, [1976] CTC 332, [1976] 2 FC 500, 10 NR 153 (FCA)

cigarette competitors had no standing to challenge Department determination that cigarette length did not include filter tip

The definition in the Excise Act of a cigarette stipulated that “where any cigarette exceeds four inches in length, each three inches or fraction thereof shall be deemed to be a separate cigarette.” Two of the four main Canadian cigarette companies (MacDonald, and Benson & Hedges) proposed to introduce a cigarette having an overall length including the filter tip of over four inches, but with the tobacco portion less than four inches. Initially, when approached separately by these two companies, the Department of National Revenue considered that the filter tip should be included in the length but, after further submissions, reversed its position two months later.

In finding that the other two companies (the appellants) did not have standing to challenge this policy reversal, Le Dain JA stated (at para. 17):

A person should not…have the right to interfere with or meddle in official action affecting an existing competitor for the sole purpose of preventing that competitor from obtaining some advantage, particularly where the action complained of is something that the person complaining is free to take advantage of himself.

Section 32

Subsection 32(1)

Administrative Policy

28 June 2016 Interpretation 176330

tobacco product must be in presecribed package and stamped at time fo importation

In the courses of finding that a single tobacco leaf folded and placed in a re-sealable plastic package would constitute "manufactured tobacco" and require the application of an excise stamp in the proper denomination, CRA noted:

All tobacco products to be entered into the Canadian duty-paid market must be packaged in a prescribed package and must be stamped with the appropriate excise stamp. In the case of imported tobacco products, the product must be packaged in a prescribed package, stamped before release under the Customs Act for entry into the domestic duty-paid market. The excise stamp indicates that the appropriate duty has been paid.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Excise Act, 2001 - Stamping and Marking of Tobacco Products Regulations - Section 2 - Paragraph 2(a) single tobacco leaf in a plastic package required application of stamp as a deemed 50g package of manufactured tobacco 57

Section 38

Subsection 38(2)

Administrative Policy

26 November 2014 Interpretation 166270

general discussion

As part of a response to questions respecting tobacco markings for cigars destined for sale in Canadian duty free shops, CRA provided the following general comments:

For Canadian manufactured cigars, paragraph 28(1)(b) of the Act stipulates that the tobacco product cannot be removed from the premises of the tobacco licensee unless it is packaged and if not intended for delivery to the duty-paid market that its container be marked.

Section 37 and subsection 38(1) of the Act requires that the packaged unstamped Canadian manufactured cigars be immediately placed in the tobacco licensee's excise warehouse and its containers display the appropriate tobacco marking and prescribed information. Paragraph 50(7)(f) of the Act then allows for the cigars to be removed from the excise warehouse for delivery to a duty free shop.

Paragraph 32(2)(b) permits an excise warehouse licensee to possess and sell imported cigars. Paragraph 51(2)(d) of the Act then permits imported cigars to be removed for delivery to a duty free shop.

For unstamped imported cigars, subsection 38(2) of the Act requires that the containers display tobacco markings and the prescribed information prior to delivery to a duty free shop.

A Canada Border Services Agency sufferance warehouse may not be utilized to mark imported tobacco products therefore the tobacco marking and prescribed information must be printed on or affixed to the containers prior to importation into Canada.

Section 44

Cases

Spike Marks Inc. v. Canada (Attorney General), 2008 FCA 406

CBSA (and, ultimately, the CITT) has carriage of the re-determination of tobacco excise duties

After conducting compliance verification respecting importations by the appellant (“Spike Marks”) of flavoured cigars, the CBSA issued adjustment statements changing the cigars’ tariff classification and requiring the payment of additional excise duties under ss. 42 and 43 of the Excise Act, 2001. Following confirmation by the President (including the “Decisions” respecting the excise duties), Spike Marks appealed the Decisions to the CIT and obtained from it a declaration that the CITT lacked jurisdiction to consider the appeal. Spike Marks then applied for judicial review of the Decisions, with the applications judge determining that s. 18.5 of the Federal Courts Act precluded him hearing the application because s. 67(1) of the Customs Act provided Spike Marks with a right to appeal the Decisions to the CITT.

In affirming this finding, Ryer JA stated (at paras. 17-19):

The appellant’s interpretation would...oblige an aggrieved importer to pursue two separate dispute resolution procedures: an appeal to the CITT in respect of the tariff reclassification under the Customs Tariff and an appeal to the Tax Court of Canada in respect of the duties assessed under sections 42 and 43 of the Excise Act, 2001.

…[T]hese more complicated and inefficient results could not have been intended by Parliament… . Instead… Parliament intended the result that was stipulated by the applications judge, namely that section 44…empowers the CBSA to assess duties arising under sections 42 and 43…where such duties relate to the importation of raw leaf tobacco and tobacco products. It follows that in exercising this assessment power, the CBSA must apply, and therefore interpret, the relevant provisions of the Excise Act, 2001 to the extent necessary to properly calculate, assess and collect those duties in accordance with its mandate under section 44 of the Excise Act, 2001.

Accordingly…a complaint with respect to a decision of the CBSA relating to the calculation and assessment of duties in relation to the importation of raw leaf tobacco and tobacco products that are imposed under sections 42 and 43 of the Excise Act, 2001 is a matter to which the appeal right in subsection 67(1) of the Customs Act would apply.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Customs Act - Section 67 - Subsection 67(1) CBSA (and, ultimately, the CITT) has carriage of the re-determination of tobacco excise duties 206

Section 135

Subsection 135(2)

Paragraph 135(2)(a)

Cases

Canada v. The Mark Anthony Group Inc., 2019 FCA 183

all-ingredients test applied to each alcoholic component – not to all components

The respondent (Mark Anthony) produced fortified fermented ciders made from apples grown and fermented in Canada, to which was added certain other ingredients before the products were packaged, including spirits not fermented in Canada and apple juice concentrate which was not made from Canadian apples. Did these products (which were acknowledged to be “wine”) qualify for the exemption in ETA s. 135(2)(a), which applies to wine “produced in Canada and composed wholly of agricultural or plant product grown in Canada.”

Before finding that the exemption applied except (as acknowledged by Mark Anthony), in the case of the beverages that included the imported spirits, did not qualify for the exemption, Webb JA first rejected the position of the Crown that the “all ingredients” test was to be applied at the packaging rather than earlier fermentation stage, Webb JA stated (at para. 28):

The Crown’s interpretation … [is] that all ingredients that are included in the packaged product must be agricultural or plant products grown in Canada, except those that are permitted to be added by the CRA, on the basis that they are “incidental”. This would result in a delegation of authority to the CRA to decide what wine will qualify for the exemption. … [I]t would not have been the intent of Parliament to implicitly delegate this authority to the CRA.

Webb JA instead found (para. 46) that the “all ingredients” test:

applied to each alcoholic component of the blended product. In relation to the component of the wine that comes into existence as a result of a fermentation process, only Canadian-grown agricultural or plant products must be fermented in Canada to make that component of the wine. In relation to the bulk spirits that are added to fortify the wine, only Canadian-grown agricultural or plant products must be distilled in Canada to produce those spirits.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Regulations/Statutory Delegation an exemption provision should not be interpreted to give CRA discretion as to its scope 216

See Also

The Mark Anthony Group Inc. v. The Queen, 2017 TCC 141, aff'd on different grounds 2019 FCA 183

exemption references wine “produced in Canada and, when produced, composed wholly of agricultural or plant product grown in Canada”

A small portion of the cider produced in Canada by the Appellant contained concentrate from non-Canadian apples that had been added after fermentation. The minister assessed duty on the basis that, at the time of packaging, all the agricultural or plant products in the cider had not been grown in Canada, the cider did not qualify for the exemption under s. 135(2)(a) for “wine” (including cider) that was “produced in Canada and composed wholly of agricultural or plant product grown in Canada.”

Graham J found (at para 37):

… Since the ingredients that follow the phrase “composed wholly of” in the exemption are “agricultural or plant product grown in Canada”, the text of the exemption clearly requires that, at whatever time the test is to be applied, the wine must contain no ingredients other than agricultural or plant products grown in Canada.

The CRA position, that the “composed wholly” test only required that (at the time of packaging) all of the agricultural or plant products in the wine had been grown in Canada, clearly departed from the text.

Turning to when this test should be applied (i.e., at fermentation or packaging), Graham J noted (at para 77) respecting applying this test at the time of fermentation:

Imported spirits are subject to customs duties. Those duties are relieved if the spirits are used to fortify wine. Thus, if a spirit were imported and then used to fortify wine, no matter how little fermented wine there was in the resulting beverage, so long as the fermented portion of the wine had been made from Canadian agricultural or plant products, the beverage would be exempt from duty.

Graham J found (at paras 107- 109):

… Applying the test at fermentation will cause less harm to the purpose of the exemption than applying it at packaging. Therefore, I find that the test should be applied at fermentation. I am aware that this leaves the fortified wine loophole open, but I find that to be the lesser of two evils. Better that a beverage containing imported spirits be duty-free than that a beverage be subject to duty merely because water, carbonation, flavouring, colouring, preservatives or other additives were added after fermentation.

For clarity, under this conclusion, paragraph 135(2)(a) would be read as if it applied to wine “produced in Canada and, when produced, composed wholly of agricultural or plant product grown in Canada”.

[T]his decision will likely cause significant.. hardships for many vintners. In particular, if my understanding that sugar is fermented is correct, non-Canadian sugar that is added at the fermentation stage will make the exemption unavailable. Similarly, the addition of any preservative that is not an agricultural or plant product grown in Canada will put a beverage offside. Presumably vintners will ask Parliament to amend the text of the exemption… .

Graham J allowed the appeal (with the exception of some small items conceded by the Appellant), concluding that the only ingredients that were added to the Appellant’s cider during fermentation were agricultural or plant products grown in Canada. (at para 110).

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Ordinary Meaning patent ambiguity revealed if text cannot be applied 219

Stamping and Marking of Tobacco Products Regulations

Section 2

Paragraph 2(a)

Administrative Policy

28 June 2016 Interpretation 176330

single tobacco leaf in a plastic package required application of stamp as a deemed 50g package of manufactured tobacco

CRA found:

A single tobacco leaf folded and placed in a re-sealable plastic package would constitute "manufactured tobacco" as defined by the Act and require the application of an excise stamp in the proper denomination.

CRA went on to note:

The tobacco product weight may vary; however, the excise duty payable is calculated in increments of 50 grams.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Excise Act, 2001 - Section 32 - Subsection 32(1) tobacco product must be in presecribed package and stamped at time fo importation 104

Paragraph 2(b)

See Also

Legal v. The Queen, 2012 TCC 167 (Informal Procedure)

package size determined at time of packaging and stamping

The appellant, who was in the business of manufacturing and selling tobacco to First Nations people for ceremonial use, sold 13 and 36 ounce packages of manufactured tobacco that, after packaging, were packed in a larger package of over 50 grams for delivery purposes, and paid duty on the basis that she sold packages in the minimum 50 gram size. After being assessed on the basis that the packages sold by her were in fact under 50 grams, she modified her packaging approach by shrink wrapping four individual 12.5 gram boxes in one package that were priced and sold together and with one duty paid stamp affixed to this larger package, so the smaller packages inside could not be sold separately. Formerly, she attached a duty paid stamp to each 13 gram or 36 gram package and they could be sold separately regardless of how they were packaged for delivery.

Before confirming the assessments, Hershfield J stated (at paras. 11-12):

Under her new packaging approach she pays the $2.8925 duty on the 50 grams of tobacco sold. But for the duty paid stamping, this approach does not, practically speaking, vary too much from a delivery perspective from that employed under her old approach. The Canada Revenue Agency has apparently blessed this approach. That is the result she wants applied to her old packaging approach.

While this position makes sense, the applicable provisions as written allow me no room to accommodate it. The time when the duty is imposed under section 42 of the Act is when the tobacco is packaged and “packaged” is defined in section 2 as “packaged in a prescribed package”. The stamping regulations as set out above make it clear that the relevant package is “the smallest package – including outer wrapping that is customarily displayed to the consumer – in which it is normally offered for sale to the general public”.

Administrative Policy

12 June 2013 Interpretation 150564

single tobacco twist, and twists in boxes, effectively treated as separate products for packaging Reg. purposes

The Company, which is a prescribed person for the purposes of purchasing, possessing and applying excise stamps on tobacco products, is importing tobacco "twists" from the U.S., which are braided tobacco leaves which are dark air and/or dark fire cured. They are individually packaged and can be sold individually or in a box of [#]. CRA stated:

When tobacco twists are imported but before they can be released into the duty paid market, The Act states they must be packaged in a package with prescribed information on it and be stamped. …

If marketed as a single twist then the prescribed package as defined by the Stamping and Marking Regulations of Excise Act, 2001 would be the package containing the single twist. If marketed in the box of [#], the box would be the prescribed package as defined by the Regulations.