Tax Court of Canada Judgments

Date: 20021115

Docket: 2001-1753-GST-G

BETWEEN:

BJ SERVICES COMPANY CANADA,

the successor to NOWSCO WELL SERVICE LTD.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Miller J.

[1]            On June 13, 1996, BJ Services Canada Inc. (BJ Canada) acquired the shares of Nowsco Well Service Ltd. (Nowsco), the Appellant, in a hostile takeover. In the weeks leading up to that transaction, the directors of Nowsco received advice from RBC Dominion Securities Inc. (RBC), Simmons & Company International (Simmons) of Houston, Texas and the law firm of Blake Cassels & Graydon (Blake), their financial and legal advisors, in dealing with the hostile takeover bid. For such services, Nowsco paid RBC $13,070,777 plus goods and services tax (GST) of $914,765, Simmons $5,171,164 with no payment of GST, and Blake $225,000 plus GST of $15,750. The Minister of National Revenue (the Minister) assessed Nowsco denying it any input tax credits (ITCs), assessing GST on the Simmons' fee and assessing interest and penalties. This is the appeal of that assessment.

Issues

[2](i)          Is Nowsco entitled to claim ITCs because, pursuant to section 169 of the Excise Tax Act, the fees were incurred in the course of Nowsco's commercial activities? and

(ii)            Was the Simmons' fee acquired for consumption exclusively in the course of Nowsco's commercial activities and, therefore, not an imported taxable supply in accordance with section 217 of the Excise Tax Act, and consequently not subject to GST pursuant to section 218?

The common thread of course is whether the fees were incurred in the course of Nowsco's commercial activities.

[3]            Although the parties addressed alternative arguments[1] and also dealt with the issue of interest and penalties, because I find that Nowsco did incur the fees in the course of its commercial activities, it is unnecessary to deal with those issues.

Facts

Background

[4]            Nowsco has been in business since the early 1960s. Mr. Stanley Shouldice, the CEO, went through the history of the company with some considerable pride. It was clear that he was devoted to this business for well over 30 years. The business originally was limited to pumping liquid nitrogen into oil wells, but over the years evolved into a full-service company to make wells more productive. The company grew from a handful of staff working locally to over 2,000 staff working worldwide by the mid-1990s.

[5]            Nowsco became a public company in 1971 at a time when the revenues were approximately $3,000,000 annually. By the mid-1990s, its revenues were in the hundreds of millions. The number of shareholders decreased over the years as major Canadian institutional investors became more interested in the company and acquired large holdings. Mr. Shouldice indicated that by 1995 Nowsco was the largest company in Canada in its business in terms of revenue, employees and research and development.

[6]            It is significant to note Nowsco's mission statement adopted in the early 1990s. It reads as follows:

Nowsco will ensure superior growth in shareholder value by providing quality services and engineering to the international energy market. Nowsco will accomplish this by providing the best value to the client through quality management and industry leading solutions delivered with integrity and safety by the best people in the service industry.

Mr. Shouldice testified that the reference to shareholder value was intentionally stated first, as this was what the business was all about. He confirmed that he spent some considerable time with shareholder relations, by handling daily calls, by going on shareholder road shows and by obtaining advice on shareholder protection. Mr. Shouldice stated that shareholder confidence was the driving force of the entire business. He believed the value of the shares dictated how much Nowsco could raise in the capital markets, with the least amount of dilution of the stock.

[7]            Nowsco did not make any exempt supplies for the purposes of the Excise Tax Act, other than earning insignificant amounts of interest income, royalties, technical assistance fees and financial fees and, any inputs relating to the earning of such interest income, royalties, technical assistance fees and financial fees are deemed by subsection 185(1) of the Excise Tax Act to have been acquired or imported in the course of Nowsco's commercial activities.

Takeover of Nowsco

[8]            On April 1, 1996, representatives of BJ Services Company (BJ) approached Nowsco, through Mr. Shouldice, to negotiate a friendly merger, and proposed the purchase of all the common shares in Nowsco for $27 per share (Initial Proposal). The shares were trading in the $16 range.

[9]            On April 2, 1996, Nowsco's Board of Directors (the Board) met to discuss the Initial Proposal and formed a special committee, comprised of three independent Board members, to advise on all matters relating to this proposal. At this meeting, Bennett Jones Vercheres advised the Board that (i) the Board had a general duty to act honestly, in good faith and in the best interest of the corporation in determining whether or not to support the Initial Proposal; (ii) that the directors had a fiduciary obligation to obtain the highest price for Nowsco's shares; and (iii) that the requirement to obtain the highest price for Nowsco's shares had generally been interpreted to require the Board to engage in an auction of Nowsco's shares and to retain financial advisors to advise them of the value of Nowsco's shares.

[10]          Nowsco immediately engaged the services of RBC as financial advisors with respect to the Initial Proposal and any subsequent proposals that might arise. Under the RBC agreement, RBC was exclusively engaged as the Canadian financial advisor to Nowsco effective as of April 4, 1996 with respect to the Initial Proposal and with respect to any possible responses thereto, including the review of alternatives to maximize shareholder value, including the solicitation of additional takeover bid offers, a recapitalization, asset sales or the sale of all or part of Nowsco by way of merger, share exchange, amalgamation, arrangement, reorganization or otherwise. The RBC agreement further provided that the financial advisory services included, without limitation, advice and assistance in evaluating the Initial Proposal or subsequent offers and opinions as to the fairness of the Initial Proposal or subsequent offers from a financial perspective.

[11]          On April 4, 1996, Nowsco engaged the services of Simmons, an investment bank specializing in the oil service and equipment industry, as special financial advisor to assist Nowsco and RBC in determining a course of action with respect to the Initial Proposal and any subsequent proposals that might arise. Mr. Shouldice indicated the Board wanted an American advisor intimately familiar with the oilfield service industry. That is all Simmons dealt with. The Appellant's expert, Mr. Ian D. Bruce, confirmed that it was common industry practice to have two financial advisors in this type of situation. According to the Simmons' agreement, Simmons was also engaged to:

(a)            assist with an understanding and presentation of the status and potential impact of Nowsco's technology to potential acquirers of Nowsco;

(b)            assist with efforts to approach other companies as alternatives to takeover by BJ;

(c)            share industry data and information to assist Nowsco and RBC in determining a fair value for the common shares of Nowsco; and

(d)            respond to any of the requests from the Board and senior management of Nowsco in their efforts to maximize shareholder value.

As it was a company operating in the United States, Simmons was not a registrant for the purposes of the Excise Tax Act.

[12]          On April 9, 1996, the Initial Proposal was formally presented to Nowsco's Board by representatives of BJ with the request that the Board commit to negotiating exclusively with BJ until April 19, 1996, the period given to the Board to consider and negotiate the final terms of the Initial Proposal. The Board refused this request.

[13]          Mr. Shouldice explained his attitude toward BJ at that time was less than favourable for a number of reasons. He believed they were poorly managed, had weak staff, inconsistent pricing and were not well regarded. He had had a bad experience in the early 1990s with them in a previous takeover attempt through a suggested share swap; he believed they had misused confidential information. He was also aware that they had pulled out of a country in the middle of the night. All to say, he did not trust them. Reaction from his employees and major customers was similar. The employees did not want to work for BJ. The Board therefore put a stay bonus in place, so that if employees were terminated, they would receive attractive bonuses. Major customers indicated they would not contract with BJ. Mr. Shouldice saw all that he had worked for dissipating before his eyes. He sought advice from the advisors on how to thwart this particular takeover, primarily by seeking a white knight.

[14]          On April 12, 1996, BJ Canada formally offered the Initial Proposal to shareholders of Nowsco.

[15]          On April 16, 1996, the Special Committee engaged Blake to provide it with legal advice regarding the independence of the Committee and a number of other legal issues that arose from April 2, 1996, to June 13, 1996.

[16]          On April 19, 1996, RBC advised the Board that, in RBC's opinion, the consideration under the Initial Proposal was inadequate. RBC provided a formal opinion to this effect to the Board on April 22, 1996. The Board also received the report of the Special Committee on the same day, recommending that the Board advise shareholders to reject the Initial Proposal. The Board consequently unanimously recommended to the shareholders of Nowsco that they reject the Initial Proposal.

[17]          From April 2, 1996, Nowsco and its advisors were in contact with other parties interested in acquiring the assets of Nowsco, the common shares in Nowsco, or a combination thereof. It was clear from the advisors that the Board had a duty to get the maximum price for the shares. The Board could be liable if it could not prove they maximized the price. The options considered by the Board were: to just say no, though the advice received was that this was not a viable option given the duty on the Board; to attempt an internal rearrangement, though this appeared unfeasible as being unaffordable; or to proceed to a broad auction, in effect seek the white knight.

[18]          Out of the blue, Nowsco received an expression of interest from Great Lakes Chemical Corporation (GLCC), and between April 29 and May 2, 1996, Nowsco and its advisors met with GLCC to negotiate terms of an offer to acquire the common shares of Nowsco.

[19]          On May 4, 1996, Nowsco and GLCC entered into a pre-acquisition agreement whereby GLCC agreed to make a takeover bid to acquire the common shares in Nowsco at a price equal to $30.90 per share on terms described in the agreement.

[20]          On May 6, 1996, RBC provided Nowsco with an opinion that the GLCC offer was fair from a financial point of view. On the same day, GLCC made the offer to shareholders of Nowsco. Coincidentally, the Board issued a directors' circular of the shareholders from Nowsco recommending the GLCC offer. Mr. Shouldice described his reaction as follows:

Well, it was an answer to my prayers from the standpoint that Great Lakes did not know anything about the oilfield service business so they would need us, they would need our staff, they had no intentions of changing our name and as a matter of fact one of their first requirements was to have myself and all of our key management people sign employment contracts that we would stay, so it appeared to me that this white knight was utopia, it was going to give us a new shareholder that was going to pay more than $27.00. It was going to give us a company that would let us operate Nowsco as an entity and they brought with them a large chemical R & D component which I felt would complement our business, because a lot of what we do is pumping chemicals, so the whole marriage was utopia.                                                                        [Transcript pages 56-57]

[21]          On June 3, 1996, BJ Canada amended their Initial Proposal by increasing the consideration to $35 per share and extending the offer period to June 13, 1996.

[22]          On June 6, 1996, RBC provided Nowsco with an opinion that the second BJ offer was fair from a financial point of view. That same day, the Board issued a directors' circular to the shareholders of Nowsco recommending the second BJ offer. As Mr. Shouldice said, he felt that they had won the battle but lost the war. Out of a sense of vindictiveness, he was pleased to see BJ having to pay so much for the shares, but he was concerned as to the future of his company.

[23]          On June 13, 1996, BJ Canada acquired greater than 90 percent of the common shares in Nowsco, which allowed BJ Canada to acquire all of the issued and outstanding common shares in Nowsco by virtue of the compulsory acquisition provisions of the Business Corporation Act of Alberta.

Fees paid to RBC, Simmons and Blake

[24]          The fees outlined in the RBC agreement for the financial advisory services provided by RBC depended on whether a transaction resulted from the Initial Proposal or any subsequent proposals within one year of the RBC agreement. If no transaction occurred, RBC would have been entitled to a fee equal to $2,000,000. If a transaction occurred which resulted in a change of control of Nowsco, then RBC was entitled to an incentive-based fee in addition to the $2,000,000 fee.

[25]          Under the RBC agreement, Nowsco was required to pay an initial engagement fee of $500,000 immediately and a further $150,000 upon the provision of an opinion on the fairness of the Initial Proposal. These fees were deposits to be applied against the fees described above. The $500,000 engagement fee was paid on April 22, 1996, and the $150,000 fee payable on the provision of a fairness opinion was paid on April 24, 1996. As the takeover resulted in a change of control of Nowsco, RBC was entitled to the non-contingent fee of $2,000,000 plus the incentive fee. The aggregate fees paid to RBC including the engagement fee, was $13,070,777 (the RBC fees), the balance of which was paid on June 7, 1996. Nowsco also paid GST with respect to the RBC fees. The aggregate amount of GST paid by Nowsco with respect to the RBC fees was equal to $914,765.98.

[26]          In consideration for their financial advisory services, the Simmons agreement provided that Simmons was entitled to a non-contingent fee equal to US$250,000 plus an incentive fee based on the value of a closed transaction in excess of the Initial Proposal, subject to a minimum of US$250,000. Under the Simmons' agreement, Nowsco was required to pay the non-contingent fee equal to US$250,000 immediately and the incentive fee on the closing date of the transaction. The non-contingent fee was paid by wire transfer on June 12, 1996. On the closing of the takeover, Simmons was entitled to the incentive fee. The aggregate fees paid to Simmons including the non-contingent fee, was US$3,759,425 or C$5,171,164.

[27]          The aggregate fees paid to Blake for legal services was $225,000 (the Blake fees). Nowsco also paid GST with respect to the Blake fees in the amount of $15,750. These fees were paid on June 11, 1996.

[28]          The RBC fees, the Simmons fees and the Blake fees were reasonable in the circumstances.

Expert evidence

[29]          Mr. Bruce was presented and accepted as an expert in mergers and acquisitions, the expectations of public capital markets and response of directors in hostile takeover bids. He advised that the merger and acquisition activity throughout the 1980s and 1990s simply became part of the day-to-day activities of the capital markets. This led to reports such as the Dey Committee dealing with corporate governance and specifically the obligation of boards to shareholders. The conclusion by the Dey Committee and the response of the public company community was that the directors' obligations in mergers and acquisitions were for the protection of shareholders. This further resulted in public company boards seeking and obtaining advice for preparing the company for potential takeover bids, including putting in place shareholder rights protection plans. Indeed, Nowsco had instituted such a plan prior to the takeover bid by BJ.

[30]          Mr. Bruce described Canada as moving toward a U.S. type approach, which puts an onus on directors to shop until they drop in seeking a maximum price for shareholders. Typically, a board in a hostile bid is faced with four options:

(i)             if not a bona fide offer just say no;

(ii)            negotiate - according to Mr. Bruce this is seldom viable as normally one gets the best price by talking to others;

(iii)           recapitalize or other internal rearrangement; and

(iv)           broad auction - this is the option Mr. Bruce indicated is the norm in the industry.

[31]          He confirmed that directors would always obtain financial and legal advice in facing a hostile takeover. He further confirmed that the expectation of a board in a hostile takeover is to discharge its duty of good faith, to look after the best interests of the company and the shareholders, to obtain the maximum value for shares and, ultimately, to let the shareholders decide.

[32]          With respect to Nowsco's actions, Mr. Bruce summarized his view of those actions as being a classic textbook reaction. They did everything right. Their reaction was consistent with both regulators' and shareholders' expectations.

The assessment

[33]          Nowsco claimed ITCs for the GST paid with respect to the RBC fees and the Blake fees in the amount of $914,965.98 and $15,750, respectively, in accordance with subsection 169(1) of the Excise Tax Act. On February 15, 2000, Canada Customs and Revenue Agency (CCRA) sent Nowsco a letter proposing to deny the ITCs claimed with respect to the RBC fees, other than $150,000 paid on the provision of the first fairness opinion, and the Blake fees and to assess GST with respect to the Simmons fees. On March 29, 2000, the Minister assessed the Appellant in accordance with this letter. Interest and penalties were also assessed pursuant to subsection 280(1) of the Excise Tax Act in the amount of $241,000 and $338,900.04, respectively.

Analysis

[34]          The simple issue is whether the fees were incurred by Nowsco in the course of its commercial activities. The issue is framed thus due to the wording of section 169 of the Excise Tax Act, the relevant parts of which read as follows:

169(1)      Subject to this Part, where a person acquires or imports property or a service or brings it into a participating province and, during a reporting period of the person during which the person is a registrant, tax in respect of the supply, importation or bringing in becomes payable by the person or is paid by the person without having become payable, the amount determined by the following formula is an input tax credit of the person in respect of the property or service for the period:

      A x B

where

A is the tax in respect of the supply, importation or bringing in, as the case may be, that becomes payable by the person during the reporting period or that is paid by the person during the period without having become payable; and

B is

...

(c)            in any other case, the extent (expressed as a percentage) to which the person acquired or imported the property or service or brought it into the participating province, as the case may be, for consumption, use or supply in the course of commercial activity of the person.                                                                              [my emphasis]

[35]          "Commercial activity" is defined in section 123 as:

                a business carried on by the person (...) except to the extent to which the business involves the making of exempt supplies by the person ...

It appears from this definition that two elements of Nowsco's activities will not qualify as commercial activities; first, activity relating to the making of exempt supplies by Nowsco, and second, non-business activity, which I take to mean activity of a personal nature. Given that Nowsco did not make any exempt supplies, it is only if the fees are considered as having a non-business or personal element that would remove them from commercial activity for purposes of section 169. This is subject, however, to whether "commercial activity" is further clarified by any other provisions of the Act, specifically whether section 141.01, as the Respondent contends, applies to remove the fees from having been made in the course of a commercial activity, because they are not directly related to the making of taxable supplies.

[36]          I approach this analysis by first determining whether, based solely on an interpretation of section 169, the fees were incurred in the course of Nowsco's commercial activities. If I find they were not, that is the end of the analysis, as Nowsco would not be entitled to the ITCs claimed. If I find, as I do, that the fees were used in the course of Nowsco's commercial activities, it is then necessary to consider whether section 141.01 applies to deem what prima facie is considered to be in the course of commercial activity, to not be in the course of commercial activity. This will involve the interpretation of section 141.01 applying the well-established approach of Professor Driedger to statutory interpretation. There is then an alternative analysis I will briefly explore which focuses on the supply from Nowsco's directors to its shareholders. Finally, I will conclude with a discussion as to whether the result I reach is sustainable from the perspective of the policy of the GST legislation.

[37]          Returning then to the starting point, were the fees incurred in the course of a business carried on by Nowsco or were they incurred in the course of a non-business or personal venture? The Appellant argues that it offends common sense to suggest Nowsco's directors' response to the takeover bid, as required by law, falls outside commercial activity. The advice received by the Nowsco directors was that they were obliged to maximize shareholder value - that was the duty of the directors of a public company and as such cannot be divorced from the business of the company. The Appellant stresses that maintaining shareholder confidence with respect to the share value of the company is a driving force of any public company business, and specifically so in this case, as illustrated by the very wording of the company's mission statement. Finally, the Appellant contends that when Nowsco went public to access public capital markets, it committed to doing whatever was legally required or commercially expected of one who accesses those markets. This is what Nowsco did and this must, therefore, be in the course of carrying on its business.

[38]          The Respondent contends that the fees constituted a shareholder benefit. They were not incurred for the benefit of the company, had no impact on the company's capacity to make taxable supplies and, therefore, cannot be said to be in the course of the company's commercial activity. Even if section 141.01 does not directly come into play, the Respondent maintains that it provides a useful gloss on what is intended under subsection 169(1), and that is, that consideration must be given to the purpose of an input, in determining whether it falls within the course of a commercial activity. The Respondent argues that that purpose must be in connection with the making of taxable supplies. Finally, the Respondent maintains the fees relate to the market in corporate securities and not to the production chain: it is only inputs in connection with that production chain of goods and services that are within the course of a company's commercial activity.

[39]          There are several factors to consider in determining the business versus non-business nature of the inputs in issue. I agree with the Respondent that the purpose for the input is a factor, though not the overriding factor (as it would be if section 141.01 applied - an issue I will deal with later). Other factors, however, to consider are: for whose benefit was the input incurred; the context within which the input was incurred including what is the business of a public company; and case law dealing with what constitutes commercial activity.

Purpose of input

[40]          What was Nowsco's purpose in seeking advice on how to deal with the hostile takeover? Mr. Shouldice acknowledged that ultimately it was to assist in obtaining the maximum shareholder value for the company's shareholders. However, he expressed some tension between that objective and that of ensuring the long-term best interest of the company. It was clear he was overjoyed at the GLCC offer as it promised a rosier future for the company. He wanted his advisors to find that white knight. He was somewhat bitter that the goal of maximizing shareholder value resulted in the acceptance of the BJ offer. There was an element, therefore, in seeking the advice that went beyond the sole purpose of maximizing shareholder value; that is, there was an element that pertained to the ongoing viability and economic health of the company to provide its oilfield service. I accept, however, that that objective was secondary to the main purpose of maximizing shareholder value, although having such a secondary objective does indicate a connection to the goods and service marketplace, to the provision of taxable supplies and, therefore, not exclusively to the corporate marketplace.

[41]          In considering the primary purpose to maximize shareholder value, I am not convinced that even that purpose is devoid of any relationship to the making of taxable supplies. While the purpose is most directly connected to the corporate marketplace, rather than the goods and services marketplace, the two necessarily overlap in a public company context. The public company is in that corporate marketplace to access funds. It is critical that that marketplace have confidence in the company's ability to maintain and grow its value. This is done in a number of ways. As Mr. Shouldice indicated in answer to the question as to what drives up shareholder value:

Honesty, integrity, delivering the profits or the increased returns that we forecast. ... we would make a commitment that we thought that we could do something next year and delivering on that commitment is an important part of your shareholder value. In other words, there is short-term shareholders and there is long-term shareholders. The short-term ones, they are just looking at dollars and the long-term ones are looking at growth, so if you can present a picture and deliver on a long-term growth pattern that is increasing the shareholder value, it has some substance to it.                    [Transcript page 79]

So, responding as forecast is an important factor in Mr. Shouldice's mind. I agree. A company that does not behave as commercially expected will lose that corporate marketplace confidence, and suffer the financial consequences. Those consequences will go directly to the company's ability to sustain a profitable business. Had Nowsco's directors not responded in the textbook fashion, as Mr. Bruce described, what would the consequences have been to the ongoing commerciality of the goods and service business? Chaos perhaps, uncertainty definitely - each of which would have negatively impacted on the ability of Nowsco to make its taxable supplies.

[42]          While the purpose of maximizing shareholder value in these circumstances is not directly linked to the making of taxable supplies, it is not totally disconnected either. Combined with a secondary purpose that I am satisfied was in the company's best interest, I conclude that the purpose factor in this case does not take the inputs outside the realm of commercial activity for purposes of section 169.

Benefit from input

[43]          Turning next to the factor of who benefitted from the company's payment of the fees, there is no question the shareholders were the main beneficiaries. But is this the same sort of benefit a shareholder would derive for example from having his company pay all the utilities for his personal residence, which also serves as the company's office? I do not believe it is. This is not a case of one shareholder reaping a specific personal benefit completely unrelated to the fortunes of the company. This is the group of shareholders collectively benefitting from the reputation, track record and future prospects of the business of the company, which garnered such confidence in the marketplace to yield a top dollar. The benefit is ultimately tied in to the overall operation of the public company. And with Nowsco in particular, given its approach as exemplified in its mission statement, every effort of the business went towards maximizing shareholder value. As Mr. Shouldice pointed out, that was the essence of the business. As such, I have some difficulty in identifying the benefit resulting from the financial consulting services as a sort of "personal" benefit that would take the fees outside the realm of commercial activity.

Context of input

[44]          Turning to the context within which the fees were incurred as another factor in determining whether they were incurred in the course of commercial activity, I accept the Appellant's assertion that it offends common sense to consider otherwise. The directors of Nowsco, in hiring consultants, were doing exactly what the lawyers told them they were bound to do - get help in handling the takeover bid, including, according to the agreement with RBC:

with respect to any possible responses thereto, including, without limitation, the review of alternatives to maximize shareholder value including the solicitation of additional takeover bid offers, a recapitalization, assets sale, or the sale of all or part of [Nowsco] by way of merger, share exchange, amalgamation, arrangement, reorganization or otherwise.

[Statement of Agreed Facts]

Clearly, every avenue was to be explored and other potential purchasers sought. The duty of the directors had shifted from one of primarily acting in the best interests of the company to acting to maximize shareholder value. The Respondent would suggest this moved the actions of the directors out of the goods and service marketplace and into the corporate marketplace; in other words, out of the "business" of Nowsco. I believe that in the public company context, that puts too narrow a definition on business. The business of Nowsco was operated in both marketplaces, for without efforts expended in the corporate marketplace, the company's ability to access the capital integral to its day-to-day operation would be limited. How can this not be part of its business? Mr. Shouldice spent part of every day dealing with shareholder issues. He went on road shows to market his company. This was expected. This was business. Further, I do not view the hiring of financial consultants and the subsequent provision of information to the shareholders as being a separate financial service business of Nowsco. That stretches the concept of business in a more elastic fashion than is sensible.

Case law re: input

[45]          Before leaving this issue of what does and does not fall within the purview of commercial activity, I wish to address some of the cases raised by the Respondent. The Respondent relies on the cases of 398722 Alberta Ltd. v. R.[2] and London Life Insurance Co. v. R.[3] for the proposition that one must identify the specific supply that is most closely connected to the input. In this case, the Respondent suggests it is the exempt supply of the shares. However, in neither 398722 Alberta Ltd. nor London Life was the supply at issue a supply of a third party. In both cases, the supply was a supply of the taxpayer. That is a significant difference in the case before me. There is no doubt the inputs here are most closely connected to a supply of shares but it is not a supply of Nowsco.[4] This fact can only be ignored by somehow piercing the corporate veil or establishing some type of agency relationship between the shareholder and Nowsco: this was not argued.

[46]          If there is a principle that the inputs must be most closely identified with a supply to determine their eligibility for the ITC, the supply must be a supply of the taxpayer. The taxpayer, Nowsco, only made taxable supplies, unless one considers the proffering of information by the directors to the shareholders as a supply other than a taxable supply. I will deal with this issue in my alternative analysis.

[47]          The Respondent then relied on the Tax Court of Canada case of Boulangerie St-Augustin. v. The Queen[5] approved by the Federal Court of Appeal. This was an income tax case dealing with the deductibility of expenses relating to the preparation of information circulars in the course of three takeover bids. The analysis by Archambault J. involved a two-step review of the expenses: first, whether they qualified pursuant to the general provision of subsection 9(1) of the Income Tax Act which brings profit into income. This necessitates the application of accepted principles of commercial trading. Archambault J. found that business people consider these expenses as necessary business expenses. He then took the second step to determine if the limiting provisions of section 18 applied to deny deduction unless incurred for the purpose of gaining or producing income. This specific restricting purpose-based provision has no counterpart in the Excise Tax Act provisions with which the case before me is concerned. I am only dealing with whether the inputs (the fees) were incurred in the course of carrying on a business. I would suggest that the equivalent test, if I am going to receive any help at all from an income tax case, is Judge Archambault's first step - what are the accepted principles of commercial trading. I was provided with no evidence, expert or otherwise, as to the common commercial treatment of these inputs vis-à-vis the availability of ITCs. The lack of any precedent on this issue and the fact the Appellant presumed the ITCs were available, leaves me to conclude the commercial practice is to seek and expect the ITCs. This is by no means determinative. However, I do not find the Boulangerie case assists the Respondent's case, but if anything assists Nowsco's.

[48]          The Respondent went on to refer to a Canada Customs and Revenue Agency Communiqué dated February 8, 2000, dealing with the Boulangerie decision. In expounding its policy, the Department stated at page 3:

Costs incurred to fight a take-over bid and maintain the status quo, in particular by hiring expert advisors to assist the company in putting a defence mechanism in place, are not deductible by virtue of paragraph 18(1)(a) of the Act.

Implicit in this statement is the acceptance that left to a determination of profit, in accordance with accepted principles of commercial trading, these expenses would be deductible: it is only the second step, the application of paragraph 18(1)(a) that is not met. Again, in GST terms there is only the question of "commercial activity", without the restriction of an equivalent paragraph 18(1)(a) requiring a certain purpose. As I have already indicated, "purpose" is a factor to consider in determining "commercial activity", but I am not of the view that one needs an exclusive purpose of making taxable supplies to qualify for the ITCs. (Bear in mind I am still reviewing this issue without yet having explored the applicability of section 141.01)

[49]          Respondent's counsel also referred me to a couple of United Kingdom cases for guidance: BLP Group plc v. Customs and Excise Commissioners[6] and the Commissioners of Customs and Excise v. Redrow Group plc.[7] The legislation considered in the latter case was similar to section 169, in that a taxpayer was entitled to an ITC on "goods and services used or to be used for the purpose of any business carried on or to be carried on by him". The House of Lords concluded that a taxpayer who makes only taxable supplies is entitled to credits for all of its input tax. The Court distinguished the earlier BLP case as follows:[8]

But the BLP case was concerned with a point which seems to me to be entirely different from that which arises here. In that case services had been supplied to BLP in connection with the sale of shares, which was an exempt supply. The argument that had been used for the purposes of BLP's taxable transactions had to look beyond the direct and immediate link with the exempt supply to the ultimate aim of the sale, which was to raise funds to pay off debts. In the present case there is no problem of allocation of that kind. It is agreed that all the supplies which Redrow makes in the course or furtherance of its business are taxable supplies. So it is not necessary to examine each of the transactions on which it claims to be entitled to deduct input tax in order to determine whether there is a direct and immediate link with a supply which is taxable. That exercise only becomes necessary where the evidence shows that the taxable person makes supplies some of which are exempt supplies or is carrying on an activity other than the making of taxable supplies: ... The question then is whether there is a direct and immediate link with an exempt supply or with a supply which is not taxable. Where, as in this case, all the supplies which the taxable person makes in the course or furtherance of its business are taxable supplies, the only question which has to be addressed is whether the supplies on which it seeks to deduct input tax have been used or are to be used for the purposes of the business ...

... Questions such as who benefits from the service or who is the consumer of it are not helpful. The answers are likely to differ according to the interest which various people may have in the transaction. The matter has to be looked at from the standpoint of the person who is claiming the deduction by way of input tax. Was something being done for him for which, in the course or furtherance of a business carried on by him, he has had to pay a consideration which has attracted Value Added Tax? The fact that someone else - in this case, the prospective purchaser - also received a service as part of the same transaction does not deprive the person who instructed the service and who has had to pay for it of the benefit of the deduction.

[50]          I find these comments useful in cementing my view that I should only look at the supplies of the taxpayer (Nowsco) in determining the eligibility for ITCs. I should not deny the ITC on the basis of an exempt supply of the third-party shareholder. I then come full circle to the issue of whether the inputs relate to a business of Nowsco's, other than the making of taxable supplies. I find there is no other business. I also find these expenses are not of a non-commercial or personal nature. They were incurred in the course of Nowsco's commercial activity.

Section 141.01

[51]          Is section 141.01 to subsection 169(1) of the Excise Tax Act as paragraph 18(1)(a) is to section 9 of the Income Tax Act? Having found that the fees are inputs eligible for the ITC pursuant to section 169, does section 141.01 now come into play to deem it otherwise?

[52]          The Respondent argues that section 141.01 and section 169 must be read together and, in doing so, there is a clear requirement of a connective test for an activity to qualify for the ITCs; that is, ITCs are only available if the inputs, the fees in this case, are acquired for the purpose of making taxable supplies for consideration. To support the argument that section 141.01 requires this connective link, the Respondent referred me again to the 398722 Alberta Ltd. and the London Life cases. In the 398722 Alberta Ltd. case, Justice Sharlow was dealing with a company engaged in both taxable and exempt supplies, but did not go so far as to suggest that section 141.01 clarifies section 169 for companies only engaged in making taxable supplies. Justice Rothstein's comments in London Life may, however, be more supportive of the Respondent's position. In London Life, it was clear the basic business of London Life was the provision of exempt supplies, but Justice Rothstein identified the leasehold allowance received by London Life as more closely connected to the supply of leasehold improvements by London Life back to the landlord. Justice Rothstein found in effect that the acquisition of construction property and services by London Life to make its leasehold improvements constituted a separate business, a commercial activity involved in the making of taxable supplies.

[53]          Both these cases, however, dealt with situations of supplies (taxable or exempt) made by the taxpayers themselves. Neither addressed the situation before me where the exempt supply is a supply of a third party. Also, I do not see the provision by Nowsco's directors of information to its shareholders as constituting the type of separate business that Justice Rothstein found existed in the London Life case, by the provision of leasehold improvements from London Life to the landlord.

[54]          The Appellant argues that section 141.01 is not meant to be a definer of section 169 - it is an apportionment provision only. It cannot have any application to a company such as Nowsco that only makes taxable supplies. The Appellant indicates there is no case support for an interpretation that section 141.01 requires any connective link between the purpose of the input and its eligibility for the ITCs, other than in an apportionment sense to a company engaged in making both taxable and exempt supplies. It was not intended to push any indirect inputs out of the ITC system.

[55]          The Appellant relies on the press release from the Department of Finance[9] dated April 30, 1993, announcing the introduction of this legislation:

The Government of Canada today tabled in the House of Commons a Notice of Ways and Means proposing amendments to the Excise Tax Act that are designed to clarify the requirement to apportion GST paid on indirect inputs for registrants, such as financial institutions, who make both taxable and exempt supplies of goods or services.

Under the GST, like value-added tax systems in other countries, suppliers of exempt goods or services are not relieved of tax on their inputs to the extent that the inputs relate to the making of exempt supplies. When a Registrant's business involves making both taxable and exempt supplies, the Registrant is required to apportion tax on inputs in determining the amount of input tax credits that the Registrant may claim. ...

[56]          The Appellant also refers to the explanatory notes to the draft legislation:[10]

New section 141.01 is designed to clarify and reinforce the requirement to apportion the use of inputs, based on the extent to which the inputs are used or consumed, or acquired or imported for consumption or use, for the purpose of making taxable and non-taxable supplies. ...

... As noted above, a business is not a commercial activity to the extent that it involves the making of exempt supplies. This means that, for example, the internal audit department of a financial institution that makes both taxable and exempt supplies is, in part, within the scope of a commercial activity, and, in part, outside that scope since it is part of what is involved in the making of both types of supplies in the course of the business.

New section 141.01 is added only to reinforce this concept that the ultimate purpose of making supplies of some kind involves all aspect of the business. The new section removes any confusion that in this regard by, in effect, requiring an attribution of all costs to the making of supplies.

[57]          In following the principles of statutory interpretation set down by Professor Driedger and accepted at all levels of Canadian courts, it is necessary to read the words of section 141.01 in their entire context and grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

[58]          The context of the provision is that it appears in Division I, the Interpretation Division of Part IX, under a subheading "Supplies and commercial activities". The heading of subsection 141.01(2) is simply "acquisition for purpose of making supplies". Certainly, the provision has something to do with the interpretation of commercial activity. Although the heading does not refer to the apportionment nature of the section, the ordinary meaning of the wording and structure of the section does suggest it is meant to allocate inputs between the purpose of making taxable supplies and the purpose of making supplies that are not taxable or a purpose other than making supplies. It is not set up as an either/or section; there is an "and" between subsections (a) and (b), not an "or". That leads to the interpretation that the input is not meant to fall totally on one side or another, but is indeed to be allocated. Neither the Appellant nor the Respondent argued that this was a case suitable for an apportionment.

[59]          On an ordinary, plain meaning approach, I find the provision more aptly reflects the apportionment nature suggested by the Appellant, and does not inject a general purpose test into the definition of "in the course of commercial activity" for the purpose of including or excluding entire inputs.

[60]          This meaning is supported by the press release referred to earlier and the explanatory notes likewise already cited.

[61]          Section 141.01 does not explicitly state that it is, nor that it is intended to serve as, a general rider on the definition of commercial activity. I do not interpret it as requiring a purpose test before any input can be found to have been incurred in the course of commercial activity. It is simply meant to apportion inputs of a taxpayer who makes a combination of taxable supplies and exempt supplies or a taxpayer who incurs inputs for the purpose of making taxable supplies and for a purpose other than making supplies. In those circumstances, a specific input must be apportioned.

[62]          Frankly, I have concluded that the legislators did not contemplate this specific type of input in drafting section 141.01. Nothing in the releases or explanatory notes gives any clue that they did. These clarifying materials confirm Parliament's intent was to apportion an input, not to determine whether the whole input is or is not eligible for the ITC. I find that the stringent purpose test contained in section 141.01 is not applicable to Nowsco's case and, therefore, does not alter a finding that the fees were incurred in the course of commercial activity. To deny ITCs to a company such as Nowsco, that only made taxable supplies, for inputs such as financial advisory fees incurred in a hostile takeover scenario, the legislation should be explicit and not left to cross-referencing and implication.

Alternative Analysis

[63]          I feel reinforced in my conclusion by an analysis that does not focus on the supply of shares by Nowsco's shareholders as the supply to which the inputs most directly relate, but to the supply of advice by Nowsco to its shareholders as the relevant supply for purposes of making a connective link between the input and output. The definition of supply[11] is certainly broadly enough written to encompass the provision of information and advice from Nowsco's shareholders for no consideration. The question to then ask is whether the supply of advice is a taxable or exempt supply. Advice such as this is specifically excluded from the definition of financial service which reads:

123(1)      financial service" means

(a)           the exchange, payment, issue, receipt or transfer of money, whether effected by the exchange of currency, by crediting or debiting accounts or otherwise,

(b)           the operation or maintenance of a savings, chequing, deposit, loan, charge or other account,

(c)            the lending or borrowing of a financial instrument,

(d)           the issue, granting, allotment, acceptance, endorsement, renewal, processing, variation, transfer of ownership or repayment of a financial instrument,

(e)            the provision, variation, release or receipt of a guarantee, an acceptance or an indemnity in respect of a financial instrument,

(f)             the payment or receipt of money as dividends (other than patronage dividends), interest, principal, benefits or any similar payment or receipt of money in respect of a financial instrument,

(f.1)          the payment or receipt of an amount in full or partial satisfaction of a claim arising under an insurance policy,

(g)           the making of any advance, the granting of any credit or the lending of money,

(h)           the underwriting of a financial instrument,

(i)            any service provided pursuant to the terms and conditions of any agreement relating to payments of amounts for which a credit card voucher or charge card voucher has been issued,

(j)             the service of investigating and recommending the compensation in satisfaction of a claim where

(i)             the claim is made under a marine insurance policy, or

(ii)            the claim is made under an insurance policy that is not in the nature of accident and sickness or life insurance and

(A)           the service is supplied by an insurer or by a person who is licensed under the laws of a province to provide such a service, or

(B)            the service is supplied to an insurer or a group of insurers by a person who would be required to be so licensed but for the fact that the person is relieved from that requirement under the laws of a province,

(j.1)          the service of providing an insurer or a person who supply a service referred to in paragraph (j) with an appraisal of the damage caused to property, or in the case of a loss of property, the value of the property, where the supplier of the appraisal inspects the property, or in the case of a loss of the property, the last-known place where the property was situated before the loss,

(k)           any supply deemed by subsection 150(1) or section 158 to be a supply of a financial service,

(l)            the agreeing to provide, or the arranging for, a service referred to in any of paragraphs (a) to (i), or

(m)           a prescribed service,

but does not include

...

(p)           the service of providing advice, other than a service included in this definition because of paragraph (j) or (j.1),

                                                                                                                                                [emphasis added]

(q)           ...

Notwithstanding the Appellant's section 185 argument, in which he maintains the supply of information from the directors to shareholders does constitute a financial service, I conclude these services are more in the nature of advice and, therefore specifically excluded from the definition of financial service. The supply is therefore, not an exempt supply on that basis, nor does it fall within any other category of Schedule V.

[64]          Before continuing with a review of whether the advice to shareholders constitutes a taxable supply, I want to raise an analysis not raised at trial, which would take me down the long and winding road of exploring the very definition of a share. Is the obligation of directors of a company to advise shareholders with respect to a hostile takeover offer one of the rights contained in the bundle of rights which constitute the share? Given that an issuance of shares is an exempt supply, does the directors' advice, albeit given years after the issuance of shares, still form an integral part of the share, and therefore to be considered part of an exempt supply? I am inclined to think not, but do not intend to embark on the long and winding road. It is unnecessary for the purposes of this judgment. I will leave further investigation into this intriguing issue to the academics.

[65]          If not an exempt supply, is the advice by default a "taxable supply", that is a supply made in the course of a commercial activity? Although the analysis starts to become somewhat circuitous, the determination of what falls within the definition of commercial activity shifts from the perspective of the input (the fees) to the output (the supply of advice to the shareholder). Paraphrasing some of the definitions in section 123, was Nowsco's advice to its shareholders a supply made in the course of an undertaking carried on by Nowsco? Yes. But, was the advice part of a business or undertaking separate from the oilfield service business? No, it was not. Nowsco was not in the "business" of proffering financial advice.

[66]          As I have previously indicated, it is too much of a commercial stretch to find a separate business existed. Nowsco only had one business - the oilfield service business. The supply of information or advice to shareholders can only therefore be part of that business. Consequently, the output (supply of advice from Nowsco to the shareholders) is part and parcel of those taxable supplies and therefore the input is most closely linked to a taxable supply. This is not inconsistent with the conclusion I reached earlier, in that any activity engaged in by the company which is related to the shareholders, provided that it is commercial and not personal in nature, is a commercial activity for the purposes of the Excise Tax Act.

[67]          Had I found that the supply of advice from Nowsco to its shareholders was neither an exempt supply nor a taxable supply, but simply a supply, I would not have found that fatal to the Appellant's position. It would be fatal if there was a principle that "commercial activity" was defined as making taxable supplies, but it is not so defined. A company that makes a supply that is neither an exempt supply nor taxable supply can still be seen as doing so in the course of a commercial activity, provided that supply is not purely of a non-commercial or personal nature. I believe that is the unusual situation in which the Appellant would have found itself.

Policy

[68]          Having found the fees were incurred in the course of Nowsco's commercial activity pursuant to section 169, and that neither case law nor section 141.01 have altered that initial finding, I want to briefly consider whether this position is justifiable from a policy perspective.

[69]          The Appellant claimed there is no policy reason for distinguishing costs incurred in responding to a takeover bid, from any other indirect input such as shareholder costs generally, audit functions and the like. A large public company has many more obligations, and thus incurs many more expenses, than a small privately held company. Similarly, an international company has many more complexities than a domestic company. The Appellant contends there is nothing in any underlying GST policy to suggest a resource company which has to operate its commercial activities at a level of increased complexity will be transformed into an ultimate consumer for GST purposes. The GST legislation provides a transaction based value added tax and focuses on the inputs and outputs of a particular person. It was the shareholder, not Nowsco, who made an exempt supply, though Nowsco incurred the fees - fees incurred in the course of Nowsco's commercial activity, which included accessing public capital markets, and complying with associated legal obligations and market expectations. Once involved in these markets it was committed to these obligations for one purpose - to operate the business of oilfield services. It follows that all these activities are commercial activities within the scope and policy of the GST legislation.

[70]          The Respondent maintains, from a policy perspective, that providing ITCs in this case does not avoid the cascading of tax in the value added production cycle. The inputs relate to the corporate securities market, not the production of goods and services. If the shareholders had acquired the inputs directly, there would be no question the ITCs would not be available. The inputs, to qualify for credit, must have been incurred by Nowsco for the purpose of making taxable supplies, otherwise, there is an improper double dip if Nowsco gets the ITCs,

[71]          I do not intend to wade deeply into the murky waters of GST policy, and drown in a sea of complexities. I prefer to approach the policy aspect in as direct a manner as possible. While I agree with the Respondent that there is no question the shareholders would be denied the ITCs, had they incurred the fees directly, this does not lead me to an inevitable conclusion that, from a policy perspective, Nowsco should not be entitled to claim the ITCs. I am more swayed by the Appellant's approach that a public company, engaged in the international commercial arena has to deal with far more complex corporate and securities law issues than the corner mom and pop shop. Are the costs of complying with these increased complexities the types of costs the consumer would expect to have a company pass on? I believe they are. Where corporate and securities laws impose fiduciary, regulatory and other forms of obligations on a public company, is a consumer of the company's product offended that such costs are passed along? I suspect not. This is not akin to passing on to the customer a purely personal shareholder benefit (the all expense paid cruise to the spouses of the executives of the pension plan which holds a significant portion of shares in the company, for example). The commercial expectation is that Nowsco's fees are legitimate costs of the business, costs like any other indirect inputs, which do get passed on to the customer. Given that, it is then not a quantum leap to find a reasonable commercial expectation that the GST attached to those costs are not to be borne by Nowsco as an ultimate consumer.

[72]          Nowsco's fees are not directly part of the production chain, but I am satisfied there is no policy which requires that they must be; otherwise, there is a risk no indirect inputs would be entitled to the ITCs. GST policy clearly recognizes the entitlement of indirect inputs to ITC. So, how do the fees paid by Nowsco differ? The Respondent might say because they have no link at all to the production chain, whereas other indirect inputs have some link. It is up to each company to determine how resources, financial and otherwise, are allocated between direct inputs and accepted ancillary inputs. In the circumstances of this case, the Appellant maintains there is indeed some link to the making of taxable supplies. The policy debate, I would suggest, should be less concerned with the technical debate of whether or not there is a requirement for a connective link between the input and the making of taxable supplies, and more concerned with the connection between the input and what is acceptable in the commercial forum of a public company engaged in international work, as part of the company's business. If that latter link exists, then it must fall within the scheme of the Excise Tax Act to treat such an input as entitled to the ITC. Some might argue this would lead to the conclusion that every corporate expense, no matter how ancillary to the production chain, is incurred in the course of commercial activity. In these days of intense scrutiny of public companies and their executives, I find this is not an inevitable conclusion. Some expenses simply will not be commercially acceptable.

[73]          Who then ultimately pays the GST on these services if the shareholders do not, and if Nowsco gets the ITCs? The same people who pay the GST on any other input of Nowsco - the ultimate consumer of Nowsco's product. Nowsco incurred an approximate fee of $18 million. Some of that is passed on to its customers in the price charged for its oilfield services; the customers, all being registrants in business, will in turn pass it on until it reaches the ultimate consumer. The GST is "lost" only if Nowsco makes no attempt to recoup any of this expense in the ongoing supply of its product, potentially selling its services at a loss. This would be an unrealistic supposition. Certainly, there are many factors playing into the determination of price. Cost recovery is just one of them, but it is an important factor in any evaluation of the fairness of the GST system.

[74]          The Minister of Finance, the Honourable Michael H. Wilson, explained the rationale behind the GST in an information booklet introducing the legislation as follows:[12]

... sales tax reform will improve the overall fairness of the Canadian tax system. As a result of reform, the distribution of the tax burden will be more progressive and lower income Canadians will be better off.

The Respondent suggests there is some inherent unfairness in allowing Nowsco the ITCs. Unfair to whom? Certainly not to Nowsco, not to Nowsco's shareholders, not to Nowsco's customers. The unfairness, if any, must reach down to that ultimate customer - the unregistrant driver filling her car with gas. Is she paying more or less tax because Nowsco got its ITCs? If one presumes Nowsco passed the costs of the fees straight across to its customers, then whether or not Nowsco got the ITCs had no impact on the ultimate consumer. That consumer will still be picking up the tab for the GST on the $18 million fees. The beneficiary will be the Government of Canada, as it will have received the GST on the $18 million twice, should the ITCs be denied.

[75]          Yet, what happens if Nowsco, concerned about the additional $1 million GST bill no longer eligible for ITCs, decides to take the logical business step of upcharging the $18 million to $19 million so as to recover the $1 million in lost ITCs? Now, the ultimate consumer is indeed going to have to pay more - and an unfairness results. But not because of allowing ITCs, but quite the opposite, by denying the ITCs.

[76]          The Respondent might suggest the flaw is that the $18 million fee is not theoretically passed on by Nowsco to its customers. This seems to fly in the face of commercial realities (I have already discussed my view of commercial expectations in the international marketplace). It is not what the government theorizes as to what a public company does; it is what the public company, acting in a reasonable commercial manner, actually does, that must be reviewed in order to assess the "fairness" of this system. The government determines that fees, such as Nowsco's, are not part of its commercial activity. This leads the government to an expectation that neither the fees, nor the GST attached to them, should or would be passed on in the production chain by Nowsco. This is an unrealistic expectation. For the government not to recognize that some or all of the costs such as Nowsco's fees are passed on to the ultimate consumer of the Company's product, is to allow the government to collect GST twice. This is not the form of fairness ever contemplated by introductory statements of the Minister of Finance referred to earlier. I am not convinced there is a strong policy reason in theses circumstances to lead me away from my conclusion that the fees were incurred in the course of Nowsco's commercial activity.

Conclusion

[77]          The legislation, case law and GST policies do not support the Respondent's position that a taxpayer only gets ITCs if it can show that the purpose of inputs is in connection with making taxable supplies. Notwithstanding counsel for both sides' advice that this issue was easy, I have not found it so. There are strong arguments on both sides. Indeed, my initial reaction was that the Respondent's position was correct. I find myself, however, on balance not finding sufficient support to accept it. Admittedly, the fees did not have that direct link to the making of taxable supplies, but they had no direct link to the making of any other supplies of Nowsco, as Nowsco did not make any other supplies. (Unless of course one accepts the alternative analysis that the provision of advice from the directors to the shareholders was a taxable supply.) The fees also cannot be said to be connected to any other business. And they do not constitute a non-commercial personal benefit simply because they resulted in the shareholders getting more for their shares. No, I find they were used in the course of Nowsco's commercial activity, and do therefore qualify for the ITCs. No policy argument has convinced me otherwise. This is a situation which I suspect was not contemplated by the legislation. Given the corporate world is rife with mergers and acquisitions, oft-times of a hostile nature, fees of the type incurred by Nowsco are commonplace. The numbers must be huge. I am not prepared to find the Nowscos of the country are ultimate consumers of such fees, and consequently must pay the GST bill, without much clearer evidence of Parliament's intent to treat them in this manner. I therefore allow the appeal, answering yes to each of the questions posed in paragraph 2. I refer this matter back to the Minister for reconsideration in accordance with these reasons. Costs to the Appellant.

Signed at Ottawa, Canada, this 15th day of November, 2002.

"Campbell J. Miller"

J.T.C.C.

COURT FILE NO.:                                                 2001-1753(GST)G

STYLE OF CAUSE:                                                               BJ Services Company Canada,

the successor to Nowsco Well Service Ltd. and Her Majesty the Queen

PLACE OF HEARING:                                         Calgary, Alberta

DATE OF HEARING:                                           August 19 and 20, 2002

REASONS FOR JUDGMENT BY:      The Honourable Campbell J. Miller

DATE OF JUDGMENT:                                       November 15, 2002

APPEARANCES:

Counsel for the Appellant: W. Clarke Hunter

Counsel for the Respondent:              J.E. (Ted) Fulcher

COUNSEL OF RECORD:

For the Appellant:                

Name:                                W. Clarke Hunter

Firm:                  Macleod Dixon LLP

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2001-1753(GST)G

BETWEEN:

BJ SERVICES COMPANY CANADA,

the successor to NOWSCO WELL SERVICE LTD.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on August 19 and 20, 2002, at Calgary, Alberta, by

the Honourable Judge Campbell J. Miller

Appearances

Counsel for the Appellant: W. Clarke Hunter

Counsel for the Respondent:              J.E. (Ted) Fulcher

JUDGMENT

The appeal from the assessment of goods and services tax made under the Excise Tax Act, notice of which is dated March 29, 2000, and bears number 10CT0000698, for the period of January 1, 1996 to July 31, 1996, is allowed, with costs, and the assessment is vacated.

Signed at Ottawa, Canada, this 15th day of November, 2002.

"Campbell J. Miller"

J.T.C.C.