Date: 20030514
Citation: 2003 FCA 220
BETWEEN:
SABLE OFFSHORE ENERGY INC.
Appellant
and
THE COMMISSIONER OF THE CANADA CUSTOMS AND REVENUE AGENCY
Respondent
Heard at Ottawa, Ontario, on April 30, 2003.
Judgment delivered at Ottawa, Ontario, on May 14, 2003.
REASONS FOR JUDGMENT BY: NOËL J.A.
CONCURRED IN BY: ROTHSTEIN J.A.
NADON J.A.
Date: 20030514
Citation: 2003 FCA 220
CORAM: ROTHSTEIN J.A.
NOËL J.A.
NADON J.A.
BETWEEN:
SABLE OFFSHORE ENERGY INC.
Appellant
and
THE COMMISSIONER OF THE CANADA CUSTOMS AND REVENUE AGENCY
Respondent
REASONS FOR JUDGMENT
[1] This is an appeal by Sable Offshore Energy Inc. (the appellant), pursuant to section 68 of the Customs Act, R.S.C. 1985, c. 1, as amended (the Customs Act), from a decision of the Canadian International Trade Tribunal (the Tribunal) holding that certain line pipe imported by the appellant was to be classified under tariff heading Nos. 73.04, 73.05 and 73.06 in Schedule I to the Customs Tariff, .S.C. 1985, c. 41 (3rd Suppl.), as amended (the Customs Tariff).
Background
[2] The appellant is a joint venture corporation which operates gas processing facilities that produce saleable gas products (i.e. natural gas, propane, butane and condensate) from subsea natural gas wells located in the vicinity of Sable Island, Nova Scotia.
[3] The facilities consist of the Venture and North Triumph satellite platforms; the Thebaud offshore dual wellhead/central processing platform; the onshore gas plant at Goldboro, Nova Scotia; and the fractionation plant at Point Tupper, Nova Scotia.
[4] The goods in issue consist of steel line pipe of various grades, finishes and diameters (8" to 26") that were imported into Canada in 1998 and 1999 for use in connecting the facilities (the Pipe).
[5] At the time of importation, the appellant declared the Pipe as "line pipe" under tariff heading Nos. 73.04, 73.05 and 73.06. Upon the respondent confirming this classification, the appellant filed an appeal to the Tribunal, pursuant to Section 67 of the Customs Act, alleging that the Pipe had been classified in error.
[6] The appellant argued on appeal that, although it had declared the Pipe as "line pipe" on entry, the Pipe was in fact a component of a functional unit; specifically, the whole system was intended, from the outset, to accomplish a defined function-i.e. the processing of natural gas from its raw state into a saleable product. As such, the Pipe ought to have been classified under tariff item No. 8479.89.99 as a component of a gas-processing machine.
[7] Note 4 to Section XVI of the tariff, which is made binding on the Tribunal by virtue of section 1 of the General Interpretative Rules (appended as a schedule to the Customs Tariff), specifies the following with respect to machines under tariff item No. 8479.89.99:
Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cable or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.
[8] The Tribunal agreed that the facilities function together as a gas processing unit and that the Pipe, which is essential to the function of this unit, appropriately fell to be classified as a component of this functional unit under tariff item No. 8479.89.99 (reasons, page 11, lines 1 to 3). The Tribunal nonetheless went on to hold that this classification was "not open to it" (reasons, page 11, 3rd last line) because the other elements of the functional unit had not been so classified and the time period for their reclassification had expired (reasons, page 11, 3rd full paragraph). Accordingly, the Tribunal held that the Pipe must retain its original classification under heading Nos. 73.04, 73.05 and 73.06.
[9] The Tribunal justified its decision on a variety grounds having to do with the need for consistency in the classification of imported goods. These grounds (found at page 11 of the reasons, at the 4th full paragraph) are as follows:
a) components may not be classified under a heading appropriate to a functional unit that exists only in a technical sense as this would permit, for all practical purposes, the reclassification of goods that have already been classified and are time-barred from reclassification;
b) classifying a component as belonging to a functional unit when the other components have been classified otherwise and are statute-barred from reclassification would lead to absurd results and create uncertainty in the marketplace;
c) classifying the Pipe as a component belonging to a functional unit would result in dual classification;
d) it could not have been Parliament's intention that goods be reclassified once the limitation period has expired or that there be a regime of dual classification.
Position of the Parties on Appeal
[10] The appellant alleges that the Tribunal, having found that the Pipe was a component of a functional unit under tariff item No. 8479.89.99, was bound to apply this tariff item to the goods in issue. According to the appellant, the Tribunal committed a reviewable error by requiring, as a further condition, that the other components of the unit also be classified as such within the time period contemplated by the Customs Act.
[11] The respondent does not challenge the Tribunal's finding that the Pipe was a component of a functional unit that appropriately fell to be classified as such. It submits, however, that this finding was both unnecessary and irrelevant. Specifically, it is contended that regardless of this finding, the Tribunal was bound to conclude that the Pipe could not be reclassified as a component of a functional unit because the "whole" of the unit, pursuant to Note 4, was time-barred from being so classified. The Tribunal's decision on this last point is said to be reasonable and supported by the evidence.
Analysis and Decision
[12] It is well established that the standard of review in an appeal of a Tribunal's decision under section 68 of the Customs Act concerning the proper interpretation of a tariff item is reasonableness simpliciter (Sandvik Tamrock Canada Ltd. et. al. v. Minister of National Revenue (Customs and Excise) (2001), 284 N.R. 183 (F.C.A.); Minister of National Revenue v. Yves Ponroy (2000), 259 N.R. 38 (F.C.A.) at paragraphs 31-37).
[13] However, where the issue to be decided is a pure question of law, which neither requires technical expertise about any particular goods nor involves the balancing of competing public policy considerations, the standard of review is correctness (Canada (Deputy Minister of National Revenue) v. Mattel Canada Inc., [2001] 2 S.C.R. 100 at paragraph 32).
[14] In the decision under appeal, the question raised is whether the Customs Act or the Customs Tariff preclude the classification of components of a functional unit under the tariff item appropriate to that functional unit when the other components of that unit were classified otherwise and are no longer eligible to be reclassified due to the operation of the limitation period.
[15] In my view, the Tribunal's first conclusion that the Pipe belongs to a functional unit would, if the respondent had challenged the point, clearly call for the application of a standard of reasonableness because it involves the interpretation of the tariff item. However, the further question concerning the effect of the limitation period on this classification arguably calls for a less deferential standard as the Tribunal has likely had little exposure to this broader question, if any.
[16] That being said, it is not necessary to dwell on the issue as in my view the decision of the Tribunal cannot withstand the type of probing examination which the standard of reasonableness calls for. A decision fails to meet this standard when:
... in the main, is not supported by any reasons that can stand up to a somewhat probing examination. Accordingly, a court reviewing a conclusion on the reasonableness standard must look to see whether any reasons support it. The defect, if there is one, could presumably be in the evidentiary foundation itself or in the logical process by which conclusions are sought to be drawn from it. An example of the former kind of defect would be an assumption that had no basis in the evidence, or that was contrary to the overwhelming weight of the evidence. An example of the latter kind of defect would be a contradiction in the premises or an invalid inference (Canada, Director if Investigation and Reserach) v. Southam Inc., [1997] 1 S.C.R. 748 at paragraph 56, as cited in Sandvik, supra at paragraph 13).
[17] In applying this standard, it is incumbent upon the reviewing court to focus on the reasons given by the Tribunal and "look to see" whether any of those reasons adequately support the decision (Law Society of New Brunswick v. Ryan, 2003 SCC 20 at paragraph 49).
[18] Adopting this approach, I cannot say that any of the Tribunal's reasons are capable of supporting its decision. The Tribunal first notes in its reasons that classifying the Pipe under tariff item No. 8479.89.99 would, "for all practical purposes, permit the reclassification of goods that ... are time-barred from reclassification" (page 11, 4th full paragraph, line 5). That is clearly not the case. As a practical matter, the only consequence attaching to the proper classification of the Pipe is that the amount of the duties will be set according to the appropriate classification. Such a classification does not reach into the past and does not result in the reclassification of those other components which are statute-barred.
[19] The Tribunal goes on to say that the classification of the Pipe as a component of a functional unit when the other components of the unit have not been and can no longer be classified as such "would lead to absurd results" (page 11, 4th full paragraph, line 7). In so stating, the Tribunal was obviously concerned about the inconsistency that would arise in the classification of the components within the functional unit because of the operation of the limitation period.
[20] This reasoning ignores the purpose of limitation periods, which is "to put an end to the revisiting of past errors," in recognition that, at some point, the achievement of the "correct" resolution of a problem must give way to the need for finality (Michelin Tires (Canada) Ltd. v. Minister of National Revenue (Customs and Excise) (1998), 158 F.T.R. 101 at paragraph 12). The absurdity, if any, would lie in refusing to classify the Pipe under the proper tariff heading simply to maintain consistency with previous, erroneous classifications that cannot be revisited due to the limitation period.
[21] The Tribunal further states that classifying the Pipe under the functional unit heading would "create uncertainty in the marketplace" (page 11, 4th full paragraph, lines 7, 8 and 9). This ignores the fact that there can be no finality-and therefore no certainty-with respect to tariff classification until such time as the limitation period has expired. The Customs Act contemplates that a revised classification may be made at any time prior to the expiry of the limitation period. In this instance, the time limitation has not expired and therefore no more uncertainty would arise from giving the Pipe its proper classification than would arise from any timely reclassification.
[22] The Tribunal further states that classifying the Pipe under the functional unit heading would result in "a regime of dual classification" based on the fact that "components or parts not yet classified would benefit from a classification from which other parts or components of the same machine that were already classified and time-barred would not benefit" (page 11, 4th full paragraph, lines 9, 10 and 11).
[23] This ignores the fact that the subject matter of the classification is not the functional unit per se but the components thereof. The fact that other components of the functional unit were individually classified elsewhere and that some of the components remain eligible for reclassification under the correct item does not create dual classification for those goods.
[24] I note in this respect that Note 4 to Section XVI of the tariff merely recognizes that a machine (or machines) having a defined function covered by one of the relevant headings may be acquired and imported in individual components, in which case the components are to be considered as part of the whole for classification purposes. The limitation period operates to prevent the reclassification of improperly classified components where the time limit for reclassification has expired; it does not operate to prevent the reclassification of those improperly classified components which are not statute-barred.
[25] Finally, the Tribunal expressed the view that classifying some components of a functional unit as such while the other components are classified under different headings and are time-barred from review would be contrary to Parliament's intent (page 11, 4th full paragraph, lines 6 and 7). Inherent in this view is the belief that Parliament did not intend that separate components of a functional unit be treated differently on account of the expiration of the limitation period.
[26] However, the Tribunal points to no such expression of Parliamentary intent, and the very nature and purpose of limitation periods points in the other direction. Subject to the expiration of the limitation period, Parliament has granted both the taxpayer and the Commissioner the right to rectify improperly classified entries.
[27] It is therefore clear that as long as the time period within which goods may be reclassified has not expired, Parliament's intent will be best respected by giving those goods the classification that is most appropriate in fact and in law. As there can be no doubt in this case-having regard to the Tribunal's initial conclusion-that the goods in issue properly came within tariff item No. 8479.89.99, and as the time limitation for applying this item to those goods has not expired, the Tribunal was bound to give effect to it.
[28] I would therefore allow the appeal with costs, set aside the decision of the Tribunal to the effect that it is no longer open to it to classify the Pipe in issue under tariff item No. 8479.89.99 and, rendering the decision which ought to have been rendered by the Tribunal, order that the Pipe in issue be so classified.
"Marc Noël"
J.A.
"I agree.
Marshall Rothstein J.A."
"I agree.
M. Nadon J.A."
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-361-02
STYLE OF CAUSE: Sable Offshore Energy Inc. v. The Commissioner of the Canada Customs and Revenue Agency
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: April 30, 2003
REASONS FOR JUDGMENT BY: Noël J.A.
CONCURRED IN BY: Rothstein J.A.
Nadon J.A.
DATED: May 14, 2003
APPEARANCES:
Mr. Richard Wagner and Ms. Dominique Nouvet FOR THE APPELLANT
Mr. Susanne Pereira FOR THE RESPONDENT
SOLICITORS OF RECORD:
Ogilvy Renault
Ottawa, Ontario FOR THE APPELLANT
Mr. Morris Rosenberg
Deputy Attorney General of Canada FOR THE RESPONDENT