Date: 19980219
Docket: T-2262-96
BETWEEN:
HIGHWOOD DISTILLERS LTD.
Applicant
AND:
HER MAJESTY THE QUEEN, MINISTER
OF NATIONAL REVENUE
Respondent
REASONS FOR ORDER
GIBSON J.:
[1] The applicant seeks judicial review of a notice of assessment of excise duty, penalties and interest, as amended, made against it pursuant to the Excise Act.1 The original notice of assessment is dated the 30th of May, 1996. It was amended the 16th of July, 1996 and further amended the 15th of November, 1996. The relief requested is that the assessment, as amended, be declared invalid or unlawful and that it be quashed or set aside. In addition, the applicant seeks costs.
[2] The applicant ("Highwood") is in the business of manufacturing and marketing alcoholic beverages, primarily to provincial liquor boards throughout Canada for consumption in Canada. Some sales are made into foreign markets. Highwood is a licensed distiller for the purposes of the Excise Act (the "Act").
[3] Between the 1st of June, 1994 and the 28th of November, 1994, Highwood made thirteen sales of alcoholic beverages for export that are the subject of the assessment under review. Most of the sales were on terms that required the alcoholic beverages to be delivered to a bonded warehouse in Montreal for onward shipping from that warehouse: to Russia, in five cases; to Chile, in three cases; and to Panama in one case. The other foreign sales were for direct delivery, by bonded carrier, to the United States. In each case, the alcoholic beverages left Highwood's bonded warehouse by bonded carrier. The sales and deliveries were evidenced, in each case, by an "Excise Duty Entry" form, form B60, which is apparently a standard National Revenue form. Each form contains on its face the following certificate:
| I certify that the transaction described herein is correct and authorized under the provisions of Excise Act and Regulations. |
[4] In each case, that certificate appears to have been signed by someone on behalf of Highwood. Under the certificate, the following appears on the form: "accepted subject to verification". Once again in each case, the acceptance would appear to have been either signed or initialled on behalf of the Minister of National Revenue and, in some cases, impressions of some form of stamp are affixed. On the reverse side of the form is a "declaration of exportation". Once again in each case, the declaration of exportation appears to be signed on behalf of the Minister of National Revenue and, once again, stamp impressions are affixed. The evidence indicates that these B60 forms were returned to Highwood following exportation or purported exportation and then provided by Highwood to National Revenue.
[5] Highwood's evidence acknowledges that it is "alleged", "believed", and "contended" that none of the alcoholic beverages that were the subject of the shipments ever left Canada. Put another way, it is alleged, believed or contended that the shipments were diverted for consumption in Canada. Highwood believes that it is by reason of such alleged diversion that the assessment under review was issued against it.
[6] The respondent filed no affidavit. Thus, the only evidence before the Court was that filed by the applicant, Highwood.
[7] The relevant provisions of the Excise Act are as follows:
| 47. (1) Except as otherwise provided in this Act, the several duties imposed by this Act shall be levied in respect of any goods subject to duty when those goods are entered for consumption by the manufacturer or importer thereof, and shall be payable and collected at that time or at such later time and in such manner as is prescribed by the regulations. |
47. (1) Sauf disposition contraire de la présente loi, les divers droits imposés par la présente loi sont prélevés sur toutes les marchandises assujetties au droit lorsque ces marchandises sont déclarées pour la consommation par leur fabricant ou importateur, et ils sont payables et perçus à ce moment ou à tel autre moment par la suite et de la manière que prescrivent les règlements. |
| .... |
.... |
| 54. All goods warehoused shall be at the risk of the owner and, unless destroyed by fire, the duty shall be payable thereon as if they were entered for consumption. |
54. Toutes les marchandises entreposées sont aux risques du propriétaire et, à moins qu'elles ne soient détruites par le feu, le droit est exigible sur ces marchandises comme si elles eussent été déclarées pour la consommation. |
| .... |
.... |
| 58. (1) Goods warehoused under this Act may, without payment of duty, be transferred or removed from one bonding warehouse to another in bond, exported in bond or released from bond to accredited representatives for their personal or official use, where the transfer, removal, exportation or release is in accordance with the regulations and the departmental regulations. (2) Goods subject to excise, other than cigars and manufactured tobacco, may be removed without payment of duty from a bonding warehouse established under this Act (a) to a bonded warehouse, licensed as such under the Customs Tariff, when the goods are (i) designated for delivery as ships' stores, (ii) for sale to accredited representatives in Canada of any other country, or (iii) for export, or (b) to a duty free shop, licensed as such under the Customs Act, when the goods are for sale to persons who are about to leave Canada and shall, if the goods are removed under this subsection, be delivered and sold in accordance with any departmental regulations in that behalf. |
58. (1) Les marchandises entreposées sous le régime de la présente loi peuvent, en franchise de droits, être transférées d'un entrepôt à un autre en douane, exportées en douane ou dédouanées en faveur de représentants accrédités pour leur usage personnel ou officiel, lorsque le transfert, l'exportation ou le dédouanement s'effectue conformément aux règlements et aux règlements ministériels. (2) Les marchandises assujetties à l'accise, sauf les cigares et le tabac fabriqué, peuvent être transférées en franchise de droits d'un entrepôt établi sous le régime de la présente loi_: a) à un entrepôt de stockage, détenteur de licence en vertu du Tarif des douanes, lorsque ces marchandises sont_: (i) désignées pour livraison à titre d'approvisionnements de navires, (ii) pour la vente à des représentants de tout autre pays accrédités au Canada, (iii) pour exportation; b) à des boutiques hors taxes munies d'une licence en vertu de la Loi sur les douanes lorsque ces marchandises sont offertes en vente à des personnes qui sont sur le point de quitter le Canada, et, si elles sont déplacées en vertu du présent paragraphe, sont livrées et vendues conformément aux règlements ministériels à cet égard. |
[8] Generally speaking then, with reference to the facts of this matter, alcoholic beverages that are warehoused are subject to excise duty when they are "entered for consumption". While warehoused, as regards excise duty, they are at the risk of the owner, unless destroyed by fire, which was not the case here. An exception from liability for duty arises where the alcoholic beverages are exported in accordance with relevant regulations.
[9] Section 9 of the Excise Warehousing Regulations2 reads as follows:
| 9. (1) No spirits shall be removed from any distillery or from any warehouse in which they have been bonded or stored unless a permit for such removal has been granted by the licensee who is responsible for the spirits. (2) A permit under subsection (1) shall be in the form of a statement made or stamped on a copy of the entry for removal or on the licensee's bill of lading, signed by the licensee who is responsible for the spirits, and containing the following words: "Removal of the spirits referred to herein is authorized pursuant to section 155 of the Excise Act. |
9. (1) Aucuns spiritueux ne doivent être enlevés d'une distillerie ou d'un entrepôt où ils ont été entreposés ou emmagasinés, à moins que le détenteur de licence responsable des spiritueux n'ait accordé la permission de ce faire. (2) Un permis délivré en vertu du paragraphe (1) doit prendre la forme d'une déclaration écrite ou estampillée sur une copie de la déclaration d'enlèvement ou sur la lettre de voiture du détenteur de licence, signée par le détenteur de licence responsable des spiritueux, et contenir les mots suivants : "L'enlèvement des spiritueux mentionnés dans les présentes est autorisé conformément à l'article 155 de la Loi sur l'accise. |
[10] The relevant provisions of the Excise Warehousing Departmental Regulations3 read as follows:
| 7. (1) Goods subject to excise may be shipped in bond in trucks owned by (a) the licensee who is responsible for the goods; or (b) a person who has furnished a bond of a guarantee company approved by the Minister in an amount of not less than $5,000, or in the case of spirits that are transported in tank trucks, in an amount of not less than $10,000. (2) A bond furnished under paragraph (1)(b) shall be conditioned on the delivery of the goods in accordance with the excise documents. |
7. (1) Les marchandises assujetties à l'accise peuvent être expédiées en entrepôt dans des camions qui appartiennent a) à un détenteur de licence responsable de ces marchandises; ou b) à une personne qui a fourni un cautionnement d'une société de caution agréée par le ministre, dont le montant est d'au moins 5 000_$ ou, dans le cas de spiritueux transportés en camions-citernes, d'au moins 10 000_$. (2) Le cautionnement visé à l'alinéa (1)b) porte pour condition que la livraison des marchandises soit faite selon les modalités indiquées dans les documents relatifs à l'accise. |
| 8. A bond referred to in section 3 ceases to apply in respect of the delivery of the goods that are referred to in that section and described in an entry for removal, where the regional director receives documentary evidence that the goods have been delivered within the period specified in the entry for removal and the licensee has fulfilled all the conditions set out in the entry for removal. 9. For the purpose of section 8, where goods are transferred or removed in bond from one warehouse to another, the regional director may accept as documentary evidence of proper delivery a copy of the entry for removal bearing the certificate of the consignee of the warehouse to which the goods have been transferred certifying that the goods have been received and warehoused. |
8. Le cautionnement visé à l'article 3 cesse de s'appliquer à l'égard de la livraison des marchandises visées à cet article et désignées dans la déclaration d'enlèvement, si le directeur régional reçoit un justificatif qui établit que les marchandises ont été livrées au cours de la période spécifiée dans la déclaration d'enlèvement et si le détenteur de licence a respecté toutes les modalités indiquées dans la déclaration. 9. Aux fins de l'article 8, lorsque des marchandises sont transférées ou transportées en entrepôt d'un entrepôt à un autre, le directeur régional peut accepter comme preuve documentaire de livraison dûment effectuée une copie de la déclaration d'enlèvement portant le certificat du destinataire à l'entrepôt auquel les marchandises ont été transférées, le certificat attestant que les marchandises ont été reçues et entreposées. |
| 10. For the purpose of section 8, where goods are exported in bond, the regional director may accept as documentary evidence of proper delivery (a) a copy of the excise duty export entry in respect of those goods duly executed; |
10. Aux fins de l'article 8, lorsque des marchandises sont exportées en entrepôt, le directeur régional peut accepter en tant que preuve documentaire de livraison dûment effectuée a) une copie de la déclaration d'exportation de droits d'accise dûment remplie à l'égard de ces marchandises; |
| (b) a landing certificate issued by the port authorities of the country to which the goods were exported, authenticated by a principal officer of customs, a British or Canadian trade commissioner or a British or Canadian consul, establishing that the goods have been landed and duly delivered to the customs authorities of the country named in the certificate; (c) in the case of goods exported to the United States, a landing certificate issued at the place in the United States to which the goods were exported bearing an official stamp, mark or impression of customs at the point of entry into the United States, or a continuous customs custody certificate from the United States customs; (d) any documentary evidence other than that described in paragraph (a), (b) or (c) showing that the goods have left Canada and have not been re-landed in Canada or, if re-landed, that the proper customs entry has been made; (e) in the case of goods exported by means of an aircraft or an ocean going vessel and destined to a foreign country, (i) a declaration, as provided for on the export entry form, that the goods have been duly laden and reported to customs, or (ii) a certified copy of the ocean or air bill of lading relating to the goods exported; .... |
b) un certificat de déchargement délivré par les autorités du bureau du pays auquel les marchandises ont été exportées, validé par un agent principal des douanes, un délégué commercial canadien ou britannique, ou un consul canadien ou britannique, certificat établissant que les marchandises ont été déchargées et dûment livrées aux autorités douanières du pays mentionné sur le certificat; c) dans le cas de marchandises exportées aux États-Unis, un certificat de déchargement délivré à l'endroit aux États-Unis vers lequel les marchandises ont été exportées et portant la marque, l'empreinte ou le sceau officiel des douanes à l'endroit de l'entrée aux États-Unis, ou un certificat de garde continue délivré par les douanes américaines; d) toute preuve documentaire autre que celle mentionnée à l'alinéa a), b) ou c) indiquant que les marchandises ont quitté le Canada et qu'elles n'ont pas été rapportées au Canada ou, si elles l'ont été, qu'elles ont été dûment déclarées aux douanes; e) dans le cas de marchandises exportées au moyen d'un aéronef ou d'un navire océanique à destination d'un pays étranger (i) une déclaration, ainsi que le prévoit la formule de déclaration d'exportation, attestant que les marchandises ont été dûment chargées et déclarées à la douane, ou (ii) une copie certifiée du connaissement maritime ou aérien ayant trait aux marchandises exportées; .... |
[11] Under the scheme of the Act and its related Regulations, Highwood would appear to have taken all required steps, in respect of export shipments, to ensure that the sales of alcoholic beverages in question could be made without excise duty becoming exigible, as provided by section 58 of the Act and the related Regulations. In fact, on the material before the Court, I can only conclude that, the acknowledged allegations, beliefs and contentions notwithstanding, the alcoholic beverages in issue were exported in accordance with all of the requirements of the Excise Act and related Regulations that must be complied with in order to exempt the alcoholic beverages from being subject to excise duty.
[12] Notwithstanding the foregoing, if the alcoholic beverages destined for export were, as alleged and at least implicitly acknowledged by Highwood for all purposes other than the purposes of this application for judicial review, diverted for consumption in Canada, then it would appear that, notwithstanding the good-faith actions of Highwood, excise duty would be exigible against Highwood on the shipments. Clearly, in the terms of section 54 of the Act, the alcoholic beverages constituting the shipments were goods warehoused by the applicant in its own warehouse and were at its risk. They were therefore, subject to excise duty "...as if they were entered for consumption." Section 58 of the Act must be read as an exception to section 54 where goods that would otherwise be subject to excise duty are exported.
[13] As indicated earlier, for whatever reason, the respondent chose not to file an affidavit in this matter. In the absence of such an affidavit, I can only conclude that there is no evidence before the Court upon which I can rely to conclude that the alcoholic beverages making up the shipments in question were in fact diverted for consumption within Canada. It is undisputed that Highwood's evidence acknowledges that this is the contention of the respondent and that the evidence before the Court demonstrates that the applicant entered into negotiations with the respondent regarding the assessment under review on the assumption that the respondent could establish that the alcoholic beverages making up the shipments in question were in fact diverted for consumption in Canada. But Highwood's evidence simply does not establish the fact of such diversions, nor is diversion admitted by the applicant. In the absence of evidence from the respondent to establish the diversion, I am simply not prepared to assume that the diversion took place, at least in circumstances where it is not explicitly acknowledged on behalf of the applicant. On the material before the Court, all of the evidence indicates that the alcoholic beverages in question were exported and that all of the requirements of the Act and related Regulations to exempt the export shipments from excise duty were complied with.
[14] In the result then, based solely upon the lack of evidence of diversion, I conclude that there is no evidentiary basis to support the assessment under review. Rule 1603(2) of the Federal Court Rules4 permits, but does not require, a respondent to file an affidavit on an application for judicial review such as this.5 Where a respondent chooses not to file an affidavit, the respondent runs the risk that the applicant's affidavit evidence simply will not provide an evidentiary basis to support the assessment or other decision that is the subject of the judicial review.6 Such is the case here.
[15] If, on any appeal in this matter, I am determined to be wrong in the foregoing conclusion, then despite the able argument of counsel for the applicant, I find no reviewable error of process or substance in the assessment that is here under review.
[16] For the foregoing reasons, this application for judicial review will be allowed. As indicated earlier, the applicant seeks to have the assessment under review simply quashed or set aside rather than quashed or set aside and referred back. Counsel for the respondent urged that, if the applicant were to be successful, the appropriate relief would be to set aside the assessment under review and to refer it back for reassessment. In the absence of any evidence to support the assessment, I can find no basis on the evidence before the Court that could possibly support a reassessment. The assessment is simply without foundation. The error is not in its substance, but in its very existence. Thus, the assessment under review will simply be set aside.
[17] The applicant seeks costs. Federal Court Rule 1618 provides that there will be no costs on an application for judicial review except where ordered by the Court for special reasons. I am satisfied that there exist here, special reasons. They exist in the failure on the part of the respondent to adduce any evidence to support the assessment under review in circumstances where the evidence filed on behalf of the applicant effectively cried out for such evidence from the respondent. The applicant will have its costs, on the ordinary scale, as against the respondent.
_____________________________
Judge
Ottawa, Ontario
February 19, 1998
__________________1 R.S.C. 1985, c. E-14, as amended.
4 C.R.C. 1978, c. 663 as amended.
5 See Merck Frosst Canada Inc. v. Canada (Minister of National Health and Welfare) (1995), 55 C.P.R. (3d) 302 (F.C.A.)
6 See, for example, Eli Lilly & Co. et al. v Novopharm Ltd et al ., (1990), 90 F.T.R. 241 at 247-250; Hoffman-Laroche Ltd. et al. v Canada (Minister of National Health and Welfare) et al., (1996), 109 F.T.R. 216 at 224; and Eli Lilly & Co. v Nu-Pharm Inc., [1997] 1 F.C. 3 at 22 (C.A.).