The Price Company Limited (Suppliant)
v.
The Queen (Respondent)
Trial Division, Kerr J.—Ottawa, June 25 and
August 10, 1973.
Excise tax—Sale of machine—Price payable in instal-
ments—Machine exempted before all payments made—
Whether sales tax refundable—Who entitled to claim
refund—Excise Tax Act, R.S.C. 1970, c. E-13, s. 30(1)(a)(ii),
s. 46(1); am. 1967-68, c. 29, s. 13.
In 1965 a manufacturer agreed to sell the R Co. a news
print machine for the Price Co. at a price of $4,754,091. In
1966, the R Co. agreed with the Price Co. to install the
machine for a price of $5,721,229 at the Price Co.'s mill in
Alma, Quebec. The R Co. agreed to pay the manufacturer
for the machine by instalments over a period of time and the
contract between them provided that title to the machine
would not pass until the final payment was made. The
purchase price was paid in 14 instalments, the last of them
in June 1968. The manufacturer paid sales tax on a number
of instalments but in January 1968 an agent for the Price
Co. gave notice of intention to apply for a refund of the
sales tax on the ground that when title to the machine
passed in June 1968, the machine had become exempt from
sales tax under the amendment to the Excise Tax Act
[1967-68, c. 29, s. 13] as of June 2, 1967. The refund was
refused. The Price Co. by petition of right claimed a refund
of the sales tax.
Held, the contract for the purchase of the machine fell
within section 30(1)(a)(ii) of the Excise Tax Act and sales
tax was therefore exigible on the sale price of the machine
pro tanto as each instalment became payable under the
contract. The Price Co. was not entitled to claim a refund of
tax paid after the machine became exempt from tax because
application for the refund was not made within two years of
the time the refund became payable as required by section
46(1) of the ( Act. The letter from the Price Co.'s agent giving
notice of intention to apply for a refund was not an applica
tion by the manufacturer as required by section 46(1).
The King v. Dominion Engineering Company [1944]
S.C.R. 371; [1947] 1 D.L.R. 1, discussed; The Queen v.
M. Geller Inc. (1964) 41 D.L.R. (2d) 367, applied.
PETITION of right.
COUNSEL:
Gordon Henderson, Q.C., and George
Hynna for suppliant.
Derek Aylen, Q.C., and John Smith for
respondent.
SOLICITORS:
Gowling and Henderson, Ottawa, for
suppliant.
Deputy Attorney General of Canada for
respondent.
KERR J.—This action was tried together with
another action No. 920-71 between Price (Nfld)
Pulp & Paper Limited, as suppliant and Her
Majesty the Queen, as respondent. They were
commenced by petitions of right in the Excheq
uer Court claiming refunds of sales tax paid
under the Excise Tax Act, R.S.C. 1952, c. 100,
as amended, on newsprint machines manufac
tured by Dominion Engineering Works Limited.
The machine in this action was for delivery at
Alma, Quebec; the machine in the other action
was for delivery at Grand Falls, Newfoundland.
In this action a refund of $460,899.97 of sales
tax paid is claimed. In the other action a refund
of $267,460.22 is claimed.
An Agreed Statement of Facts was filed in
each action, and evidence was given by George
C. Brown common to both actions.
The Agreed Statement in this case is Exhibit
P-2, as follows:
1. The suppliant is a body corporate and politic having its
head office at the City of Quebec, in the Province of
Quebec.
2. The name of the suppliant was changed from Price
Brothers & Company, Limited to The Price Company Lim
ited on April 21, 1966.
3. The suppliant is a manufacturer or producer engaged in
the manufacture or production of newsprint at its Riverbend
Mill located in the City of Alma, Province of Quebec.
4. By a written proposal dated October 8, 1965, appended
hereto as Appendix "A", Dominion Engineering Works
Limited of the City of Montreal, in the Province of Quebec,
offered to furnish to Rust Associates Ltd, of the City of
Montreal, in the Province of Quebec, for the suppliant, one
Dominion Newsprint Machine having a wire width of 326
inches and a trim of 304 inches off the winder for use by the
suppliant directly in the manufacture or production of
goods.
5. The total contract price for the said goods was
$4,754,091.00.
6. In the said proposal it was provided inter alia as follows:
TITLE—(a) The property and right of possession in the
equipment shall not pass from the Company until all
payments (including deferred payments and payments of
notes and renewals thereof, if any), shall have been fully
made in cash, whatever may be the mode of its attach
ment to the realty or other property.
(b) If default is made in any payment required to be made
by the Purchaser hereunder, after the equipment has been
delivered, the Company shall, in addition to all other
rights and recourses, have the right to remove the equip
ment retaining as damages and rental for its use all
payments previously received and to dispose of the equip
ment in accordance with the laws of the jurisdiction
where it is situated.
7. By a written proposal dated September 1, 1965, revised
on October 12, 1965, and identified as Proposal No. MEA -
10001, appended hereto as Appendix "B", Rust Associates
Ltd, as engineering constructor, proposed to perform for the
suppliant, as purchaser, the work outlined therein under
"Scope of Work" on a Cost-Plus-a-Fixed-Fee basis.
8. The scope of work proposed therein included inter alia
the following:
A. Furnish all labour, materials, equipment, subcontractor
services, construction management, technical supervision,
craft supervision, construction tools and equipment neces
sary to construct a new 304" Trim, 3000 FPM Newsprint
Paper Machine installation at Purchaser's Riverbend Mill,
Alma, P.Q.
9. The proposal referred to in paragraph 7 herein was
accepted in writing by the suppliant on October 18, 1965.
10. By Purchase Order No. 59897, dated January 7, 1966,
appended hereto as Appendix "C", the suppliant ordered
from Rust Associates Ltd the purchase and installation of a
new 326 inches wire width newsprint paper machine, in
accordance with Proposal MEA -10001, dated September 1,
1965 and revised October 12, 1965, prices and terms as per
contract.
11. The Purchase Order referred to in paragraph 10 herein
provided that the goods were to be delivered to the suppliant
at its Riverbend Mill, Alma, Province of Quebec.
12. By Order No. AR. 100-1 dated June 13, 1966, appended
hereto as Appendix "D", Rust 'Associates Ltd placed an
order with Dominion Engineering Works Limited for ship
ment to the suppliant at its Riverbend Mill, Alma, Province
of Quebec, one Dominion Newsprint Machine having a wire
width of 326 inches and a trim of 304 inches off the winder
at a net contract price of $4,945,840.00 as of June 1, 1966,
all to be as described in Dominion Engineering Works
proposal of October 8, 1965 and as further described in
Dominion Engineering Works specification C 101-36000
dated October 8, 1965, except as amended.
13. The total cost of the said Dominion Newsprint Machine
was $5,721,229.05, such sum representing the original con
tract price plus all additions and changes agreed upon.
14. The contract price for the Dominion Newsprint Machine
was to be paid to Dominion Engineering Works Limited by
Rust Associates Limited in ten instalments, as follows:
Date Amount
December 31, 1965 $500,000.00
February 28, 1966 500,000.00
April 30, 1966 500,000.00
June 30, 1966 400,000.00
August 31, 1966 700,000.00
October 31, 1966 650,000.00
December 31, 1966 700,000.00
January 31, 1967 350,000.00
March 31, 1967 200,000.00
June 30, 1967 445,840.00
or final payment.
15. The said Dominion Newsprint Machine was shipped in
sections to the suppliant over a period commencing May 6,
1966, and ending November 22, 1967.
16. The said Dominion Newsprint Machine was erected on
site on September 26, 1967, and started up on October 4,
1967.
17. The final payment on the contract price was made on
June 26, 1968. Instalment payments on account of the
contract price were made by Rust Associates Limited to
Dominion Engineering Works Limited as follows:
Date Amount
December 29, 1965 $500,000.00
February 17, 1966 500,000.00
April 27, 1966 500,000.00
June 21, 1966 400,000.00
August 22, 1966 700,000.00
October 27, 1966 650,000.00
December 28, 1966 700,000.00
January 20, 1967 350,000.00
March 20, 1967 200,000.00
July 17, 1967 327,914.00
October 25, 1967 200,000.00
April 24, 1968 1,838.00
April 24, 1968 170,463.08
June 26, 1968 42,000.00
18. Dominion Engineering Works Ltd made each month a
return to the Department of National Revenue during the
period 1965 to 1968 and paid instalments on account of
consumption or sales tax with its monthly returns on articles
of its manufacture as shown on the two ledger sheets
appended hereto as Appendix "E".
19. In making monthly returns to the Department as afore
said, Dominion Engineering included amounts on account of
sales tax on the instalment payments becoming payable in
accordance with the terms of the contract for the newsprint
machine in question, in the accounting period to which the
returns pertained, and the amounts so included and the dates
on which payments were made to the Department are as
follows:
January 17, 1966 $55,000.00
March 21, 1966 55,000.00
May 24, 1966 55,000.00
July 25, 1966 44,000.00
September 26, 1966 77,000.00
November 28, 1966 71,500.00
January 30, 1967 77,000.00
February 29, 1967 38,500.00
May 22, 1967 22,000.00
TOTAL $495,000.00
On or about April 10, 1968, a refund of tax in the amount of
$34,103.00 was paid to Dominion Engineering Works Lim
ited by the Department of National Revenue as a result of
changes in the tax rate during the relevant periods.
20. On January 18, 1968, K. V. Sandford of Foster Business
Services applied in writing for a refund by letter to the
Director, Excise Tax Operations as follows:
"In accordance with the provisions of Section 46 of the
Excise Tax Act please accept this letter of intent, on
behalf of our clients, The Price Company Limited and
Price (Newfoundland) Pulp and Paper Limited, to file an
application in writing for refund or deduction of federal
sales tax paid on shipments of component parts for
Dominion newsprint machines manufactured and supplied
by Dominion Engineering Works Limited for our clients'
premises at River Bend, Quebec, and Grand Falls,
Newfoundland."
and appended hereto as Appendix "F" is a copy of the
letter.
21. The Department of National Revenue has refused to
refund the sum of $460,899.97.
22. The Examination for Discovery of George Cameron
Brown, an officer of the Suppliant, may be used and
referred to in accordance with the Rules of Court.
23. This Statement of Facts is intended to shorten the trial
of this action, and the parties agree upon these facts only for
the purpose of this action. No evidence may be offered
inconsistent with this Statement but additional evidence not
inconsistent with it may be offered subject to all the usual
rules at the trial of this action.
The Agreed Statement of Facts in the other
action is Exhibit P-1, to like effect, with neces
sary changes in details of amounts, dates, etc.
The witness George C. Brown is Vice-Presi
dent of The Price Company Limited and a direc
tor of Price (Nfld) Pulp & Paper Limited. He
testified that he was in overall charge of install
ing the two machines; that The Price Company
owns 99% of the issued common stock of the
Price (Nfld) company; that Rust Associates was
engaged by the two companies as consultants
and as purchasing agents to purchase the
machines, and as installers of them; the two
companies had agreements with Rust Associates
that they would advance to Rust Associates the
money for payment of the sales taxes on the
machines, and the two companies did in fact
advance the money for the taxes, and each
company is out of pocket for the sales tax paid.
At the trial it was agreed by counsel for the
parties that Dominion Engineering Works Lim
ited has no interest in any right to a recovery of
the sales taxes in issue.
In its petition in this action the suppliant
alleges that on the date when the sale of the
machine was made and when title to the goods
passed to the suppliant the goods were exempt
from sales tax by virtue of the provisions of
section 32 and of paragraph (a) of Part XIII of
Schedule III of the Excise Tax Act, as amended,
then in force; and, in the alternative, that on the
date when the machine was delivered it was
exempt from sales tax. The suppliant therefore
prays that the goods be declared to be exempt
from sales tax under the Excise Tax Act and
that the sales tax paid by the suppliant in the
sum of $460,899.97 be returned.
The respondent's Statement of Defence says
that the petition discloses no cause of action
and no grounds upon which the suppliant is
entitled to any relief against Her Majesty; that if
any refund of tax became payable under the
Excise Tax Act, which is not admitted, then
such a refund is now prohibited because
application in writing for it was not made within
two years of the time when such refund first
became payable, as required by the statute; and
that the goods were not exempt from the sales
tax imposed by that Act.
Section 46 of the Act provides in part as
follows:
46. (1) A deduction from, or refund of, any of the taxes
imposed by this Act may be granted
(a) where an overpayment has been made by the
taxpayer;
(b) where the tax was paid in error;
(c) where the original sale or importation was subject to
tax, but exemption is provided on subsequent sale by this
Act;
(5) No refund or deduction from any of the taxes imposed
by this Act shall be paid unless application in writing for the
same is made by the person entitled thereto within two years
of the time when any such refund or deduction first became
payable under this Act or under any regulation made
thereunder.
(6) If any person, whether by mistake of law or fact, has
paid or overpaid to Her Majesty, any moneys that have been
taken to account, as taxes imposed by this Act, such moneys
shall not be refunded unless application has been made in
writing within two years after such moneys were paid or
overpaid.
In its Reply the suppliant alleges that it made
an application in writing for a refund of the tax
money by letter dated January 18, 1968,
addressed to the Department of National Reve
nue by duly authorized agent on behalf of the
suppliant. This letter is referred to in paragraph
20 of the Agreed Statement of Facts. The
respondent admits that the letter was sent, but
takes the position that the suppliant was not the
party that could apply for a refund.
I will now proceed to refer to tax sections of
the Excise Tax Act.
The relevant portion of section 30(1) of the
Act reads as follows:
30. (1) There shall be imposed, levied and collected a
consumption or sales tax of nine' per cent on the sale price
of all goods
(a) produced or manufactured in Canada
(i) payable, in any case other than a case mentioned in
subparagraph (ii) or (iii), by the producer or manufac
turer at the time when the goods are delivered to the
purchaser or at the time when the property in the goods
passes, whichever is the earlier,
(ii) payable, in a case where the contract for the sale of
the goods (including a hire-purchase contract and any
other contract under which property in the goods passes
upon satisfaction of a condition) provides that the sale
price or other consideration shall be paid to the manu
facturer or producer by instalments (whether the con
tract provides that the goods are to be delivered or
property in the goods is to pass before or after payment
of any or all instalments), by the producer or manufac
turer pro tanto at the time each of the instalments
becomes payable in accordance with the terms of the
contract, and
Subparagraph (ii) was in the Act at all times
relevant to this action.
Section 30(1) should be read, for the purposes
of this case, with section 32(1), which was in
force at all relevant times and is as follows:
32. (1) The tax imposed by section 30 does not apply to
the sale or importation of the articles mentioned in Schedule
III.
I should say here that prior to June 14, 1963,
Schedule III included a heading "Machinery and
Apparatus to be Used in Manufacture or Pro
duction", but that heading and the goods
enumerated thereunder were repealed by S.C.
1963, c. 12, s.7(6), effective June 14, 1963, and
the goods did not come back into Schedule III
until June 2, 1967, as appears by the amend
ments next mentioned.
Statutes of Canada 1966-67, c. 40, s. 9, added
a new Schedule V, which included "machinery
and apparatus sold to or imported by manufac
turers or producers for use by them directly in
the manufacture or production of goods", and
section 4 of this statute amended section 32(3)
of the Excise Tax Act to read as follows:
32. (3) There shall be imposed, levied and collected only
three-eighths of the tax imposed by section 30 on the sale or
importation of the articles enumerated in Schedule V, and
with respect to any such articles delivered to the purchaser
or imported or taken out of warehouse for consumption
after March 31, 1968, the tax imposed by section 30 shall
not apply.
This statute also provided by section 10 that
section 32(3) of the Excise Tax Act as enacted
by section 4 of this statute applies to articles in
Schedule V that are, in the case of goods manu
factured in Canada, delivered to the purchaser
after March 31, 1967.
The statute 1966-67, c. 40, was followed by
S.C. 1966-67, c. 79, which increased the sales
tax to 9%, and by section 2 amended section
32(3) of the Excise Tax Act to read as follows:
32. (3) There shall be imposed, levied and collected only
three-ninths of the tax imposed by section 30 on the sale or
importation of the articles enumerated in Schedule V, and
with respect to any such articles delivered to the purchaser
or imported or taken out of warehouse for consumption
after March 31, 1968, the tax imposed by section 30 shall
not apply.
Next in time came S.C. 1967-68, c. 29, which
by section 12 repealed Schedule V, and by
section 11(10), effective June 2, 1967, added a
new Part XIII of Schedule III, which includes in
paragraph (1)(a) "machinery and apparatus sold
to or imported by manufacturers or producers
for use by them directly in the manufacture or
production of goods"; and by section 13 pro
vided as follows:
13. (1) Sections 5 and 12 and subsections (1), (3), (4), (6)
and (10) of section 11 of this Act shall be deemed to have
come into force on June 2, 1967, and to have applied to all
goods mentioned therein imported or taken out of ware
house for consumption on or after that day and to have
applied to goods previously imported for which no entry for
consumption was made before that day.
On the question of the incidence of sales tax
counsel for the suppliant submitted that a condi
tional contract of sale (such as the contract in
this case) is an executory contract and that it
does not constitute a "sale" under the Excise
Tax Act; and that unless and until title to the
goods here under consideration passed, no sales
tax was payable; and by the time title passed,
the goods were exempt from tax by virtue of
S.C. 1967-68, c. 29. He distinguished sales from
agreements to sell, and in that respect referred
to Halsbury, 3rd ed., vol. 34, at page 5, which
says that "sale is the transfer, by mutual con
sent, of the ownership of a thing from one
person to another for a money price"; to Ben-
jamin on Sale, 8th ed., at p. 297 as follows:
After a contract of sale has been formed, the first question
which suggests itself is naturally, What is its effect? When
does the bargain amount to an actual sale, and when is it a
mere executory agreement, or, as it is now called, an agree
ment to sell?
We have already seen that the distinction consists in this,
that in a sale, the thing which is the subject of the contract
becomes the property of the buyer (under the contract, that
is to say), the moment the contract is concluded, and with
out regard to the fact whether the goods be delivered to the
buyer or remain in possession of the seller, whereas in the
agreement to sell, the property is to pass at a future time or
subject to the fulfilment of some condition, and the goods
remain the property of the seller till the contract is executed.
In the one case, A sells to B: in the other, he only promises
to sell.
to section 2(f) of the Statutes of Newfoundland,
1955, c. 62, which defines "conditional sale";
and to Faribault's Traité de Droit civil du
Québec, vol. 11, as follows [at page 1571:
[TRANSLATION] Where the vendor retains ownership of the
thing sold until the price is paid in full, the purchaser may
not sell it, since he does not own it. In selling it he is selling
the goods of another, and the vendor may then claim against
the second purchaser and even against any subsequent
purchaser, except where the final purchaser has obtained it
from a dealer in similar merchandise. In the latter case the
first vendor may only claim the thing by offering to reim
burse the amount paid by the final purchaser.
On that issue of sale counsel for the respond
ent submitted that section 30(1)(a)(ii) was in the
Act at all material times; in the case of a one-
payment contract where payment is to be made
when the goods are delivered or when the prop
erty in the goods passes, whichever is the ear
lier, there is a tax payable as in subparagraph (i)
of section 30(1)(a); in the case of instalment
contracts there is a like tax with a difference
that it is payable pro tanto as provided in sub-
paragraph (ii); that the object of the section is to
produce an economic result with imposition of
tax in each situation; and that there was an
exigible tax on the goods concerned in this
action payable at the time each of the instal
ments became payable in accordance with the
terms of the contract for the goods.
One of the closest cases to this case, referred
to by counsel on each side, is The King v.
Dominion Engineering Company Limited before
the Supreme Court of Canada ([1944] S.C.R.
371) and the Privy Council ([1947] 1 D.L.R. 1).
It was an action by the Crown to recover sales
tax claimed in respect of a contract of sale of a
machine that was to be built by Dominion Engi
neering for the purchaser, Lake Sulphite Pulp
Company, the price to be payable in nine
monthly instalments, plus a balance when the
machine would be in operation, title to pass on
payment in full. Six instalments of the price
were paid to Dominion under the contract, and
Dominion paid the sales tax on them. The pur
chaser then went bankrupt and the three
remaining instalments were not paid. The
machine was never delivered to the purchaser.
The Crown's claim was to recover from Domin
ion sales tax on the three unpaid instalments.
The taxing provision was section 86(1) of the
Special War Revenue Act, R.S.C. 1927, c. 179,
reading as follows:
86. (1) There shall be imposed, levied and collected a
consumption or sales tax of eight per cent, on the sale price
of all goods,—
(a) produced or manufactured in Canada, payable by the
producer or manufacturer at the time of the delivery of
such goods to the purchaser thereof.
Provided that in the case of any contract for the sale of
goods wherein it is provided that the sale price shall be paid
to the manufacturer or producer by instalments as the work
progresses, or under any form of conditional sales agree
ment, contract of hire-purchase or any form of contract
whereby the property in the goods sold does not pass to the
purchaser thereof until a future date, notwithstanding partial
payment by instalments, the said tax shall be payable pro
tanto at the time each of such instalments falls due and
becomes payable in accordance with the terms of the con
tract, and all such transactions shall for the purposes of this
section, be regarded as sales and deliveries.
Provided further that in any case where there is no
physical delivery of the goods by the manufacturer or
producer, the said tax shall be payable when the property in
the said goods passes to the purchaser thereof.
Rand J. delivering the judgment of the Chief
Justice, and of Kerwin, Taschereau and Rand
JJ., said in part as follows [at pages 375-377]:
The words "such transactions" refer either to the contracts
themselves or to the successive liabilities for instalments.
But in either sense the expression "becomes payable" is not
to be limited solely to the event of the day named for the
payment of the instalment. What is contemplated is an
obligation to pay arising from the legal effectiveness of the
contract.
Although the section declares the "transaction" to be a
constructive sale and delivery, the fundamental support of
the tax is an executory contract leading to the transfer of
title and possession. That contract is conceived as a poten
tial sale to which in turn is related a potential total tax: "the
tax shall be payable". Pro tanto portions of the tax are
related to instalments of price and, when the latter become
payable as parts of a whole, the right to the tax takes on the
same character: but throughout, the tax depends for its
efficacy upon the maturing contract. For the total tax there
is only an inchoate liability created by the making of the
agreement: and to sustain the right to the tax, the instalment
become payable must remain an obligation of an executory
contract.
The legal liability at any time for any portion of the tax in
no degree restricts the parties in good faith from modifying
the contract as they see fit, and a fortiori it does not prevent
a modification by operation of law. If, in the legal result, the
actual transaction ceases to be one of sale, then the neces
sary support for the tax disappears. That result, at least
where the termination of the contract does not effect a total
rescission, will not affect the right to taxes on any portion of
the price paid to the seller nor does it touch those that have
been collected or reduced to judgment by the Crown.
The fact of bankruptcy intervening is, in my opinion, a
circumstance fatal to the right of the Crown to maintain this
information. When, on February 22nd, the liquidation order
was made, the instalments for the balance of purchase price
ceased to be "due" and "payable" within the meaning of the
statute. What remained to the respondent was to prove for
unliquidated damages subject to the right of the liquidator to
elect to complete the contract. It is not suggested there was
any such election prior to the commencement of this pro
ceeding. But the respondent could not have enforced pay
ment of the remaining instalments and the essential condi
tion of the tax that they should continue as effective
obligations of a contract of sale was not existing when the
information was issued. A right of election by the liquidator
even then continuing could not affect the present
proceeding.
This interpretation of the Act does not mean that either
price or instalment of price in such a contract must be
received before the tax is exigible but it does mean that
where the obligation of such an executory contract is by
operation of law destroyed, then unpaid taxes related to its
terms, themselves suffer a corresponding effect. If that were
not so, sellers with unsold property on their hands would be
liable for taxes in respect of purchase price not only unpaid
but the legal right to which had been annulled: and on the
other hand a resale of the same property would attach to
itself a new tax unrelated in any sense to that attributed to
the first sale. What is created is a tax liability running
parallel to executory commercial transactions which, before
their completion, is exposed to the effect of contractual
changes or fundamental legal infirmities to which they may
become subjected.
Hudson J. said in part as follows [at pages
379-3801:
There is no dispute as to any material facts and the whole
question is as to the interpretation of the section in relation
to the facts. It must be kept in mind that the machinery was
being sold as a unit, that it was never completely manufac
tured, and that physical delivery had not been made of any,
except a small part of the value of $1,200 and that the
property in such part of the machine as had been manufac
tured did not pass to the purchaser.
This section requires careful analysis.
Under (a) the tax is payable on delivery of the goods.
In the first proviso, provision is made for earlier payments
in cases where the contract calls for payment by instal
ments. In most of the cases falling within this proviso there
would be an actual physical delivery of the goods agreed to
be sold. For example, in cases of conditional sales and
hire-purchase, this is almost invariably the case. In some,
however, there would not be physical delivery and for such
it is provided that a constructive or notional delivery should
be assumed.
The second proviso does not apply to cases where there is
an actual physical delivery, but in any other cases makes the
tax payable when the property in the goods passes to the
purchaser.
The facts in the present case may bring it within the
language of the first proviso. By the contract the sales price
was to be paid in instalments in the nature of progress
payments although there was no provision that these instal
ments should be made in accordance with any particular rate
of progress. I think, however, that it must be assumed that it
was the intention of the parties that the payments should not
become payable until the respondent was making fair prog
ress in its work. This was the interpretation of the Lake
Sulphite Pulp Company officials because it appears from the
evidence that that Company's manager protested against the
delays of the respondent, and in fact held up the December
payment for some time on that account.
It is a question whether or not the instalments in respect
of which the Crown claims ever fell due and became pay
able but, even if this were so, I am of the opinion that the
second proviso must prevail. The language is unqualified
and it is clear that the property in the goods never passed to
the purchaser. The second proviso does not destroy
altogether the first but applies only to cases where there is
no physical delivery. I think for that reason that the rule of
construction approved of in Forbes v. Git [[1923] A.C. 256]
is applicable. The machinery was never completed and thus
was never capable of physical delivery in fulfilment of the
contract.
The Privy Council held that the second pro
viso prevailed and consequently, as there had
been no physical delivery of the goods and as
the property in the goods had never passed to
the purchaser, the tax had never become pay
able. The judgment was delivered by Lord Mac-
millan, who said in part as follows [at pages
3-5]:
In imposing a sales tax one of the difficulties which
confront the Legislature lies in the selection of the point of
time at which the tax shall attach and become due. In the
case of an ordinary retail sale for cash across the counter of
a shop, the stages of agreement, appropriation of the goods
to the contract, delivery, payment of the price and passing
of the property are all practically simultaneous. But in more
complicated transactions for the sale of goods to be pro
duced or manufactured these stages may be spaced in time
in various ways. The point of time which s. 86 has selected
as in general the time for imposing, levying and collecting
sales tax is the time of the delivery of the goods to the
purchaser. Liability for the tax, as was pointed out for the
Crown, is not made dependent on the price being paid, for
the goods may be delivered on credit and the purchaser may
default in payment.
In the present case, however, the goods were never deliv
ered and the general rule is inapplicable. But the leading
words of the enactment are followed by two provisos, which
are both designed to qualify the generality of the main rule
in the matter of delivery. The first proviso introduces the
conception of a notional delivery which is to be held to take
place in certain specified cases, a feature of which is that
the property in the goods sold does not pass to the purchas
er until a future date. In particular where the contract
provides that the sale price shall be paid to the manufacturer
or producer as the work progresses the tax is to be payable
pro tanto at the time each of such instalments falls due and
becomes payable in accordance with the contract. The
Crown not unnaturally relies on this as exactly and literally
fitting the present case. Mr. Justice Angers in his judgment
[[1943] 3 D.L.R. 12, Ex. C.R. 49] valiantly combats this
conclusion the injustice of which has obviously seemed to
him more shocking than it perhaps appears to their Lord
ships who have by long experience become indurated to the
arbitrariness of taxation. In the Supreme Court also [[1944]
4 D.L.R. 505, S.C.R. 371] the Crown's contention on the
first proviso is countered and rejected. Their Lordships,
however, do not find it necessary to pursue or review this
argument for, however aptly the first proviso may seem to
fit the Crown's case, they find in the second proviso a
sufficient and complete answer to it.
The second proviso qualifies the main enactment in the
matter of delivery no less than does the first proviso, and it
also qualifies the first proviso itself. For it provides "fur-
ther" that "in any case where there is no physical delivery
of the goods," the taxes to be payable when the property in
the goods passes to the purchaser. Thus where there is no
physical delivery the notional delivery which the first pro
viso introduces is rendered inapplicable. Mr. Justice Angers
found in the second proviso an alternative ground for his
decision against the Crown and it is the main ground of Mr.
Justice Hudson's judgment in the Supreme Court. In their
Lordships' view this proviso presents an insuperable ob
stacle to the Crown's claim. There has been no physical
delivery of the gdods by the Dominion Company to the Pulp
Company. The proviso enacts that "in any case" where
there has been no physical delivery the tax is to be payable
when the property passes. The property in the goods in
question has never passed to the Pulp Company. Conse
quently the tax has never become payable. If the second
proviso is repugnant in any way to the first proviso it must
prevail for it stands last in the enactment and so, to quote
Lord Tenterden C.J., "speaks the last intention of the mak
ers": The King v. Justices of Middlesex (1831) 2 B. & Ad.
818 at p. 821, 109 E.R. 1347. The last word is with the
respondent, the Dominion Company, and must prevail.
Their Lordships recognize that the result of their view
may lead to anomalies. It would indeed have absolved the
Dominion Company from liability to pay sales tax on the six
instalments which they in fact received and on which they
paid tax. But anomalies in tax legislation are far from being
uncommon, and the remedy lies to the hand of the Govern
ment which has apparently since 1927 passed some twenty
amending statutes affecting the Special War Revenue Act.
The second proviso that was held to prevail in
the Dominion Engineering case is not in the
present section 30(1)(a) of the Excise Tax Act.
Neither is there in the present case, as there was
in the Dominion Engineering case, a destruction
of the purchaser's obligation to pay all of the
instalments of the purchase price.
It appears to me that section 30(1) deals spe
cially in subparagraph (a)(ii) with conditional
sales contracts for the sale of goods where the
contract provides that the sale price shall be
paid to the manufacturer or producer by instal
ments, and I think that in the case of such
instalment contracts the subparagraph imposes
a sales tax 2 payable on the sale price pro tanto
at the time each of the instalments becomes
payable in accordance with the terms of the
contract. In the present case the contract falls
within section 30(1)(a)(ii) and in my opinion the
sales tax was exigible on the sale price of the
goods pro tanto at the time each of the instal
ments became payable in accordance with the
terms of the contract.
However, if any of the taxes paid were not
exigible because of the goods having been put
back in Schedule III on June 2, 1967, or for any
other reason, there is the question whether the
suppliant is entitled to a refund under the provi
sions of section 46(1) of the Act.
The Crown says that if any refund became
payable it is now prohibited because an applica
tion in writing for it was not made within two
years of the time when such refund first became
payable. It was agreed on behalf of the Crown
that the letter set forth in paragraph 19 of the
Agreed Statement of Facts was sent on January
18, 1968. But, even if that letter is treated as an
application, it is an application by the suppliant,
not by the manufacturer, and as I construe
section 46 the person who is entitled under
subsection (1) to a "refund" of taxes paid to the
Crown is the person who paid the taxes to the
Crown. In the present case it was the manufac
turer, not the suppliant, who was liable to pay
the tax and who made the payments to the
Crown, as appears by paragraph 18 of the
Agreed Statement of Facts, albeit with funds
provided by the suppliant.
In The Queen v. M. Geller Inc. (1964) 41
D.L.R. (2d) 367, a tax was imposed under sec
tion 80A of the Excise Tax Act, then applicable,
on furs dressed in Canada, payable by the dress
er. The judgment of the Supreme Court of
Canada said in part as follows [at pages
368-369]:
The respondent M. Geller Inc. is a dealer in sheepskins,
and some of this material was dressed in Canada by
Nu-Way Lambskin Processors Ltd., both firms operating in
the City and District of Montreal.
Nu-Way, as dresser was responsible for the payment of
the tax under s. 80A and paid $20,011.72 to Her Majesty the
Queen, and on March 8, 1957, the present respondent and
Nu-Way filed a petition of right claiming from Her Majesty
the Queen the sum of $20,956.74. It is argued that the tax
imposed on dressed furs in Canada is illegal because sheep
skin is not a fur falling within the meaning of the Act. It is
admitted by all parties that M. Geller Inc. reimbursed to
Nu-Way the sum of $20,956.74 paid to Her Majesty the
Queen by the latter.
Both Nu-Way and the respondent M. Geller Inc. claimed a
refund of the amount paid. The respondent in the present
case alleged that it was the only one that was required to
pay the tax, that it paid the tax through the intermediary of
Nu-Way Lambskin and that, having made a demand for
refund in writing within two years from the date of payment,
as required by the Act, it was entitled to such a refund.
The learned trial Judge [[1960] Ex. C.R. 512] dismissed
the petition of right of the suppliant Nu-Way Lambskin on
the ground that it failed to apply for a refund within the
statutory delay. Section 105(6) provides as follows:
105. (6) If any person, whether by mistake of law or
fact, has paid or overpaid to His Majesty, any moneys
which have been taken to account, as taxes imposed by
this Act, such moneys shall not be refunded unless
application has been made in writing within two years
after such moneys were paid or overpaid.
The claim of the respondent however was maintained on
the ground that the right to claim a refund is open to any
person who has paid moneys which have been taken to
account as taxes imposed by the Act and that the evidence
establishes that the respondent is in fact the person who
paid the moneys in question to Her Majesty.
It is clear and admitted that the said sum of $20,956.74
was paid as tax and that it was not legally owing, as this
Court decided in several cases and particularly in Universal
Fur Dressers & Dyers Ltd v. Her Majesty the Queen [1956]
S.C.R. 632. In that case it was held by this Court that
mouton was not fur and, therefore, not taxable under s. 80A
of the Excise Tax Act. Before this Court Nu-Way did not
appeal, and we are concerned therefore only with the appeal
of Her Majesty the Queen against the present respondent.
I have reached the conclusion that this appeal should be
allowed and the petition dismissed in part.
The person obliged to pay the tax is the dresser, and the
person entitled to a refund is the dresser if the tax has been
paid through mistake of law or fact. In the present case, the
tax was paid by the dresser Nu-Way and it was the sole
person entitled to a refund. This was denied by the Excheq
uer Court, and rightly in view of the terms of s. 105(6).
The respondent has no legal right to claim. It is true that
M. Geller Inc. reimbursed Nu-Way, but this payment does
not give a right of action to the former, which the law
denies.
The arrangements made between Geller and Nu-Way are
of no concern to the appellant. They are res inter alios acta
and cannot affect the rights of the Crown.
For the foregoing reasons the petition of right
herein is dismissed. Her Majesty is entitled to
be paid, by the suppliant, her costs of the
action, to be taxed.
As both actions were tried together, only one
set of counsel fees will be allowed.
' The tax has varied from time to time.
z unless the goods are otherwise exempted from the tax,
e.g., as by section 32(1).
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.