[2001] 1 F.C. 386
T-903-93
T-1251-92
Société des alcools du Québec (Plaintiff)
v.
Her Majesty the Queen (Defendant)
Indexed as: Société des alcools du Québec v. Canada (T.D.)
Trial Division, Lemieux J.—Montréal, March 29, 30, 2000; Ottawa, August 29, 2000.
Customs and Excise — Excise Tax Act — Plaintiff public undertaking engaged in marketing of alcoholic beverages in Quebec — Claiming rebate of federal sales tax on inventory held as of December 31, 1990 when old sales tax replaced by GST — Transitional provision authorizing rebate of old sales tax — Regulations adopted under regulatory power conferred by Excise Tax Act must comply with purpose of Act — Purpose of Act, s. 120(5) to avoid double taxation of same property — Not achieved in case of alcoholic beverages — Disproportion between sales tax previously paid at 19% rate, rebate rate set at 8.1% — Plaintiff not receiving rebate to which entitled — Rebate factor ultra vires regulatory power conferred by Act, s. 120(5).
Construction of statutes — Claim for rebate of federal sales tax on inventory of alcoholic beverages, other goods held by plaintiff — GST replacing old sales tax — Excise Tax Act, s. 120(5) providing for calculation of rebate according to “prescribed method” — Whether Federal Sales Tax Inventory Rebate Regulations ultra vires powers conferred by Act, s. 120(5) — Rules of statutory interpretation means of clarifying Parliament’s intention, purpose of Act — Purpose of s. 120(5) to avoid double taxation — Meaning of words “remboursement”, “rebate” examined — Parliament intending sum of money owed be rebated in entirety — Factors mentioned in Regulations, s. 3 destroying purpose of Act in plaintiff’s particular case.
This was an appeal from two notices of decision by the Minister of National Revenue concerning a claim for a rebate of federal sales tax, made by the taxpayer, on inventory of alcoholic beverages and other goods held by it as of December 31, 1990. The taxpayer is a public undertaking engaged primarily in the marketing of alcoholic beverages in the province of Quebec. Before April 1990, subsection 50(1.1) of the Excise Tax Act provided for the collection of a 19% sales tax on alcoholic beverages. On April 10, 1990, Bill C-62 was adopted, creating, as of January 1, 1991, the Goods and Services Tax (GST) which is a tax on the final consumption at a fixed rate, 7% at the time of its adoption. To resolve uncertainty resulting from the tax change, Parliament adopted a transitional provision authorizing a rebate of the old sales tax, when the latter had been paid on inventories of goods held as of January 1, 1991. Subsection 120(5) of the Act provides for calculation of the rebate according to a “prescribed method” as set out in the Federal Sales Tax Inventory Rebate Regulations. Taxpayer made two rebate claims which gave rise to two notices of determination by the Deputy Minister of National Revenue, Customs and Excise. Taxpayer filed a notice of objection in both cases, which was rejected on the ground that it could only be entitled to a rebate totalling 8.1% of the value of goods in inventory held as of January 1, 1991. The issue on appeal was whether the Federal Sales Tax Inventory Rebate Regulations, making an 8.1% factor applicable to rebates of federal sales tax on alcoholic beverage inventories, were ultra vires the powers conferred by subsection 120(5) of the Act.
Held, the appeal should be allowed.
Regulations adopted under the regulatory power conferred by the Excise Tax Act must comply with the purpose of the Act, which expresses the intention of Parliament. The rules of statutory interpretation are the means of clarifying Parliament’s intention and thereby the purpose of the Act. A regulation is ultra vires the regulatory power conferred by Parliament on the regulatory authority when it is contrary to the purpose of the Act or section of the Act conferring the said power. The Court must not apply the principles of interpretation laid down in the case law to the regulations without first considering the scope of the specific grant of regulatory power made by the legislation in question. Therefore, it is important to determine the purpose of subsection 120(5) of the Excise Tax Act, which confers on the regulatory authority the power to make regulations to determine the method for calculating the rebate and the factors to be used.
The purpose of section 120 was to provide for rebates so that taxpayers who had already paid the old sales tax and would now be required to pay GST would not be taxed twice on the same goods. The transitional provisions are intended to cover situations in which taxpayers would have had to pay tax on the same property twice. By the wording used in paragraph 120(3)(a) of the Act, Parliament imposed a duty on the Minister to pay rebates to those entitled to them under that provision and who make application therefor. Subsection 120(5), by use of the word “prescribed”, delegates to a regulatory authority the power to make regulations establishing parameters for the effective implementation of the rebate provisions. The use by Parliament of the word “rebate” confirms its intent to require the rebate of a sum of money in its entirety. The purpose of section 120 is to ensure that there would be a procedure for rebating the sales tax paid before January 1, 1991, in order to avoid double taxation of the same property. In the case of alcoholic beverages, that purpose was not achieved. There is a great disparity between the sales tax previously paid, at the rate of 19%, and the rebate (or factor) set at 8.1%. In view of the purpose of the Act, taxpayer did not receive the rebate to which it was entitled, due to the adoption of this factor which was disproportionate in relation to the tax previously paid. The factors mentioned in section 3 of the Regulations have the result, in the plaintiff’s particular case, of destroying the purpose of the Act. Given the plaintiff’s exceptional situation as importer, distributor, wholesaler and retailer, the 8.1% rebate factor provided for in paragraph 3(h) of the Regulations, adopted under the regulatory power conferred by subsection 120(5) of the Act, is ultra vires in that it does not comply with the purposes of that provision. However, since section 120 is intra vires in most cases, it should not be ruled invalid so as to create a needless legal void that could not be filled by adopting new regulations. Taxpayer was entitled to a full rebate of the amount claimed.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Excise Act, R.S.C., 1985, c. E-14.
Excise Tax Act, R.S.C., 1985, c. E-15, ss. 2(1) “prescribed” (as am. by S.C. 1990, c. 45, s. 1), 50(1.1) (as enacted by R.S.C., 1985 (1st Supp.), c. 15, s. 19; (2nd Supp.), c. 7, s. 16; S.C. 1989, c. 22, s. 3), 81.2 (as enacted by R.S.C., 1985 (2nd Supp.), c. 7, s. 38; (4th Supp.), c. 47, s. 52), 118 (as enacted by S.C. 1990, c. 45, s. 12; 1993, c. 27, s. 6), 120(1) “inventory” (as enacted by S.C. 1990, c. 45, s. 12; 1993, c. 27, s. 6), “tax-paid goods” (as enacted by S.C. 1990, c. 45, s. 12; 1993, c. 27, s. 6), (3) (as enacted by S.C. 1990, c. 45, s. 12), (5) (as enacted idem), 121 (as enacted idem; 1993, c. 27, s. 7; 1994, c. 9, s. 1).
Federal Sales Tax Inventory Rebate Regulations, SOR/91-52, ss. 3, 4.
CASES JUDICIALLY CONSIDERED
APPLIED:
Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; (1998), 36 O.R. (3d) 418; 154 D.L.R. (4th) 193; 50 C.B.R. (3d) 163; 33 C.C.E.L. (2d) 173; 221 N.R. 241; 106 O.A.C. 1; Canada v. St. Lawrence Cruise Lines Inc., [1997] 3 F.C. 899 (1997), 148 D.L.R. (4th) 480; 215 N.R. 278 (C.A.).
REFERRED TO:
CanadianOxy Chemicals Ltd. v. Canada (Attorney General), [1999] 1 S.C.R. 743; (1999), 171 D.L.R. (4th) 733; 122 B.C.A.C. 1; 133 C.C.C. (3d) 426; 29 C.E.L.R. (N.S.) 1; 23 C.R. (5th) 259; 237 N.R. 373; Québec (Commission des droits de la personne et des droits de la jeunesse) v. Montréal (City); Québec (Commission des droits de la personne et des droits de la jeunesse) v. Boisbriand (City), [2000] 1 S.C.R. 665; (2000), 185 D.L.R. (4th) 385; 50 C.C.E.L. (2d) 247; 253 N.R. 107; CKOY Ltd. v. Her Majesty The Queen on the relation of Lorne Mahoney, [1979] 1 S.C.R. 2; (1978), 90 D.L.R. (3d) 1; 43 C.C.C. (2d) 1; 40 C.P.R. (2d) 1; 24 N.R. 254; Alaska Trainship Corporation et al. v. Pacific Pilotage Authority, [1981] 1 S.C.R. 261; (1981), 120 D.L.R. (3d) 577; 35 N.R. 271; Attorney General of Canada v. Silk, [1983] 1 S.C.R. 335; (1983), 145 D.L.R. (3d) 221; 83 CLLC 14,025; 47 N.R. 57.
AUTHORS CITED
New Shorter Oxford English Dictionary on Historical Principles. Oxford: Clarendon Press, 1993, “rebate”.
Petit Larousse Illustré. Paris: Larousse, 1994, “remboursement”, “rembourser”.
Petit Robert 1: Dictionnaire alphabétique et analogique de la langue française. Paris: Le Robert, 1983, “remboursement”, “rembourser”.
APPEAL from two notices of decision by the Minister of National Revenue affirming two notices of determination in connection with a claim for a rebate of federal sales tax, made by the plaintiff, on inventory of alcoholic beverages and other goods held by latter as of December 31, 1990 when the former sales tax was replaced by the GST. Appeal allowed.
APPEARANCES:
Claude P. Desaulniers for plaintiff.
Jacques Savary for defendant.
SOLICITORS OF RECORD:
McCarthy Tétrault, Montréal, for plaintiff.
Deputy Attorney General of Canada for defendant.
The following is the English version of the reasons for judgment rendered by
Lemieux J.:
INTRODUCTION
[1] The case at bar concerns an appeal filed by the plaintiff, the Société des alcools du Québec, pursuant to section 81.2 [as enacted by R.S.C., 1985 (2nd Supp.), c. 7, s. 38; (4th Supp.), c. 47, s. 52] of the Excise Tax Act, R.S.C., 1985, c. E-15 (the Act) from two notices of decision by the Minister of National Revenue affirming two notices of determination in connection with a claim for a rebate of federal sales tax, made by the plaintiff, on inventory on alcoholic beverages and other goods held by the latter as of December 31, 1990.
FACTS AND APPLICABLE LEGISLATION
[2] The plaintiff is a public undertaking having as its primary function the marketing of alcoholic beverages and control thereof in the province of Quebec. As appears from the evidence in the record, the plaintiff’s powers under its enabling legislation are essentially the following:
• The plaintiff has exclusive power in Quebec to import, purchase, distribute and sell at wholesale and retail spirits, wine and beer bottled outside Quebec.
• It has an exclusive right to the initial distribution of all the wine bottled in Quebec.
• The wholesale and retail sale of spirits and of wines and beer bottled outside Quebec is done through the plaintiff’s network of branches and agencies.
• The retail sale of wine bottled in Quebec is done through the plaintiff’s network of branches and agencies and by the holders of grocery licences, who are supplied by distributors specifically authorized by the plaintiff for that purpose: the distributors must obtain their supplies exclusively from the plaintiff.
• The plaintiff has the exclusive right to supply wines and spirits to all establishments holding licences from the Régie des permis d’alcool of Quebec and authorizing the sale of alcoholic beverages for on-the-spot consumption at these establishments.
[3] Before April 1990, subsection 50(1.1) [as enacted by R.S.C., 1985 (1st Supp.), c. 15, s. 19; (2nd Supp.), c. 7, s. 16; S.C. 1989, c. 22, s. 3] of the Act provided for the collection of a 19 percent sales tax on alcoholic beverages:
50. …
(1.1) Tax imposed by subsection (1) is imposed
(a) in the case of wines, and goods on which a duty of excise is imposed under the Excise Act or would be if the goods were produced or manufactured in Canada, at the rate of nineteen per cent.
[4] On April 10, 1990 the House of Commons proceeded to adopt Bill C-62, creating as of January 1, 1991 a new type of sales tax, the Goods and Services Tax (the GST), to replace the old sales tax covered by section 50 of the Act, which was paid both by the importer and by the manufacturer and distributor, and not by the consumer of the item or product in question.
[5] Unlike the old sales tax, the GST is a tax on the final consumption at a fixed rate, 7 percent at the time of its adoption, applicable to all goods and services sold in Canada and paid successively at every stage of the production and distribution of goods. This tax is a tax on final consumption in that it is generally paid ultimately by the consumer. Through procedures provided for in the Act, persons engaging in commercial activity who are involved in one of the stages of producing or distributing a taxable product may generally request reimbursement of the tax paid through the input tax credit.
[6] To resolve uncertainty resulting from the tax change, Parliament adopted certain transitional provisions, including a provision authorizing a rebate of the old sales tax, when the latter had been paid, on inventories of goods held as of January 1, 1991 by registered merchants, distributors and importers within the meaning of the Act.
[7] To indicate the framework necessary for interpreting these transitional provisions, subsection 120(1) [as enacted by S.C. 1990, c. 45, s. 12; 1993, c. 27, s. 6] of the Act provided definitions of “inventory” and “tax-paid goods”:
120. (1) …
…
“inventory” of a person as of any time means items of tax-paid goods that are described in the person’s inventory in Canada at that time and that are
(a) held at that time for sale, lease or rental separately, for a price or rent in money, to others in the ordinary course of a commercial activity of the person, or
(b) building materials held at that time for use by the person in a business of constructing, renovating or improving buildings or structures carried on by the person, but not including any such goods that before that time have been incorporated into new construction or a renovation or improvement or have otherwise been delivered to a construction, renovation or improvement job site,
and that are not
(c) capital properties of the person,
(d) held by the person for use in the construction, renovation or improvement of property that is or is to be capital property of the person, or
(e) included in the description of any other person’s inventory at that time;
“tax-paid goods” means goods, acquired before 1991 by a person, that have not been previously written off in the accounting records of the person’s business for the purposes of the Income Tax Act and that are, as of the beginning of January 1, 1991,
(a) new goods that are unused,
(b) remanufactured or rebuilt goods that are unused in their condition as remanufactured or rebuilt goods, or
(c) used goods
and on the sale price or on the volume sold of which tax (other than tax payable in accordance with subparagraph 50(1)(a)(ii)) was imposed under subsection 50(1), was paid and is not, but for this section, recoverable.
[8] Subsection 120(5) [as enacted by S.C. 1990, c. 45, s. 12] of the Act provides for calculation of the rebate as follows:
120. …
(5) Subject to subsection (8), for the purposes of subsection (3), the rebate payable to a person in respect of the person’s inventory as of the beginning of January 1, 1991 is, subject to subsection 337(7), the amount determined by a prescribed method using prescribed tax factors.
[9] The said “prescribed method” was set out in the Federal Sales Tax Inventory Rebate Regulations, SOR/91-52 (the Regulations) created by the then Minister of Finance, the relevant sections of which are as follows:
3. For the purposes of subsection 120(5) of the Act, the prescribed tax factors in respect of the following classes of goods are:
(a) in the case of goods included in Schedule IV to the Act, 5.6%;
(b) in the case of gasoline, the rate of tax under Part VI of the Act applicable on December 31, 1990 in respect of unleaded gasoline;
(c) in the case of diesel fuel, the rate of tax under Part VI of the Act applicable on December 31, 1990 in respect of diesel fuel;
(d) in the case of propane, 1.4%;
(e) in the case of mobile homes and modular building units, 2.8%;
(f) in the case of motor vehicles designed for highway use, 11.1%;
(g) in the case of software products, 8.1%; and
(h) in any other case, 8.1%.
4. For the purposes of subsection 120(5) of the Act, the rebate in respect of a person’s inventory is
(a) the total of all amounts each of which is determined, for a class of goods, by the formula
A x B
where
A is the prescribed tax factor in respect of the class of goods; and
B is
(i) where the class of goods is gasoline or diesel fuel, the number of litres of gasoline or diesel fuel, as the case may be, that form part of the inventory,
(ii) where the class of goods is software products, the total value of the computer carrier media, excluding the value of instructions or data stored thereon, that form part of the inventory or the product obtained when $5 is multiplied by the number of those computer carrier media, and
(iii) in any other case, the total value of goods in the class (other than used goods) that form part of that inventory, as that total value would be required to be determined at the beginning of January 1, 1991 for the purpose of computing the person’s income from a business for the purposes of the Income Tax Act; [Emphases mine.]
[10] To obtain the rebate contemplated by the Act on its whole inventory of alcoholic beverages held at January 1, 1991 the plaintiff submitted two rebate claims to Revenue Canada using the GST 207F forms.
[11] The first form, dated February 19, 1991, claimed the sum of $11,877,812.21 and the second form, related to the first rebate claim and dated October 1, 1991, requested a total rebate of $733,110.06. The said amounts claimed corresponded essentially to the tax of 19 percent paid on the inventory of alcoholic beverages held by the plaintiff at January 1, 1991.
First rebate claim: file T-1251-92
[12] In the case of the first rebate claim mentioned above, dated July 16, 1991, the Deputy Minister of National Revenue, Customs and Excise, proceeded to issue a notice of determination in which he authorized the rebate of $5,099,099.73, excluding interest.
[13] On October 8, 1991 the plaintiff filed a notice of objection to the said notice of determination.
[14] On March 18, 1992 the Minister of National Revenue by a notice of decision informed the plaintiff that its objection had been dismissed primarily on the ground that it could only be entitled to a rebate totalling 8.1 percent of the value of goods in inventory held as of January 1, 1991, not a rebate corresponding to 19 percent of the said value of the goods, despite the fact that a tax of 19 percent had actually been levied on the said inventory.
[15] On May 28, 1992, following receipt of this decision, the plaintiff appealed to this Court.
Second rebate claim: file T-903-93
[16] A notice of determination was also issued by the Deputy Minister of National Revenue, Customs and Excise, on November 22, 1991 in respect of the second rebate claim, allowing a rebate of $312,536.40 not including interest.
[17] On February 7, 1992 the plaintiff filed a notice of objection to the said notice of determination. On March 5, 1993 the Minister of National Revenue, by notice of decision, allowed the plaintiff’s objection in part and granted a further rebate of $59,381.91, repeating the same reason as in the preceding notice of decision.
[18] The plaintiff also appealed the Minister’s decision to this Court on April 22, 1993.
[19] For the sake of convenience the two cases, T-1251-92 and T-903-93, were heard concurrently: the evidence submitted to this Court will thus apply in both cases.
PLAINTIFF’S ARGUMENTS
[20] The plaintiff submitted that paragraph 3(h) and subparagraph 4(a)(iii) of the Regulations are ultra vires the regulatory powers conferred by the Act in that they are discriminatory, unfair, unreasonable and not consistent with the purpose of the Act.
[21] The plaintiff maintained that the imposition of a single rebate factor, 8.1 percent, for all taxable goods not specifically covered by the Regulations, when in reality certain goods coming within this category were taxed at a rate considerably above 8.1 percent, such as alcoholic beverages at 19 percent.
[22] Further, the plaintiff also pointed to the disparities in rebates existing between itself and its commercial intermediaries, such as authorized distributors, grocers, authorized agents and holders of on-the-spot consumption licences, since it has to increase its prices substantially before selling them to its intermediaries. Further, the plaintiff argued that the defendant had unjustly enriched herself at its expense by imposing on it a heavier tax burden than on its intermediaries, who were also entitled to rebates on alcoholic beverage inventories.
[23] Additionally, the plaintiff noted that the imposition of an 8.1 percent rebate factor allowed it to recover barely half the old federal sales tax which it had actually paid on its alcoholic beverage inventory before December 31, 1990.
[24] Finally, the plaintiff stated that the Regulations were clearly contrary to the purpose of the section in the statute, which is to rebate federal sales tax on inventory held as of January 1, 1991 so as to avoid double taxation of the latter.
POINT AT ISSUE
[25] Are the Federal Sales Tax Inventory Rebate Regulations, supra, making an 8.1 percent factor applicable to rebates of federal sales tax on alcoholic beverage inventories ultra vires the powers conferred by subsection 120(5) of the Act?
ANALYSIS
Concept of ultra vires and purpose of enabling Act
[26] As the courts have held many times, regulations are the means by which Parliament, by adopting legislation providing for the existence of a regulatory power, authorizes an entity known as a “regulatory authority” to create a coherent system of rules which have the force of law so as to ensure that the said legislation delegating the regulatory power is properly implemented.
[27] It goes without saying that the regulations adopted under the regulatory power conferred by the said Act must comply with the purpose of the Act, which thus expresses the intention of Parliament.
[28] The rules of statutory interpretation recently reiterated by the Supreme Court of Canada in Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27 [at pages 40-41], are the means of clarifying Parliament’s intention, and thereby the purpose of the Act:
Although much has been written about the interpretation of legislation (see, e.g., Ruth Sullivan, Statutory Interpretation (1997); Ruth Sullivan, Driedger on the Construction of Statutes (3rd ed. 1994) (hereinafter “Construction of Statutes”); Pierre-André Côté, The Interpretation of Legislation in Canada (2nd ed. 1991)), Elmer Driedger in Construction of Statutes (2nd ed. 1983) best encapsulates the approach upon which I prefer to rely. He recognizes that statutory interpretation cannot be founded on the wording of the legislation alone. At p. 87 he states:
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
[29] This viewpoint has also been confirmed in two other recent judgments of the Supreme Court of Canada: CanadianOxy Chemicals Ltd. v. Canada (Attorney General), [1999] 1 S.C.R. 743; and Québec (Commission des droits de la personne et des droits de la jeunesse) v. Montréal (City); Québec (Commission des droits de la personne et des droits de la jeunesse) v. Boisbriand (City), [2000] 1 S.C.R. 665.
[30] Accordingly, it has been held that a regulation goes beyond or is ultra vires the regulatory power conferred by Parliament on the regulatory authority when, inter alia, the regulations adopted are not consistent with the purpose of the Act and section of the Act conferring the said power.
[31] The Supreme Court of Canada has laid down this principle in many well-known judgments still applied today, such as CKOY Ltd. v. Her Majesty The Queen on the relation of Lorne Mahoney, [1979] 1 S.C.R. 2; Alaska Trainship Corporation et al. v. Pacific Pilotage Authority, [1981] 1 S.C.R. 261; and Attorney General of Canada v. Silk, [1983] 1 S.C.R. 335.
[32] Recently, the Federal Court of Appeal per Décary J.A. restated the concept of ultra vires in broad outline in Canada v. St. Lawrence Cruise Lines Inc., [1997] 3 F.C. 899, at pages 912-914:
The first thing that must be done when the validity of a regulation has been challenged is to construe the enabling statute. We must be careful not to apply the principles of interpretation laid down in the case law to the regulations without first considering the scope of the specific grant of regulatory power made by the legislation in question. As Lord Reid observed in Padfield v. Minister of Agriculture, Fisheries and Foods:
Parliament must have conferred the discretion with the intention that it should be used to promote the policy and objects of the Act; the policy and objects of the Act must be determined by construing the Act as a whole and construction is always a matter of law for the court. In a matter of this kind it is not possible to draw a hard and fast line, but if the Minister, by reason of his having misconstrued the Act or for any other reason, so uses his discretion as to thwart or run counter to the policy and objects of the Act, then our law would be very defective if persons aggrieved were not entitled to the protection of the court. So it is necessary first to construe the Act.
In Roncarelli v. Duplessis, Rand J. wrote:
In public regulation of this sort there is no such thing as absolute and untrammelled “discretion”, that is that action can be taken on any ground or for any reason that can be suggested to the mind of the administrator; no legislative Act can, without express language, be taken to contemplate an unlimited arbitrary power exercisable for any purpose, however capricious or irrelevant, regardless of the nature or purpose of the statute … [T]here is always a perspective within which a statute is intended to operate; and any clear departure from its lines or objects is just as objectionable as fraud or corruption. Could an applicant be refused a permit because he had been born in another province, or because of the colour of his hair? The ordinary language of the legislature cannot be so distorted.
As well, in Montréal (City of) v. Arcade Amusements Inc. et al., Beetz J. adopted the following observation by Louis-Philippe Pigeon in Rédaction et interprétation des lois:
[translation] Another important observation has to be made regarding the regulatory power. It is the following: the power to make regulations does not include a power to adopt discriminatory provisions. In other words, unless the legislation authorizing it states the contrary a regulation must apply to everyone in the same way. If the intent is to make a distinction, this must be stated.
…
We were told by counsel for the respondent that the impugned regulations were made with the objective of raising revenue and reducing the deficit. She added, at the hearing, that the charges are imposed on the appellant company, regardless of what particular use it makes of the port facilities: it is not, she said, a user fee. The objective of the Governor in Council is not in dispute in the instant case. The issue here is therefore not what motives guided the Governor in Council, but rather whether the objective is consistent with what the enabling statute authorizes. [My emphasis; citations omitted.]
[33] Accordingly, after hearing the parties’ arguments, I must determine the purpose of subsection 120(5) of the Act, which confers on the regulatory authority the power to make regulations to determine the method for calculating the rebate and the factors to be used.
Purpose of section 120 of Act—context of transitional provisions
[34] First, I note that at the hearing of the case at bar counsel for the defendant admitted the purpose of section 120 of the Act. As the hearing had the benefit of the presence of an official stenographer, I will take advantage of this to quote certain passages from the hearing of March 30, 2000, at page 9:
[translation]
BY THE COURT:
But to continue as to the true nature of this provision, it is thus a provision giving the right to certain individuals, certain companies—to use the word you used—have a rebate on tax-paid goods.
MR. SAVARY:
That’s right. And the purpose of all that, if you look at it, your Honour, is to adjust the two plans to avoid double taxation of the consumer. Now, if we had been in a different budgetary situation, perhaps at that time, the $2.8 billion or $3.3 billion, as my colleague noted, which was finally spent, could have been kept and there would not have been any adjustment measures to avoid consumers being overtaxed or subject to double taxation at the federal level.
BY THE COURT:
But according to you, then, you are adopting your colleague’s argument in saying that the purpose of this section … which is double taxation.
MR. SAVARY:
Ah, I agree entirely with my colleague in that respect. It is to avoid the consumer having to pay the excise tax twice … or the federal tax in effect at the time, which was imposed on goods that were in inventory at December 31, 1990.
[35] Accordingly, the two parties agreed that the purpose of section 120 was to avoid the taxpayers in question, who had already paid the old sales tax on goods in inventory, having to pay again on the same goods, since they would be subject to the new taxation system of the GST, without receiving a full rebate. However, I must determine the veracity of this assertion by applying the aforementioned rules of interpretation.
[36] Accordingly, I note that section 120 is to be found in Part VIII of the Act, which has the title “Transitional” and contains six sections. It is thus clear that these sections were necessarily intended to ensure easier passage of the new provisions.
[37] Additionally, after reading the six sections I find that section 118 [as enacted by S.C. 1990, c. 45, s. 12; 1993, c. 27, s. 6] is designed to avoid the re-taxation of certain goods sold by a licensed wholesaler or manufactured or produced in Canada that had not been delivered to the purchaser before January 1, 1991, and the property in which had not passed before that date. Then, I note that sections 120 and 121 [as enacted by S.C. 1990, c. 45, s. 12; 1993, c. 27, s. 7; 1994, c. 9, s. 1] deal with the rebate of certain sales taxes, namely the sales tax on inventory and on new housing. Accordingly, we note that the transitional provisions clearly appear to be intended to cover certain situations in which various taxpayers would have had to pay tax on the same property twice.
[38] I also note that in paragraph 120(3)(a) [as enacted by S.C. 1990, c. 45, s. 12] of the Act, Parliament, by the wording used, appears to be clearly imposing a duty on the Minister to pay a rebate to persons who are entitled to it under that provision and apply for it. For greater clarity, I reproduce the text:
120. …
(3) Subject to this section, where a person who, as of January 1, 1991, is registered under Subdivision d of Division V of Part IX has any tax-paid goods in inventory at the beginning of that day,
(a) where the tax-paid goods are goods other than used goods, the Minister shall, on application made by the person, pay to that person a rebate in accordance with subsections (5) and (8); and [Emphasis added.]
[39] There is no doubt that the plaintiff met the requirements for entitlement to a rebate. That question is not at issue in this case.
[40] In subsection 120(5) it can be seen that the method of calculating the tax rebate is not included. Nonetheless, this subsection, by use of the word “prescribed”, delegates to a regulatory authority the power to make regulations to set out the necessary parameters for effective implementation of the rebate. Subsection 2(1) of the Act gives the meaning of the word “prescribed” [as am. by S.C. 1990, c. 45, s. 1]:
2. (1) …
“prescribed” means
(a) in the case of a form, the information to be given on a form or the manner of filing a form, prescribed by the Minister, and
(b) in any other case, prescribed by regulation or determined in accordance with rules prescribed by regulation. [My emphasis.]
[41] However, this Act contains no definition of the word “remboursement”: accordingly, again applying the rules of statutory interpretation I have examined the ordinary meaning of this word and the related word “rembourser”, as well as the word “rebate” used in the English version. According to Petit Robert 1: Dictionnaire alphabétique et analogique de la langue française, these words mean:
[translation]
Refund: n. m …. Act of refunding.
Refund: v. tr…. Pay (sthg.), to return expenses to someone …. Return expenses to someone; return to someone.
[42] The Petit Larousse Illustré defines these words as follows:
[translation]
Refund: n. m. Act of refunding; payment of amount due …
Refund: v. tr. (of fund) 1. Return money loaned to someone. 2. Return money spent to someone.
[43] The New Shorter Oxford English Dictionary on Historical Principles defines it as follows:
rebate … A deduction from a sum of money to be paid; a discount. Also, a partial rebate of money paid.
rebate v.t. Deduct ( a certain amount) from a sum; subtract; reduce or diminish ( a sum or amount) .… Give or allow a reduction to (a person) …. Pay back (a sum of money) as a rebate; give a rebate on.
[44] As can be seen, the use by Parliament of the word “remboursement” (rebate) allows us to conclude with greater certainty that its intent was in fact to require the rebate of a sum of money and that the sum of money owed must as a general rule be rebated in its entirety.
[45] Additionally, the plaintiff submitted by affidavit various technical documents issued by the Department of Finance at the time to provide information about Bill C-62, creating the GST, and amending the Excise Tax Act, supra. Inter alia, I note the issuing of Explanatory Notes on the said bill by Hon. Michael H. Wilson, Minister of Finance at the time, in February 1990. Certain parts of these notes deal with section 120 and indicate:
Section 120
This section authorizes the payment, to persons registered for GST purposes, of a federal sales tax rebate in respect of new tax-paid goods held in inventory in Canada by the person at the beginning of January 1, 1991. The purpose of the sales tax inventory rebates is to ensure that new goods held in inventory on January 1, 1991 for re-supply do not bear both the federal sales tax and the GST after 1990.
…
Subsection 120(3) Rebate of sales tax
Paragraph (3)(a) requires the Minister of National Revenue to pay a sales tax rebate to a person registered for GST purposes upon appropriate application by the registrant. [Emphasis added.]
[46] In May 1990, new Explanatory Notes were once again published following the adoption of Bill C-62 on April 10, 1990. However, the comments regarding section 120 were essentially the same and in the circumstances there is no reason to reproduce them.
CONCLUSION
[47] I have no difficulty concluding from all the foregoing that the purpose of section 120 was to ensure that there would be a procedure for rebating the sales tax paid before January 1, 1991, created in order to avoid double taxation of the same property. It appears that the procedure in question, set out by the Regulations, achieved that purpose at least for the great majority of cases, through the existence of various factors which took into account the tax rate previously paid.
[48] It was established in this Court that the various rebate factors mentioned in section 3 of the Regulations, applicable to products other than alcoholic beverages, were much more representative and guaranteed a rebate of the money paid that was clearly much more effective. Nevertheless, I have no choice but to conclude that in the case of alcoholic beverages the purpose of section 120 was not achieved.
[49] In fact, I accept the arguments of the plaintiff, which noted the great disparity between the sales tax previously paid, at the rate of 19 percent, and the rebate rate (or factor) set at 8.1 percent. In view of the purpose of the Act, there is in my mind no doubt that the plaintiff did not receive the rebate to which it should have been entitled, due to the adoption of this factor which was disproportionate in relation to the tax previously paid.
[50] This is all the more true as it appears from the facts that the factors mentioned in section 3 of the Regulations had the result, in the plaintiff’s case exclusively, of annihilating the purpose of the Act.
[51] As I have already mentioned, the old sales tax was paid at each of the stages of production and distribution, that is by the importer, manufacturer, wholesaler and retailer, based on a tax rate that varied between 9 percent and 13.5 percent. These “intermediaries”, who at January 1, 1991 had an inventory on which the sales tax had been paid, were entitled to a rebate in accordance with the prescribed method.
[52] However, we find that as a result of the way the rebate factors were developed the Minister, for reasons of convenience, simply set out a general rate of 8.1 percent applicable to all cases not specifically covered, which did not take into account the production and distribution stages for which the rebate was in fact claimed since it appeared from studies made that in most cases the rebates would be claimed by the retailers.
[53] It will be noted that logically the rebate that will be claimed by each of the intermediaries will be based on the cost paid for the goods making up the inventory, and this cost will necessarily include the tax paid by the preceding intermediary plus the profit made by it. Accordingly, depending on the stage in question, the rebate obtained will not be the same.
[54] In nearly all cases, the intermediaries are all separate entities, which therefore benefit from the way in which the inventory cost must be calculated as described above (tax paid plus intermediary’s profit), except the plaintiff, which cannot benefit from such an advantage as it combines in itself the functions of all the aforementioned intermediaries.
[55] Further, I cannot subscribe to the defendant’s argument that the plaintiff received a fair rebate since it was able to recover approximately half a million dollars thanks to an increase in excise taxes collected pursuant to the Excise Act, R.S.C., 1985, c. E-14, that occurred at the time Bill C-62 creating the GST came into effect, which it did not have to pay but which it could recover from taxpayers.
[56] Clearly, the Court must interpret Parliament’s intention here in accordance with the changes made to the Excise Tax Act, supra, by the adoption of Bill C-62, not in relation to some other Act which provides for another system of taxation. I thus see no relevance in this argument.
[57] Accordingly, having concluded that so far as the plaintiff’s situation is concerned—and I make a point of limiting the scope of this judgment to the plaintiff’s exceptional situation, performing in combination the functions of importer, distributor, wholesaler and retailer—it appears that the 8.1 percent rebate factor provided for in paragraph 3(h) of the Regulations, adopted under the regulatory power conferred by subsection 120(5) of the Act, is ultra vires the said powers conferred in that it does not comply with the purpose of the section in question as set out above. Nevertheless, since that section is intra vires in most cases, I do not intend to rule that it is invalid, so as not to have a needless legal void that could not be filled by adopting new regulations.
[58] However, as I have found that paragraph 3(h) of the Regulations is not consistent with the purpose of the Act, the plaintiff is necessarily entitled to compensation. In view of the particular circumstances of the case at bar, therefore, I find that the plaintiff is entitled to a full rebate of the amount claimed.
[59] Accordingly, in order to adjust the situation I make the following order:
• I allow the plaintiff’s appeal in the cases having file Nos. T-1251-92 and T-903-93.
• I quash the Minister of National Revenue’s notices of decision dated March 18, 1992 and March 5, 1993.
• I further quash the notices of determination having nos. 2228-0199265 (November 22, 1991) and 2228-0167034 (July 16, 1991).
• I find that the plaintiff is entitled to reimbursement of the following amounts, namely:
In file T-1251-92:
The amount of $6,778,712.48, representing the difference between the amount claimed in the GST 207F form, dated February 19, 1991 and the amount allowed by the Deputy Minister of National Revenue, Customs and Excise, in the notice of determination having No. 2228-0167034, dated July 16, 1991; plus interest.
In file T-903-93:
The sum of $361,191.69, representing the difference between the amount claimed in the GST 207F form, dated October 1, 1991, and the amount allowed by the Deputy Minister of National Revenue, Customs and Excise, in the notice of determination having No. 2228-0199265, dated November 22, 1991; plus interest.
• I award costs to the plaintiff.