Caloil Inc. (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Walsh J.—Montreal, November
1; Ottawa, November 9, 1972.
Sales tax—Whether imported petroleum taxable on sales
price or duty paid value—Construction of taxing statute—
Excise Tax Act, R.S.C. 1970, c. E-13 (am. 1970-72, c. 62),
s. 26(1), (3).
Section 27(1) of Part V of the Excise Tax Act, R.S.C.
1970, c. E-13 as amended 1970-72, c. 62, imposes a sales
tax of 12% on the sale price of goods produced or manufac
tured in Canada or imported into Canada. Section 26(1)
declares that in the case of imported goods the sale price
shall be deemed to be the duty paid value thereof. Section
26(3), however, provides that under certain circumstances
(which existed here) an importer of petroleum products
shall be deemed to be the manufacturer or producer in
Canada of the goods and not the importer.
Plaintiff, an importer of petroleum products, was
assessed sales tax on imported petroleum products based on
the sales prices to plaintiff's customers rather than on the
basis of the duty paid value of the products.
Held, dismissing plaintiff's action for recovery of the
excessive tax levied, the clear intention of section 26(3),
although not so expressed, was to tax imported petroleum
products as if they were manufactured goods.
ACTION for recovery of sales tax overpaid.
Richard W. Pound and Bruce Verchère for
plaintiff.
J. C. Ruelland for defendant.
WALSH J.—The parties to this action are
agreed that plaintiff is a corporation incorporat
ed under the Quebec Companies Act on August
28, 1963 and has its head office and principal
place of business in Montreal, that its business
is that of importing petroleum products which it
sells to wholesalers, retailers or users, that it
has a storage depot in Montreal and a transpor
tation service for its products, that it has sought
to account for federal sales tax on the basis of
the duty paid value of the products which it
imports whereas the Minister of National Reve
nue has levied federal sales tax based on plain
tiff's sales prices to its customers, that plaintiff
has resisted these assessments but has paid the
sum of $11,000 under protest and is proceeding
by way of these proceedings to reclaim this
amount which represents only a portion of the
difference between the amount claimed by the
Minister of National Revenue and that admitted
by plaintiff as federal sales tax for which it is
liable, and finally that plaintiff is not licensed as
a wholesaler but as a manufacturer under
Licence No. S-64005.
Section 27(1) of Part V of the Excise Tax
Act, R.S.C. 1970, c. E-13 as amended by S.C.
1970-71-72, c. 62, hereinafter called "the Act",
imposes a sales tax of 12% on the sale price of,
inter alia, all goods produced or manufactured
in Canada and on all goods imported into
Canada. "Sale price" is defined in section 26(1)
as follows:
26. (1) In this Part
"sale price" for the purpose of determining the consump
tion or sales tax, means the aggregate of
(a) the amount charged as price before any amount pay
able in respect of any other tax under this Act is added
thereto,
(b) any amount that the purchaser is liable to pay to the
vendor by reason of or in respect of the sale in addition to
the amount charged as price (whether payable at the same
or some other time) including, without limiting the gener
ality of the foregoing, any amount charged for, or to make
provision for, advertising, financing, servicing, warranty,
commission or any other matter, and
(c) the amount of excise duties payable under the Excise
Act whether the goods are sold in bond or not,
and, in the case of imported goods, the sale price shall be
deemed to be the duty paid value thereof. (Italics are mine.)
Section 26(1) defines "duty paid value" as
follows:
26. (1) In this Part
"duty paid value" means the value of the article as it would
be determined for the purpose of calculating an ad valorem
duty upon the importation of such article into Canada under
the laws relating to the customs and the Customs Tariff
whether such article is in fact subject to ad valorem or other
duty or not, plus the amount of the customs duties, if any,
payable thereon;
Plaintiff contends that since the petroleum
products in question are imported goods sales
tax should be paid on the duty paid value only.
Defendant relies, however, on a 1963 amend-
ment to the Act (S.C. 1963, c. 12, s. 3) which
added what is now subsection 26(3) which
reads as follows:
26. (3) Where a person has imported into Canada for sale
or his own use, gasoline, aviation fuel or diesel oil and the
aggregate duty paid value of the goods so imported by him
in any period of twelve consecutive months commencing on
or after the 1st day of August 1963 exceeds three thousand
dollars, he shall, for the purposes of this Part, be deemed to
be the manufacturer or producer in Canada of the goods so
imported by him in that period and not the importer thereof.
Plaintiff contends that the wording of this
section must be strictly interpreted and that it
accomplishes only one thing—it deems the
importer of such products to be the manufactur
er or producer of them, but that it does not
affect the character of the goods themselves so
as to make them manufactured rather than
imported goods. Plaintiff argues that the con
sumption or sales taxes imposed by Part V of
the Act are not personal taxes imposed on the
manufacturer or importer but are taxes imposed
on the goods themselves although collectable at
the times specified in the various sections of the
Act from the importer or manufacturer as the
case may be, and that in the absence of specific
words in the Act having this effect imported
goods cannot be deemed to become manufac
tured goods even though the importer of the
goods may be deemed to be a manufacturer by
virtue of the provisions of section 26(3) of the
Act.
Under this interpretation, plaintiff claims that
the only purpose of section 26(3) is to require
an importer of these petroleum products,
deemed by that section to be the manufacturer
or producer in Canada of them, to obtain a
manufacturer's licence so that there will be
more control over its operations including the
filing of monthly reports required by section 50
of the Act even if no taxable sales have been
made during the preceding month. Plaintiff did
obtain this licence. As a secondary effect, the
tax otherwise payable on these goods by virtue
of section 27(1)(b) at the time when they are
imported or taken out of the warehouse for
consumption does not now have to be paid by
the deemed manufacturer until it delivers the
goods to the purchaser or property in the goods
passes to the purchaser as the case may be, thus
enabling it to carry an inventory of goods in
Canada for some time before tax is paid on
same. It contends, however, that neither the
fact that it is deemed to be a manufacturer, nor
the postponement of the time for payment
affects the amount to be paid which still should
be calculated on the duty paid value of these
goods which by their nature remain imported
goods and are not deemed by the Act to be
other than this.
This line of reasoning has certain flaws in it,
however. Section 27(1) imposes a consumption
or sales tax of 12% on the sale price of all
goods
(a) produced or manufactured in Canada;
(b) imported into Canada;
(c) sold by a licensed wholesaler;
(d) retained by a licensed wholesaler for his
own use or for rental by him to others.
The person who is to pay the tax and the time
of payment is specified for each case. In the
case of (a) goods produced or manufactured in
Canada it is:
(i) payable, in any case other than a case mentioned in
subparagraph (ii) or (iii), by the producer or manufac
turer 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, ... .
(Subparagraphs (ii) and (iii) do not concern us
here, the first dealing with the sale of goods
where payment is to be made to the manufac
turer or producer by instalments, and the
second concerning the sale of dressed or
dressed and dyed furs.)
In the case of (b) goods imported into
Canada, tax is "payable by the importer or
transferee who takes the goods out of bond for
consumption".
In the case of (c) and (d) goods sold by a
licensed wholesaler or retained by a licensed
wholesaler for his own use or for rental by him
to others, tax is payable at the time of delivery
to the purchaser in the first case, or at the time
the goods are put to the wholesaler's own use or
first rented to others in the second case, and in
both cases is computed on the duty paid value
of the goods if they were imported by the
licensed wholesaler, or on the price for which
they were purchased by him including the
amount of the excise duties on goods sold in
bond if the goods were not imported by him.
Although plaintiff argues that its case falls
within the provisions of section 27(1)(b) it is
forced to concede that the tax is not, in fact,
paid by it "when the goods are imported or
taken out of the warehouse for consumption"
but only when it sells the goods to third parties.
In any event I have serious doubts as to wheth
er section 27(1)(b) would apply to it since it
refers to the importer or transferee "who takes
the goods out of bond for consumption" and I
do not consider that plaintiff is a consumer of
the goods. Plaintiff argues that "consumption"
would include a resale but I believe that this is
giving an unrealistic interpretation to the mean
ing of the word "consumption" nor is it what is
intended by the Act. I believe rather that it must
refer to goods taken out of bond for use by the
importer or transferee itself (compare section
33(2) which reads as follows:
33. (2) A deduction may be made thereafter on submis
sion by the licensed manufacturer or licensed wholesaler of
proof that such material has been used in the manufacture
of an article that is subject to the consumption or sales tax
and on which the said tax has been paid.)
Since, although plaintiff is in actual fact an
importer or wholesaler it is deemed to be a
manufacturer by virtue of section 26(3) and
licensed only as such it cannot come within
section 27(1)(c) or (d). If plaintiff's argument
were to be accepted and carried to its logical
conclusion it could not be brought within sec-
tion 27(1)(a) either since it contends that these
goods were not "produced or manufactured in
Canada" despite the fact that it is deemed to be
a manufacturer or producer and admittedly
pays tax when the goods are delivered to the
purchaser or when the property in the goods
passes to the purchaser, whichever is the ear
lier. This would lead to the conclusion that
there is no time fixed by the Act in which the
tax should be paid on these goods, which is an
absurdity and even plaintiff does not seek to
avoid payment of the tax altogether but merely
to have it based on the duty paid value of the
goods at the time of import.
In support of its contention that the wording
of the Act imposes a tax on goods rather than
on the importer, wholesaler, producer or manu
facturer of same as the case may be and that
the wording of section 26(3) does not have the
effect of converting the imported goods into
goods deemed to be manufactured, plaintiff
compares the wording of other subsections of
section 26 with the wording used in section
26(3). In section 26(2) dealing with a person
who has put a clock or watch movement into a
case or set or mounted stones in jewellery, the
wording used is
he shall, for the purposes of this Part, be deemed to have
manufactured or produced the watch, clock, ring, brooch or
other article of jewellery in Canada. (Italics are mine.)
Plaintiff argues that the use of the words
"deemed to have manufactured or produced" in
this subsection as compared with the use of the
words "deemed to be the manufacturer or pro
ducer of" in subsection (3) is significant, and
that the result is that the goods referred to in
subsection (3) are not deemed to be manufac
tured goods. However, it should be noted that
in subsection (4) where the manufacturer or
producer of certain structures and building
components is deemed not to be a manufactur
er, the wording in it is that "he shall ... be
deemed not to be ... the manufacturer or pro-
ducer thereof" and in subsection (5) dealing
with retreaded tires, the wording is that he shall
"be deemed to be the manufacturer or producer
of tires retreaded by him". Both of these sub
sections therefore use the wording of subsec
tion (3) rather than the wording of subsection
(2). I cannot attribute the significance which
plaintiff does to the difference of the wording
used in these various subsections.
Turning now to the jurisprudence, there is
undoubtedly a well-established principle that in
a taxing statute the intention to tax must be
expressed in unambiguous terms and that in
case of reasonable doubt the Act must be inter
preted in favour of the taxpayer. This has been
well expressed by Thorson P. in Fasken Estate
v. M.N.R. [1948] C.T.C. 265 where he stated at
pages 275-76:
It has been said on numerous occasions that a taxing Act
such as the Income War Tax Act must be construed strictly.
This does not mean that the rules for the construction of
such an Act are different in principle from those applicable
to other statutory enactments. All that is meant is that in
construing a taxing Act the Court ought not to assume any
tax liability under it other than that which it has clearly
imposed in express terms. Nowhere has this fundamental
principle of construction of such an Act been better
expressed than by Lord Cairns in Partingdon v. Attorney-
General (1869), 4 E. & I. App. 100 at 122:
as I understand the principle of all fiscal legislation, it is
this: If the person sought to be taxed comes within the
letter of the law he must be taxed, however great the
hardship may appear to the judicial mind to be. On the
other hand, if the Crown, seeking to recover the tax,
cannot bring the subject within the letter of the law, the
subject is free, however apparently within the spirit of the
law the case might otherwise appear to be. In other
words, if there be admissible, in any statute, what is
called an equitable construction, certainly such a con
struction is not admissible in a taxing statute, where you
can simply adhere to the words of the statute.
and by Lord Halsbury in Tennant v. Smith, [1892] A.C. 150
at 154:
in a taxing Act it is impossible, I believe, to assume any
intention, any governing purpose in the Act, to do more
than take such tax as the statute imposes. In various
cases the principle of construction of a taxing Act has
been referred to in various forms, but I believe they may
be all reduced to this, that inasmuch as you have no right
to assume that there is any governing object which a
taxing Act is intended to attain other than that which it
has expressed by making such and such objects the
intended subject for taxation, you must see whether a tax
is expressly imposed.
Cases, therefore, under the Taxing Acts always resolve
themselves into a question whether or not the words of
the Act have reached the alleged subject of taxation.
It is the letter of the law, and not its assumed or supposed
spirit, that governs. The intention of the legislature to
impose a tax must be gathered only from the words by
which it has been expressed, and not otherwise.
On the other hand, there is extensive juris
prudence on interpretation of statutes generally
to the effect that they must be interpreted in
such a way as to give a meaning to them and
that the legislation should not be reduced to
futility, and that the entire enactment must be
considered in order to interpret the meaning to
be given to a specific section and that even the
circumstances in which the statute was enacted
and the mischief which it was intended to cure
can be taken into consideration. As examples of
these principles I would refer to the judgment
of Viscount Simon L.C. in Nokes v. Doncaster
Amalgamated Collieries Ltd. [1940] A.C. 1014
at p. 1022, where he said:
... if the choice is between two interpretations, the narrow
er of which would fail to achieve the manifest purpose of
the legislation, we should avoid a construction which would
reduce the legislation to futility and should rather accept the
bolder construction based on the view that Parliament
would legislate only for the purpose of bringing about an
effective result.
As Lord Davey stated in Canada Sugar
Refining Co. Ltd. v. The Queen [1898] A.C. 735
atp.741:
Every clause of a statute should be construed with refer
ence to the context and the other clauses of the Act, so as,
so far as possible, to make a consistent enactment of the
whole statute ....
A statute even more than a contract must be
construed ut res magis valeat quam pereat so
that the intentions of the legislature may not be
treated in vain or left to operate in the air
(Curtis v. Stovin (1889) 22 Q.B.D. 513 per
Bowen L.J. at p. 517). (See also Lindley L.J. in
The Duke of Buccleuch, (1889) 15 P.D. 86 at
page 96 where he said "You are not so to
construe the Act of Parliament as to reduce it to
rank absurdity. You are not to attribute to gen
eral language used by the legislature in this case
any more than in any other case a meaning
which would not carry out its object, but pro
duce consequences which, to the ordinary intel-
ligence, are absurd. You must give it such a
meaning as will carry out its objects.")
In 1898 Lindley M.R. said "In order properly
to interpret any statute it is as necessary now as
it was when Lord Coke reported Hayden's case
to consider how the law stood when the statute
to be construed was passed, what the mischief
was for which the old law did not provide, and
the remedy provided by the statute to cure that
mischief"—Re. Mayfair Property Co. [1898] 2
Ch. 28 at 35. To the same effect we have a
judgment of Lord Reid in Gartside v. LR.C.
[1968] A.C. 553 at p. 612 in which he stated:
It is always proper to construe an ambiguous word or
phrase in light of the mischief which the provision is obvi
ously designed to prevent, and in light of the reasonableness
of the consequences which follow from giving it a particular
construction.
Finally, I would refer to the judgment of the
Privy Council in Salmon v. Duncombe (1886)
11 App. Cas. 627 where it is stated at page 634:
It is, however, a very serious matter to hold that when the
main object of a statute is clear, it shall be reduced to a
nullity by the draftsman's unskilfulness or ignorance of law.
It may be necessary for a Court of Justice to come to such a
conclusion, but their Lordships hold that nothing can justify
it except necessity or the absolute intractability of the
language used.
It is true that in the present case it would
have been a simple matter in drafting section
26(3) to add at the end of that section the words
"and the said goods shall be deemed to be
manufactured goods" or some similar words so
as to avoid any possible misinterpretation of the
legislature's intention. I cannot find, however,
that the intention of this amendment was
merely to require importers of petroleum prod
ucts to be licensed as manufacturers and pro
ducers rather than as importers or wholesalers
so as to exercise more control over them, and
not with a view to taxing goods on their sale
price when they are delivered to or property in
them passes to the ultimate purchaser, as the
case may be. In support of this contention
plaintiff referred to a bulletin issued by the
Excise Division of the Department of National
Revenue on August 22, 1963 headed "Explana-
tory Note" with a subheading "Importers of
Gasoline, Aviation Fuel or Diesel Oil, Amend
ment to the Excise Tax Act". Referring to the
amendment, which is now section 26(3) in the
Act, the following explanation is given:
Under the above amendment, importers of the goods in
question are required to operate under a manufacturer's
sales tax licence when their importations reach the amount
specified. Any firms who know, from past experience, that
they will import three thousand dollars or more during the
twelve months from June 14, 1963, should immediately
apply for a manufacturer's sales tax licence. When in
possession of a manufacturer's sales tax licence, they may
pay sales tax on the authorized value, which will be sup
plied upon request. This request should be forwarded to the
Director of Excise Tax Audit, Department of National
Revenue, Customs and Excise Division, Ottawa, Canada.
While it is true that this merely emphasizes
the necessity of the heretofore importers now
applying for a manufacturer's sales tax licence
and makes no reference to the payment of sales
tax on manufacturer's sales prices rather than
on duty paid value, I do not think that plaintiff
is entitled to deduce from this that in the view
of the Deputy Minister, which is not binding on
the Court in any event, the sole purpose of
putting this sect4jon in the Act was to require the
importers to obtain a sales tax licence. The
explanation refers to paying sales tax on "the
authorized value" which is nowhere defined in
the Act. It is apparent from the manner in
which the tax has been imposed in the present
case that it is the Department's policy to apply
it on the manufacturer's resale price.
It is because of the unfortunate wording of
section 26(3) that we have this conflict between
the fundamental rules of interpretation of stat
utes and the conflicting jurisprudence respect
ing the strict and literal interpretation of taxing
statutes. It should be pointed out, however, that
as Thorson P. stated in Fasken Estate y M.N.R.
(supra) in referring to the strict interpretation of
taxing statutes:
This does not mean that the rules for the construction of
such an Act are different in principle from those applicable
to other statutory enactments.
I believe that the clear intention of the amend
ment, although it may not have said so in
express words, was to tax the goods in question
as if they had been manufactured goods. It
would be incongruous and defeat what I con
ceive to be the intention of the statute when
read as a whole to deem the importer to be a
producer or manufacturer and require him to be
licensed as such, but bearing in mind the fact
that plaintiff admittedly does no manufacturing
whatsoever, to tax all the goods it so sells as a
deemed manufacturer on their duty paid value
as imported goods, and the alternative explana
tion given by plaintiff of the possible purpose of
section 26(3) is not in my view a satisfactory
explanation sufficient to justify this amendment
having been made.
Plaintiff's action is therefore dismissed, with
costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.