Date: 19980217
Docket: T-765-95
BETWEEN:
TECHNESSEN LTD.
Plaintiff
- AND -
HER MAJESTY THE QUEEN
Defendant
REASONS FOR JUDGMENT
(Delivered orally from the Bench
on December 2, 1997, as edited)
McKEOWN, J.
[1] The plaintiff's claim for a federal sales tax inventory rebate on six motor vehicles -- a Mercedes Benz and five Dodge Caravans -- hereinafter referred to as vans 1, 2, 3, 4 and 5, in the plaintiff's inventory as at January 1, 1991, pursuant to section 120 of the Excise Tax Act, R.S.C. 1985, Chapter E-13, was denied by the Minister and his ruling was upheld by the Canadian International Trade Tribunal. The plaintiff appealed.
[2] "Inventory" is defined under section 120 as follows:
| "inventory" of a person as of any time means items of tax-paid goods that are described in the person's inventory in Canada at that time and that are |
| (a) held at that time for sale, lease or rental separately, for a price or rent in money, to others in the ordinary course of a commercial activity of the person. |
[3] There are three requirements in the above definition that the motor vehicles must meet in order to be included in inventory. The six motor vehicles must be tax-paid goods, which are described in section 120 as follows:
| "tax-paid goods" means goods, acquired before 1991 by a person, that have not been previously written off in the accounting records of the person's business for the purposes of the Income Tax Act and that are, as of the beginning of January 1, 1991, |
| (a) new goods that are unused, |
| (b) remanufactured or rebuilt goods that are unused in their condition as remanufactured or rebuilt goods, or |
| (c) used goods |
| and in respect of which tax imposed under subsection 50(1) (other than tax paid by the person under subparagraph 50(1)(a)(ii)) has been paid and is not, but for this section, recoverable. |
[4] The Minister raised the issue as to whether any of the six motor vehicles were tax-paid goods. However, in light of paragraph 3 of the Agreed Statement of Facts, I cannot agree that this is an issue.
[5] The second requirement is that the person's, i.e. taxpayer's, inventory must be in Canada. There is no issue that the plaintiff lives in Canada.
[6] The third requirement is that the goods be held separately for sale in the ordinary course of a commercial activity of the person. This requirement is an issue.
[7] There is an Agreed Statement of Facts which I attach as an addendum to these reasons. The manager of the plaintiff also testified that the manager had an interest in the family holding company which controlled the plaintiff.
[8] In general terms, there are four issues: 1) was the Mercedes Benz sold prior to January 1, 1991; 2) were the first two vans ever owned by the plaintiffs; 3) was van 5 owned by the plaintiff prior to January 1, 1991; and 4) were vans 3 and 4 held by the plaintiff for sale in the ordinary course of its commercial activity.
[9] In my view, on January 1, 1991, the Mercedes Benz was a specific good in a deliverable state as set out in rule 1 of section 19 of the Sale of Goods Act, R.S.O. 1990, Chapter S-1. The manager for the plaintiff testified that the Mercedes Benz was ready and available for delivery. Jerome v. Clements Motor Sales Ltd. and Waterloo Mutual Fire Insurance Co. (1958), 15 D.L.R. (2d) 689 (Ont. C.A.) relates to rule 2 under section 19, and Beaver Specialty Ltd v. Donald H. Bain Ltd., [1974] S.C.R. 903 relates to rule 5 under section 19 and are not applicable to the facts before me. I do not agree with the plaintiff that section 18 is applicable because, in my view, the intention of the parties is not clear from the invoice.
[10] The sale of the Mercedes Benz from the plaintiff to the specified person was completed by payment of the balance of the purchase price on December 22, 1990. The buyer had paid in full for the car. The terms and conditions attached to the invoice of December 20, 1990 set out that once payment is made, title to the vehicle passed, but this is intended primarily for lien purposes. The purchaser later in December decided he wanted to take delivery of the vehicle in Toronto and a new invoice was generated on January 2, 1991 for $950 less than the amount of the invoice of December 20, 1990, reflecting the savings of delivery charges, and the delivery terms were changed from FOB Los Angeles to CPT Toronto. It does not alter the completed sale on December 22, 1990 or the fact that legal ownership had passed to a purchaser in December 1990. The Mercedes Benz could not be included in the plaintiff's inventory on January 1, 1991. Furthermore, the Mercedes Benz was not held for sale separately on January 1, 1991, as required by the third requirement of the definition of inventory because it was sold or, in the alternative, it was being held for delivery to a specified purchaser. The Mercedes Benz was, accordingly, not in the plaintiff's inventory on January 1, 1991.
[11] I will now review the evidence with respect to the Dodge vans 1 and 2. These Dodge vans were sold to Freedom Motors, a related company to the plaintiff, in April 1990. They were paid for by cheques from Freedom Motors. Freedom Motors sold the vans in February 1991 and May 1991. I acknowledge that the vehicles were registered in the plaintiff's name on December 19, 1990, but there was no documentary evidence to show any transaction between the plaintiff and Freedom Motors for these vans in 1990. The manager testified that the plaintiff was advancing Freedom Motors moneys to pay for these vans, as well as other expenses, but I do not accept that his testimony is proof of a transaction of sale between the two companies in 1990. Accordingly, I am satisfied that on January 1, 1991, Dodge vans 1 and 2 were not part of the plaintiff's inventory.
[12] Dodge vans 3, 4 and 5 were purchased by Freedom Motors from a dealer in July 1990. The plaintiff paid the dealer for vans 3 and 4 in 1990. The plaintiff paid the dealer for van 5 on January 11, 1991. The contracts of sale between the dealer and Freedom Motors included condition no. 4 which provided that:
| The title and right of property in the said motor vehicle shall not pass to the purchaser until the entire purchase price is paid in full ... |
Accordingly, neither Freedom Motors nor the plaintiff had van 5 in its inventory on January 1, 1991.
[13] Dodge vans 3 and 4 had been paid for by the plaintiff prior to January 1, 1991, and were registered in the plaintiff's name on December 19, 1990. The vans had been converted to easy access vehicles by the end of December. The primary modification was to remove the floors of the vans and put in lower floors and a ramp in each van. I do not agree with the plaintiff's submissions that this was not a sufficient modification to establish the goods as new goods.
[14] The evidence establishes that the plaintiff was in the business of selling vehicles wholesale and primarily for export. The plaintiff sold one easy access vehicle for export prior to the acquisition of these five vehicles by Freedom Motors. The manager testified that they wanted to sell more easy access vans in the export market. In my view, this does not establish that the sale of easy access vehicles was in the ordinary course of the plaintiff's commercial activity. On the other hand, the sale of easy access vans was the business of Freedom Motors. Furthermore, Freedom Motors paid for the conversion of vans to easy access vans. Therefore, the plaintiff could not include easy access vans in its inventory for sale separately in the ordinary course of its commercial activity. The plaintiff is not entitled to a federal sales tax inventory rebate in respect of vans 3 and 4. Furthermore, vans 1, 2 and 5 could not qualify for a federal sales tax inventory rebate because they were all easy access vans as well.
[15] The appeal is dismissed.
___________________________________
Judge
OTTAWA, ONTARIO
February 17, 1998