Date: 20000518
Docket: T-1907-90
| OTTAWA, ONTARIO, MAY 18, 2000 |
| BEFORE: TREMBLAY-LAMER J. |
Between:
GROUPE BOCENOR INC.,
Plaintiff,
- AND -
HER MAJESTY THE QUEEN
in right of Canada,
representing the Minister of National Revenue,
Defendant.
JUDGMENT
The action is dismissed with costs.
| Daniele Tremblay-Lamer JUDGE |
Certified true translation
Martine Brunet, LL. B.
Date: 20000518
Docket: T-9007-90
Between:
GROUPE BOCENOR INC.,
Plaintiff,
- AND -
HER MAJESTY THE QUEEN
in right of Canada
representing the Minister of National Revenue,
Defendant.
REASONS FOR JUDGMENT
TREMBLAY-LAMER J.
[1] The plaintiff is seeking pursuant to s. 68 of the Excise Tax Act ("the Act")1 the reimbursement of an amount of $420,101, which it claims it paid by mistake of fact, law or otherwise as tax during the period from February 1, 1984 to December 31, 1987.
FACTS:
[2] On March 4, 1988 Fenebec Inc., a wholly-owned subsidiary of the plaintiff until it was wound up,2 sent the defendant a claim for reimbursement of federal sales tax in the amount of $609,595.94 for the period from February 1, 1984 to December 31, 1987 ("the relevant period").3
[3] Fenebec Inc. was a business manufacturing frames, doors and windows, which sold all or nearly all its production to retailers and/or construction businesses.
[4] During the relevant period, Fenebec Inc. paid the relevant sales tax on the sale price of its manufactured products sold in Canada.
[5] On or about October 24, 1979 the Excise Division of the Department of National Revenue ("Excise") adopted a policy identified as decision file No. 3700.259-14 to allow manufacturers of frames, doors and windows to pay the federal sales tax using the so-called "determined value" method, that is by calculating the tax on the established regular tax included list price to users less an all-inclusive discount of 25%, the tax to be computed as included in the remainder.
[6] In June 1981 Excise published a communiqué entitled Excise News No. 34,5 which referred to a forthcoming communiqué that would give "a comprehensive listing of the discounts authorized for sales to retailers and users for specific commodities".
[7] In July 1981 Excise published Excise Communiqué 57-T1,6 the first paragraph of which read as follows:
| Further to an article published in the June, 1981 edition of the "Excise News" this Communiqué has been prepared to provide a comprehensive listing of the discounts authorized for sales to retailers and users for specific commodities. A reference to the existing authority is provided for the currently authorized determined values for the majority of the commodities. |
[8] The following was indicated at p. 11 of that publication:
| Industries/Goods Taxable value |
Wood industries
Frames, doors, windows (wood) 3700-259-1
[9] The discount indicated in decision file No. 3700.259-1 applied generally in the wooden frames, doors and windows industry.
[10] According to the defendant, sectoral studies were the basis for the publication by the Minister of National Revenue in June 1981 of Excise Communiqué 57/T1 allowing manufacturers holding licences working in the wooden frames, doors and windows industry to use "determined values" under certain conditions when they sold to retailers or users.
[11] On December 2, 1982, Excise published "passive" decision file No. 3700.259/8-1,7 under which a manufacturer of PVC doors and frames8 could report the sales tax less a discount of 25% on the regular list price non-installed and 35% installed.
[12] On September 23, 1983, Excise published "active" decision file No. 37--.259/8-2,9 by which a manufacturer of wooden, aluminium and PVC doors and windows, including frames, could report the sales tax less a discount of 25% on the regular non-installed list price, and 35% installed.
[13] On June 23, 1988, Excise published "active" decision file No. 3700.259/8-3, under which a manufacturer of doors and frames could report the sales tax less a discount varying from 25% to 35% depending on the type of product (wood, aluminium or PVC), type of user (private or commercial) and nature of product (installed or non-installed).
[14] On December 31, 1987 the plaintiff had not yet taken advantage of these determined values, as provided in "passive" decision file No. 3700.259-8-1 and "active" decision file No. 3700.259/8-2.
[15] According to the defendant the plaintiff, which has held a licence since October 1, 1972, was informed by Excise Communiqué 57-T1 of the existence of "determined values" in the wood frames, doors and windows industry, and was free to make use of them when it was making sales to retailers or users.
[16] On August 2, 1988 the defendant sent Fenebec Inc. a notice of determination having No. QUE33777,10 quashing the claim for reimbursement and so denying the plaintiff the amount claimed.
[17] By a notice dated August 8, 1988, having registration No. 80433RF, Fenebec Inc. objected to the said notice of determination.11
[18] On September 1, 1988, the defendant sent Fenebec Inc. an acknowledgment of receipt of the notice of objection.
[19] On March 30, 1990, a decision was rendered by the defendant on Fenebec Inc.'s objection affirming the refusal to reimburse the amount of the federal tax on the ground that retroactive application of a determined value is not permitted to recover a tax paid on the sale price.12
[20] The plaintiff alleged that apart from the fact that it had not made use of the determined values stipulated in the aforementioned decision files prior to January 1, 1988, it met all the other conditions for application of the determined values, at least up to the amount of $420,101.
[21] The plaintiff reduced its claim to the amount of $420,101 for the relevant period.
[22] This amount of $420,101 takes into account the four-year limit imposed by s. 44 of the Excise Tax Act (subsequently 68 of R.S.C. 1985, c. E-15), as it read at the relevant time, and the two-year limit in s. 68 of the Act as applicable at the relevant period.
POINTS AT ISSUE
| 1. Did the defendant have the discretionary power to set an administrative policy on "determined values"? |
| 2. If so, should she authorize any claim or reimbursement of money paid by a mistake of fact, law or otherwise within the meaning of s. 68 of the Act (formerly s. 44) filed within the deadline imposed by ss. 68 (two years) or 44 (four years), as the case may be? |
PARTIES' POSITIONS
| Plaintiff's arguments on law |
[23] The plaintiff argued that the determined values system has no legislative and/or regulatory basis but represents an exclusively administrative practice of the defendant. It submitted that this policy is a valid exercise of the discretionary power of Excise in administering the Act despite the fact that Memorandum ET-20213 is not in keeping with the definition of sale price contained in s. 42 of the Act.
[24] The plaintiff argued that Memorandum ET-202 is a quasi-regulation adopted to correct anomalies resulting from the choice of marketing methods by taxpayers. Accordingly, it submitted that Memorandum ET-202, as it has a valid purpose, is in accordance with the Act.
[25] The plaintiff accordingly maintained that it had the right to calculate the federal tax in accordance with the discounts mentioned in "passive" decision file No. 3700-259/8-1, and "active" file No. 3700-259/8-2, since the determined values stated in the said decision files apply generally in the doors and windows industry.
[26] Further, the plaintiff maintained that the refusal to apply this administrative policy retroactively is contrary to s. 68 (formerly s. 44) of the Act, and the plaintiff [sic] accordingly exceeded her administrative discretionary power.
[27] Finally, the plaintiff submitted that regardless of the retroactive treatment which the defendant might have given other taxpayers during the relevant period, the policy for implementing determined values in the doors and windows industry during the relevant period permitted retroactive application up to the deadline stipulated in s. 68 of the Act.
Defendant's arguments on law
[28] The defendant maintained that the amount of $420,101 claimed by the plaintiff was an amount of sales tax imposed under s. 27 (now s. 50) of the Excise Tax Act at the rate specified in the Act "on the sale price" of goods which it paid as producer or manufacturer during the period from February 1, 1984 to December 31, 1987.14
[29] The plaintiff clearly could not at any time have paid the tax on the "sale price" of goods purchased by it "by mistake" of fact, law or otherwise since it paid in accordance with the Act. Consequently, it is not entitled to reimbursement of the sales tax under s. 68 of the Act.
[30] Further, the defendant argued that the "administrative policy" on which the plaintiff relied to justify its right to reimbursement of the tax was subject to the rule set out in Memorandum ET-202, providing that this policy had no retroactive application.
[31] She further submitted that this Court lacks jurisdiction in the case at bar to judicially review a decision by the Minister of National Revenue not to apply his administrative policy retroactively, since this is an exercise of the Minister's legislative authority to adjust the Act.
[32] Finally, the defendant argued that the plaintiff's claim that the tax treatment given to other taxpayers might influence its own tax liability under the Excise Tax Act in some way is without legal basis.
RELEVANT LEGISLATION
[33] The plaintiff made a claim for reimbursement of sales tax for the period February 1, 1984 to December 31, 1987; the former s. 27 (now s. 50(1)) of the Excise Tax Act15 was the provision applicable at the time with regard to the payment of federal sales tax. However, since the claim for reimbursement was made in 1988 s. 68 (formerly s. 44) of the Excise Tax Act16 in its present version is the legal basis for a claim for reimbursement of taxes paid by mistake.
| 27. (1) Est imposée, prélevée et perçue une taxe de consommation ou de vente au taux spécifié au paragraphe (1.1) sur le prix de vente de toutes marchandises . . . |
27. (1) There shall be imposed, levied and collected a consumption or sales tax at the rate specified in subsection (1.1) on the sale price of all goods . . . |
| 68. Lorsqu'une personne, sauf à la suite d'une cotisation, a versé des sommes d'argent par erreur de fait ou de droit ou autrement, et qu'il a été tenu compte des sommes d'argent à titre de taxes, de pénalités, d'intérêts ou d'autres sommes en vertu de la présente loi, un montant égal à celui de ces sommes doit, sous réserve des autres dispositions de la présente partie, être payé à cette personne, si elle en fait la demande dans les deux ans suivant le paiement de ces sommes. |
68. Where a person, otherwise than pursuant to an assessment, has paid any moneys in error, whether by reason of mistake of fact or law or otherwise, and the moneys have been taken into account as taxes, penalties, interest or other sums under this Act, an amount equal to the amount of those moneys shall, subject to this Part, be paid to that person if he applies therefor within two years after the payment of the moneys. |
ANALYSIS
[34] Section 27 (now s. 50) of the Act imposes an amount of sales tax at the rate specified by the Act on the sale price of goods produced or manufactured in Canada. As it does not distinguish between sales made to classes of clients, the amount of tax varies with the class of clients to which the sale is made.
[35] To offset this injustice, the Minister accordingly by Memorandum ET-202 set up a method that allows a manufacturer to use determined values on specific commodities. This practice is optional and the taxpayer has the option of using it or not doing so, if he meets the conditions stated in the Memorandum.
[36] The issue rests on how this Memorandum is seen, and whether it is in accordance with the Act. Although the plaintiff argued that this is not a case in which the Court should determine whether the administrative policy is in accordance with the Act, but rather whether the system of determined values is a valid exercise of the Minister's discretionary authority, I consider that its validity effects its compliance with the Act.
[37] In the case at bar, the plaintiff raised the compliance of Memorandum ET-202 with the Act, arguing that it was entitled to the reimbursement mentioned in s. 68 (formerly s. 44) of the Act. This approach is not possible without first considering whether the administrative policy of the determined values method is in compliance with s. 27 (now s. 50) of the Act, the legal basis for the payment of federal sales tax. I note that in Sunbeam Corp. (Canada) Ltd. v Canada,17 in which the facts were similar, the question of the legality of the determined values policy was not at issue since the plaintiff, Sunbeam, had admitted that it was a valid exercise of the Minister's discretionary power in administering the Act.
[38] In the case at bar, the parties admitted that the administrative policy in Memorandum ET-202 is not based on a legislative or regulatory provision, but that its basis is essentially the broad discretionary authority enjoyed by the Minister to issue directives for the better administration of the Act.
[39] I agree with the defendant that the Minister has a broad discretion in this regard. The courts have several times recognized that the power to adopt policy statements, even in the absence of legislative authorization to do so, is a valid and desirable administrative practice since it enables an administrative authority to lay down certain standards, which enhance more equitable administration of the Law.18
[40] G. Tremblay, a technical advisor on customs audit, testified that the determined values system was established to correct the problems resulting from various degrees of distribution, so as to prevent application of the Act having a negative effect on competition in a given sector. In particular, he explained that a manufacturer who decided to open a retail store himself and compete with a retailer to whom he was selling the same goods had to pay twice as much tax when he sold to the user instead of to the retailer. As a result of this, it was difficult for manufacturers to compete with retailers. Consequently, the determined value system was adopted to ensure more equitable treatment.
[41] Mr. Tremblay admitted that the Act provided for only one way of paying tax, that is on the basis of the sale price, and there was no other way.19
[42] Although I recognize that the purpose sought by the Minister is highly praiseworthy, I consider for the reasons I will explain that the administrative policy, Memorandum ET-202, is an illegal exercise of his discretionary power.
[43] As to how Memorandum ET-202 should be seen, the plaintiff maintained that it was a code that set rules of general application which verged on regulation. Since it is subject to the Act, it must comply with s. 68 (formerly s. 44) of the Act, so that it could not prevent retroactive reimbursement.
[44] I agree with the plaintiff that Memorandum ET-202 is general in application, and that it lays down rules. However, on reading the preamble, I find that it is an optional method of calculation which the taxpayer may use. The very essence of regulations is that they lay down a mandatory rule: since ET-202 contains no provisions requiring a manufacturer to observe it, I cannot conclude that it has crossed the line separating a directive from a regulation.
[45] In any case, whether it is a directive or a regulation does not in any way alter the rule that, in view of its subordinate nature, it must comply with the Act.20
[46] Section 27, now s. 50 of the Act, is clear and precise. It imposes a sales tax based on the sale price. Memorandum ET-202 offers alternative methods not calculated on the sale price, and so not in accordance with the Act. Further, in its preamble, this is admitted by the Minister:
| In order to reduce these differences, two methods of tax computation have been authorized for use by manufacturers as the only alternative to computing the tax on the sale price |
[my emphasis].
[47] When a provision is clear, the legislation must be given full effect, as the Supreme Court of Canada noted in R. v. McIntosh:21
| . . . where, by the use of clear and unequivocal language . . . anything is enacted by the legislature, it must be enforced, however harsh or absurd or contrary to common sense the result may be . . . The fact that a provision gives rise to absurd results is not, in my opinion, sufficient to declare it ambiguous and then embark upon a broad-ranging interpretive analysis.22 |
[48] In several decisions, such as Brigham Pipes Ltd. v. Minister of National Revenue23 and Esselte Pendaflex Canada Inc. v. Minister of National Revenue,24 the Canadian International Trade Tribunal has recognized that Memorandum ET-202, an administrative policy of Revenue Canada, is inconsistent with the Act, but it declined jurisdiction on the ground that, since ET-202 is an administrative concession, it did not have the power to grant the desired remedy.
[49] My jurisdiction allows me to invalidate a directive which is not consistent with Act, and that is clearly the case here.
[50] As for the plaintiff, it paid the tax in accordance with the Act. As Memorandum ET-202 is invalid, it is no longer possible for the plaintiff to claim a right to reimbursement pursuant to s. 68 (formerly s. 44), since it did not pay by mistake of fact or law or otherwise. The tax treatment given other taxpayers cannot affect its own tax liability.
[51] For these reasons, the action is dismissed with costs.
| Danièle Tremblay-Lamer JUDGE |
OTTAWA, ONTARIO
May 18, 2000
Certified true translation
Martine Brunet, LL. B.
FEDERAL COURT OF CANADA
DIVISION [DIVISION]
NAMES OF COUNSEL AND SOLICITORS OF RECORD
| COURT No: T-1907-90 |
| STYLE OF CAUSE: Groupe Bocenor Inc. v. Her Majesty the Queen |
| PLACE OF HEARING: Montréal, Quebec |
| DATE OF HEARING: April 25, 2000 |
| REASONS FOR JUDGMENT BY: Tremblay-Lamer J. |
| DATED: May 18, 2000 |
APPEARANCES:
| Eric Atkinson FOR THE PLAINTIFF |
New Glasgow, Nova Scotia
| Jacques Savary FOR THE DEFENDANT |
Montréal, Quebec
SOLICITORS OF RECORD:
| MacIntosh, MacDonnell & MacDonald FOR THE PLAINTIFF |
Solicitors and Notaries
New Glasgow, Nova Scotia
| Morris Rosenberg FOR THE DEFENDANT |
Deputy Attorney General of Canada
| Ottawa, Ontario |
2 Pursuant to a motion filed by consent, an order was made by McGinnis J. on October 7, 1997, authorizing a change in the plaintiff's identity to Groupe Bocenor Inc.
3 Plaintiff's affidavit of documents, tab 1.
9 Plaintiffs affidavit of documents, tab 10.
13 Plaintiff's affidavit of documents, tab 5. This text lays down the conditions for applying the determined values method, inter alia the prohibition of retroactive application.
18 Maple Lodge Farms Ltd. v. Canada, [1982] 2 S.C.R. 2, at 6 & 7; Capital Cities Communication Inc. v. CRTC, [1978] 2 S.C.R. 141, at 170 [hereinafter Capital Cities]; Ainsley Financial Corp. v. Ontario Securities Commission (1994), 21 O.R. (3d) 104, at 108 [hereinafter Ainsley].
19 Transcript of hearing of April 25, 2000, p. 12.
20 Capital Cities, supra, note 19, Ainsley, supra, note 19, Harel v. Deputy Minister of Revenue of the Province of Quebec, [1978] 1 S.C.R. 851.