BETWEEN:
and
THE MINISTER OF NATIONAL REVENUE
Heard at Montréal, Québec, on September 11, 2006.
Judgment delivered from the Bench at Montréal, Quebec, on September 11, 2006.
REASONS FOR JUDGMENT OF THE COURT BY: DÉCARY J.A.
Docket: A-232-05
Citation: 2006 FCA 298
CORAM: DÉCARY J.A.
LÉTOURNEAU J.A.
NADON J.A.
BETWEEN:
A & R DRESS CO. INC.
Appellant
and
THE MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Montréal, Quebec, on September 11, 2006)
DÉCARY J.A.
[1] At issue in this appeal from a decision of the Federal Court (2005 FC 681) is the interpretation of paragraph 110(b) of the Customs Tariff, S.C. 1997, c. 36, which provides a duties relief for obsolete or surplus goods. The issue being one of statutory construction, the standard of review, admittedly and undoubtedly, is that of correctness.
[2] The Appellant imports fabric from Korea, to make dresses. It pays the applicable customs duty in respect of the full value of the imported fabric. As a result of the process by which the dresses are manufactured in Canada, certain textile cuttings remain as leftover material. The leftover material is no longer usable to manufacture dresses (A.B. p. 29) and is “thrown in the garbage” (A.B. p. 32). It is eventually destroyed by the Appellant in a manner directed by the Minister of Public Safety and Emergency Preparedness (“The Minister”).
[3] The Appellant filed a claim for a refund, by way of drawback, of the customs duty which had been paid in respect of the leftover material. The claim was made under Division 3 (“Obsolete or Surplus Goods”) of Part 3 (“Duties Relief”) of the Customs Tariff. Division 3 is composed of the following three articles:
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( 1997, c. 36 )
[…]
Part 3 duties relief
DIVISION 3 OBSOLETE OR SURPLUS GOODS
Definition of “obsolete or surplus goods”
109. In this Division, “obsolete or surplus goods” means goods that are
(a) found to be obsolete or surplus
(i) in the case of imported goods, by their importer or owner, or
(ii) in any other case, by their manufacturer, producer or owner;
(b) not used in Canada;
(c) destroyed in such manner as the Minister of Public Safety and Emergency Preparedness may direct; and
(d) not damaged before their destruction.
1997, c. 36, s. 109; 2005, c. 38, ss. 142, 145.
Relief for obsolete or surplus goods
110. If an application is made in accordance with section 111, a refund shall be granted of
(a) all duties, other than the goods and services tax, paid in respect of imported obsolete or surplus goods;
(b) all duties, other than taxes imposed under the Excise Tax Act, paid in respect of imported goods processed in Canada, if the goods that result from the processing become obsolete or surplus goods; and
(c) all duties, other than taxes imposed under the Excise Tax Act, paid in respect of imported goods, other than fuel or plant equipment, that are directly consumed or expended in the processing in Canada of goods that become obsolete or surplus goods.
Application
111. An application under section 110 must be
(a) made in the prescribed form and manner, with the prescribed information,
(i) if the obsolete or surplus goods were imported, by the importer or owner of those goods, or
(ii) in any other case, by the manufacturer, producer or owner of the obsolete or surplus goods;
(b) accompanied by a waiver referred to in section 119, if applicable, and by the prescribed documents; and
(c) made within five years, or such other time as may be prescribed, after the goods in respect of which it is made are released.
1997, c. 36, s. 111; 2005, c. 38, ss. 89(F), 145.
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Tarif des douanes ( 1997, ch. 36 )
…
PARTIE 3 EXONÉRATION DE DROITS
SECTION 3 MARCHANDISES SURANNÉES OU EXCÉDENTAIRES EXCÉDENTAIRES
Définition de « marchandises surannées ou excédentaires »
109. Dans la présente section, « marchandises surannées ou excédentaires » s’entend des marchandises qui, à la fois :
a) sont jugées surannées ou excédentaires par :
(i) leur importateur ou propriétaire, dans le cas de marchandises importées,
(ii) leur fabricant, producteur ou propriétaire, dans les autres cas;
b) ne sont pas utilisées au Canada;
c) sont détruites selon les instructions du ministre de la Sécurité publique et de la Protection civile;
d) n’ont pas été endommagées avant leur destruction.
1997, ch. 36, art. 109; 2005, ch. 38, art. 142 et 145.
Exonération
110. Sur demande présentée en conformité avec l’article 111, est accordé un remboursement de la totalité des droits qui ont été payés :
a) à l’exception de la taxe sur les produits et services, sur des marchandises surannées ou excédentaires importées;
b) à l’exception des taxes imposées en vertu de la Loi sur la taxe d’accise, sur les marchandises importées et transformées au Canada, si les marchandises découlant de la transformation deviennent des marchandises surannées ou excédentaires;
c) à l’exception des taxes imposées en vertu de la Loi sur la taxe d’accise, sur les marchandises importées — sauf le carburant, le combustible ou le matériel d’usine — , directement consommées ou absorbées lors de la transformation au Canada de marchandises qui deviennent surannées ou excédentaires.
Demandes
111. Les demandes de remboursement prévues à l’article 110:
a) comportent les renseignements prescrits par le ministre de la Sécurité publique et de la Protection civile et sont présentées, en la forme qu’il prescrit, par :
(i) l’importateur ou le propriétaire des marchandises surannées ou excédentaires, dans les cas où ces marchandises ont été importées,
(ii) le fabricant, le producteur ou le propriétaire des marchandises surannées ou excédentaires, dans tous les autres cas;
b) comportent la renonciation visée à l’article 119, le cas échéant, et les documents réglementaires;
c) sont présentées dans les cinq ans — ou, le cas échéant, dans le délai réglementaire — suivant le dédouanement des marchandises.
1997, ch. 36, art. 111; 2005, ch. 38, art. 89(F) et 145.
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[4] Subsection 2(1) of the Customs Act and section 4 of the Customs Tariff are also relevant:
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Customs Act ( R.S., 1985, c. 1 (2nd Supp.)
INTERPRETATION
Definitions
2. (1) In this Act,
“goods” « marchandises »
“goods”, for greater certainty, includes conveyances, animals and any document in any form;
( 1997, c. 36 )
PART 1 INTERPRETATION AND GENERAL
Interpretation […] 4. Unless otherwise provided, words and expressions used in this Act and defined in subsection 2(1) of the Customs Act have the same meaning as in that subsection.
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Douanes, Loi sur les ( L.R., 1985, ch. 1 (2e suppl.)
DÉFINITIONS ET CHAMP D’APPLICATION
Définitions
2. (1) Les définitions qui suivent s’appliquent à la présente loi.
« marchandises » “ goods ”
« marchandises » Leur sont assimilés, selon le contexte, les moyens de transport et les animaux, ainsi que tout document, quel que soit son support.
TARIF DES DOUANES ( 1997, c. 36 )
PARTIE 1 DÉFINITIONS ET DISPOSITIONS GÉNÉRALES
Définitions … Termes de la Loi sur les douanes 4. Sauf indication contraire, les termes et expressions utilisés dans la présente loi et définis au paragraphe 2(1) de la Loi sur les douanes s’entendent au sens de ce paragraphe.
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[5] When examining the Customs Tariff, one must start from the premise that the word “goods” (“marchandises” in French) refers to “items in circulation on the commercial market and destined to be sold; goods offered for sale” (see Enterprises Kato Inc. v. Canada (Deputy Minister of National Revenue, Customs and Excise – M.N.R.) (F.C.A.), November 21, 1983, A-481-82, by Marceau J.A.). The need to resort to an authoritative jurisprudential definition arises because even though section 4 of the Customs Tariff imports the definition contained in subsection 2(1) of the Customs Act, the definition of “goods” in that subsection is of no help in the case at bar. We appreciate that Enterprises Kato dealt with the Excise Tax Act, R.S.C. 1970, c.E-13, but since “duties” is defined in the Customs Act as “any duties or taxes levied on imported goods under the Customs Tariff, the Excise Tax Act …”, it is fair to say that the ordinary and accepted meaning of “goods” applies to both statutes.
[6] Read in that context, the clear meaning of paragraph 110(b) of the Customs Tariff is that a refund shall be granted with respect to goods, i.e. to merchantable items which result from the processing and become obsolete or surplus goods. The dresses clearly fall within the contemplation of the paragraph: they come into existence as a result of the processing, they are merchantable items and they can be found by their importer to have become obsolete or surplus. (We need not, in the circumstances of this case, deal with the requirements (b), (c) and (d) of section 109).
[7] The solution with respect to the leftover material is not as evident. It may be that the leftover material comes into existence as a result of the processing. But if so, is it a merchantable item, in other words, is it “goods”?
[8] The evidence indicates that the leftover material is not usable for dresses, which does not mean that it is not usable for something else, like scrap or waste. But only merchantable scrap or waste would qualify as “goods” within the meaning of the Customs Tariff. As we understand counsel for the Appellant’s argument, the leftover material is merchantable scrap, merchantable scrap qualifies as « goods » and therefore paragraph 110(b) of the Customs Tariff applies. It may well be, as suggested by counsel, that Division 3 of Part 3 (i.e. articles 109 to 111) is a code of its own in which the word “goods” must be given the wide meaning given to it in Enterprises Kato and could include merchantable scrap. It may well be, also, as suggested by both counsel, that articles 120 to 122, in Division 5 of the Customs Tariff, which provide for a reduction of the drawback or refund in cases where merchantable scrap or waste is sold, are not applicable in the case at bar. We need not, however, decide these issues because there is no evidence before us that the leftover material is merchantable scrap, let alone that it is obsolete or surplus goods. Counsel for the appellant, who was not representing the appellant before the Minister, conceded at the hearing that there was no evidence that the leftover material had any merchantable value. In the circumstances, even if we did agree that paragraph 110(b) applies to merchantable leftover material, the Appellant’s claim for refund under that paragraph fails for lack of evidence.
[9] In the end we come to the same conclusion as the Federal Court Judge, but through different reasoning. We will dismiss the appeal with costs.
“Robert Décary”
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-232-05
STYLE OF CAUSE: A & R DRESS CO. INC. –and-
THE MINISTER OF NATIONAL REVENUE
PLACE OF HEARING: Montréal, Quebec
DATES OF HEARING: September 11, 2006
REASONS FOR JUDGMENT OF
LÉTOURNEAU J.A.
NADON J.A.
DELIVERED FROM THE BENCH BY: DÉCARY J.A.
DATE OF REASONS FROM THE BENCH: September 11, 2006
APPEARANCES:
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FOR THE APPELLANT
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FOR THE RESPONDENT
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SOLICITORS OF RECORD:
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Montréal, Quebec
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FOR THE APPELLANT
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John H. Sims, Q.C. FOR RESPONDENT Deputy Attorney General of Canada Montréal, Quebec
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FOR THE RESPONDENT
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