T-273-85
ECG Canada Inc. (Plaintiff)
v.
The Queen (Defendant)
INDEXED AS: ECG CANADA LTD. V. CANADA
Trial Division, Rouleau J.—Montréal, December
9, 1986; Ottawa, February 11, 1987.
Construction of statutes — Excise Tax Act — `Packages,
repackages or otherwise prepares, goods for sale" in s. 2(1)(f)
— Open to Court to consider object of statute and factual
setting to determine Parliament's intention — First step to
read Act in entire context then relevant provisions in ordinary
and grammatical sense — Administrative policy and interpre
tation properly referred to — No doubt as to object of Act —
Intention to expand definition of manufacturer — Removing
of warranty code on receiving tubes and placing in boxes for
shipment to distributors clearly packaging or repackaging
operations — Excise Tax Act, R.S.C. 1970, c. E-13, s. 2(1)(f)
(as added by S.C. 1980-81-82-83, c. 68, s. I).
Customs and excise — Excise Tax Act — Plaintiff import
ing television receiving tubes for sale to distributors —
Removing U.S. warranty code and placing in boxes bearing
serial number, new warranty code and country of origin —
Application to set aside assessment operations "marginal
manufacturing" — Interpretation of 'packages, repackages or
otherwise prepares goods for sale" in s. 2(1)(f) of Act —
Intention to expand definition of manufacturer to create new
class known as "marginal manufacturing" — Action dismissed
— Excise Tax Act, R.S.C. 1970, c. E-13, s. 2(1)(f) (as added
by S.C. 1980-81-82-83, c. 68, s. 1).
The plaintiff seeks to set aside an assessment made pursuant
to paragraph 2(1)(J) of the Excise Tax Act. The plaintiff
imports from the United States receiving tubes for television
sets. When the tubes are received in Canada, the plaintiff
removes the United States warranty code that is preprinted on
the glass surface the code is removed since it differs from the
one applicable in Canada. The tubes are then placed in small
boxes and shipped to distributors. On the fold-over cover of the
box, the plaintiff prints the serial number describing the type of
tube, the new warranty code and the country of origin. The
boxes are not on display but warehoused by the plaintiff and
usually shelved in the back of the stores of distributors and
wholesalers. It was determined that the operations performed
by the plaintiff constitute "marginal manufacturing" subjecting
the plaintiff to federal sales tax. The issue turns on the inter
pretation to be given to the phrase "packages, repackages or
otherwise prepares goods for sale" in paragraph 2(1)(f) of the
Act as enacted in 1981. The plaintiff contends that administra
tive policy and interpretation is an important factor to be
considered in case of doubt as to the meaning of a legislative
enactment as stated by the Supreme Court of Canada in
Nowegijick. The defendant argues that the literal or "plain
meaning" rule should be applied and that the words "packages,
repackages" extend the meaning of manufacturer or producer
to cover what was done in the present case.
Held, the action should be dismissed.
It is always open to the Court to look to the object of a
statute and its factual setting to understand and determine
what was said by Parliament. Those considerations are not to
be taken into account only in cases of doubt. In the present
case, the first step is to read the Act in its entire context so as
to ascertain the intention of Parliament, the object of the Act,
and its scheme. The words of the relevant provisions are then to
be read in their ordinary and grammatical sense in light of the
above-mentioned considerations. A careful reading of the
Department's newsletter published prior to the 1981 enactment
clearly indicates that the intention at that time was to expand
the definition of manufacturer and create a new class called
"marginal manufacturing". It is therein stated that the inten
tion is to bring within the definition any entity that performs
one or more packaging or repackaging operations, that prepares
the goods for sale.
The present situation is not one where administrative policy
should be given restrictive interpretation or where reliance
should be had to the principle set out in the Norwegijick case
since there is no doubt as to the object of the Act. The provision
clearly enunciates those operations which are to be considered
"marginal manufacturing". The operations performed by the
plaintiff relate directly to the definition of "packages, repack
ages" and the plain meaning of the section.
CASES JUDICIALLY CONSIDERED
DISTINGUISHED:
Fiat Auto Canada Limited v. The Queen, [1984] 1 F.C.
203; (1983), 6 C.E.R. 82 (T.D.); Nowegijick v. The
Queen, [1983] 1 S.C.R. 29; 144 D.L.R. (3d) 193.
CONSIDERED:
Harel v. Dep. M. Rev. of Quebec, [1978] 1 S.C.R. 851.
COUNSEL:
Michael Kaylor for plaintiff.
Daniel Marecki for defendant.
SOLICITORS:
Gottlieb, Kaylor & Stocks, Montréal, for
plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
ROULEAU J.: The plaintiff seeks to set aside an
assessment by the Customs and Excise Branch of
the Department of National Revenue which was
made pursuant to paragraph 2(1) (f) of the Excise
Tax Act, R.S.C. 1970, c. E-13, as amended by
S.C. 1980-81-82-83, c. 68, s. 1; it had been deter
mined by the defendant that the operations per
formed by the plaintiff on certain imported goods
were "marginal manufacturing".
The plaintiff, a duly incorporated Canadian
company and a wholly owned subsidiary of Philips
U.S., carries on business at the City of Montréal.
Among its many endeavours, it is in the business
of importing and selling receiving tubes for the
television industry. During the period between
August 1, 1981 and October 31, 1983 it was
importing the receiving tubes from the United
States in boxes of approximately 100 units each.
After landing, certain activities were performed by
the plaintiff before the tubes were shipped to
distributors or other like prospective customers;
these activities were classified as "marginal manu
facturing", hence the assessment under the Excise
Tax Act.
The tubes are cylindrical and have approximate
dimensions of 21 inches in length and 3/4 of an
inch in diameter. The majority are manufactured
by Philips in the United States and shipped in
boxes divided into small square spaces measuring
approximately 3/4 of an inch. When they are
received in Canada the trade name Sylvania is
already preprinted on the glass surface as well as a
type number and warranty code. This code is
erased from the tube by a buffing method and the
trade name as well as the type number remain.
The warranty code is removed since it differs from
the one applicable to Canada. The remaining 25%
of the imported tubes are not of major concern.
Upon removing the warranty code they are then
placed in small cartons similar to all other tube
boxes used in the industry; their function is to
contain the tube firmly for fear of breakage in
handling, shipping and storage. On the fold-over
cover of the carton, the plaintiff prints the serial
number describing the type of tube, the warranty
code and the country of origin. These small boxes
are manufactured and printed in Canada to the
plaintiff's specifications.
The tubes are inserted into television receiving
sets to control the flow of current and the sound
emanating from speakers. Presently because of
depleting sales of this particular type of tube, it is
now importing what is referred to as "semi-con
ductors" which perform the same functions.
When received the tubes are functional and in
no other way altered; after being boxed they are
ready for shipment to various distributors and
wholesalers across Canada. The plaintiff testified
that it imported and distributed a great variety of
tubes used in the television industry and that it
was renowned for the quality of its product and its
availability because of the large inventory it main
tained. The box in which the tube was placed was
not on display but was warehoused by the plaintiff
and was customarily shelved in the back of stores
of their distributors and wholesalers. The only
identifying mark to assist the distributors would be
the name Sylvania printed on the box. This en
abled them to distinguish or differentiate from
other manufacturers of tubes. The dealers of
wholesalers in turn sold them to television repair
men or service dealers.
An electronics distributor testifying on behalf of
the plaintiff stated that he purchased from the
plaintiff company; that he maintained a consider
able inventory and would order from the plaintiff
by way of a price list; that the products sold by the
plaintiff were in many cases superior to those of
other manufacturers. His evidence was that the
tubes were never on display and that the box
would in no way influence the public in its decision
to buy but it did facilitate storage and handling.
The box was primarily a protective device and
usually kept in the warehouse of his distributor-
ship; it would be impossible to distribute articles of
this type and warehouse them if they were not
placed in a protective covering.
The issue is to determine whether or not the
activities performed by the plaintiff should be
construed as "marginal manufacturing". If so, it is
bound to pay federal sales tax on the imported
conductors for the period between August 1, 1981
and October 31, 1983. The amendments to the
Excise Tax Act which are of concern came into
effect on July 8, 1981 and more particularly para
graph 2(1)(f) of the Act:
2. (1) In this Act
"manufacturer or producer" includes
(f) any person who, by himself or through another person
acting for him, assembles, blends, mixes, cuts to size, dilutes,
bottles, packages, repackages or otherwise prepares goods for
sale, other than a person who so prepares goods in a retail
store for sale in that store exclusively and directly to
consumers;
The debate revolves around the interpretation to
be given to the phrase "packages, repackages or
otherwise prepares goods for sale". One should
bear in mind that the imported conductors bore
the United States warranty code on the glass
surface and its removal by way of buffing was the
only change to the tube itself necessitated because
of the Canadian warranty code. Also, the new
warranty code as well as the type number of tube
and country of origin were printed on the fold-over
cover of the box that contained the conductor.
Counsel for the plaintiff submitted an interpre
tation given to the pertinent section of the Act by
Mr. Justice Campbell Grant in Fiat Auto Canada
Limited v. The Queen, [1984] 1 F.C. 203; (1983),
6 C.E.R. 82 (T.D.), decided in 1983, which he
thought applicable to the case at bar. Justice
Grant considered the meaning of the phrase "or
otherwise prepares goods for sale" and at pages
210 F.C.; 87-88 C.E.R. he wrote:
In such paragragh 2(1)(f) of the Excise Tax Act, following
the definite words "assembles, blends, mixes, cuts to size,
dilutes, bottles, packages, repackages" is the general phrase "or
otherwise prepares goods for sale". The last group of words
must be construed ejusdem generis with the words quoted
which precede such phrase. As none of such words have any
relation to the task of connecting a radio to an automobile, they
are not helpful in bringing such operation within the meaning
of the definition.
But the general word which follows particular and specific
words of the same nature as itself takes its meaning from
them and is presumed to be restricted to the same genus as
those words. For "according to a well established rule in the
construction of statutes, general terms following particular
ones apply only to such persons or things as are ejusdem
generis with those comprehended in the language of the
Legislature." In other words, the general expression is to be
read as comprehending only things of the same kind as that
designated by the preceding particular expressions, unless
there is something to show that a wider sense was
intended ....
Counsel then referred to the departmental sug
gested interpretation to be given the section prior
to its enactment. He outlined certain quotes from
Excise News issued by Revenue in December
1980, entitled Expanded Definition of Manufac
turer or Producer (Marginal Manufacturing). The
initial statement at page 1 of the newsletter deals
with paragraph 2(1) (f) generally:
This amendment will bring within the definition of manufactur
er or producer a person who performs one or more of the
above-noted operations except where these operations are con
ducted in a retail store for sale in that store exclusively and
directed to consumers. These operations are generally termed
"marginal manufacturing".
Later on in the Excise News further refinements
are outlined and on page 3 certain operations were
considered not to fall within the proposed amend
ment. Examples:
(1) the cutting of goods to size at the site of construction in
order to accommodate their installation;
(2) the assembly of cabinets or other goods at the site of
installation by the contractor or user for his own use;
(3) the packaging or crating of goods exclusively for shipment
purposes to fill an individual customer's order;
(4) the unpacking and repacking of goods solely for inspection
purpose;
(5) the replacement of damaged container;
(6) the single operation of cutting of goods to the length
specified by the individual customer's order, i.e.: wire, cable,
drapery material which is sold by the foot, yard or meter;
(7) the single operation of attaching a price tag or price label to
a product;
(8) the single operation of labelling or relabelling goods;
(9) the preparing of food or drink in a restaurant, centralized
kitchen or similar establishment whether or not such food or
drink is for consumption on the premises;
(10) the restoration of used goods to a serviceable condition by,
or for and on behalf of the owner-user;
(11) the purchasing of goods under a private brand label where
materials are not supplied to the manufacturer;
(12) the installation or removal of optional equipment and/or
accessories to or from automobiles, by or on behalf of the
dealer or sale to consumers and users.
Further in the same publication, there is an
attempt to define what constitutes "to package or
repackage" at page 2 under the section dealing
with "clarification of terms used":
"package" and/or "repackage" includes the making up into an
enclosed package, a package being a parcel, bag, box, etc.
e.g.: (1) the blister packaging of goods;
(2) the repackaging into smaller quantities of goods
obtained in bulk such as paste wax, chemicals, etc.
He argues that these examples clearly indicate
that "marginal manufacturing" was intended to
apply to those who "package or repackage" for
display and sales promotional purposes, not the
function performed by the plaintiff.
Following this initial Excise News dispatch of
December 1980, further guidelines were published
by the Assistant Deputy Minister for Excise in a
memorandum directed to the regional directors
and dated July 6, 1981, entitled Principles and
Philosophy of Marginal Manufacturing. The
fourth and fifth paragraphs of the memo state as
follows:
The activities mentioned, i.e. assembly, blending, are all related
to preparing goods for sale in the sense of changing, altering or
enhancing the commercial presentation of the goods in antici
pation of a sale. The activity generally makes the product more
acceptable to the customer, regardless of his status.
Preparing goods in anticipation of a sale would not include
packing goods for shipment only nor would it include preparing
goods to meet an individual user's requirement, where there is
no "commercial enhancement" aspect to the activity, but rather
a service is offered to the user of the goods. This distinction
may cause some fine lines to be drawn but there is no practical
method of avoiding that situation. For example the mixing of
paint in other than a retail store is preparation of goods for sale
because the mixing is normally a condition of sale and is the
manner in which the paint is advertised and marketed. On the
other hand if a person is in the business of selling hose and
fittings and, as a service to the customer will attach the fittings
to the hose, then that person is not preparing goods for sale and
would not be a "marginal" manufacturer.
In a critical analysis of departmental philosophy
he points out that placing something in a box for
protection, handling, storage and shipping is not
enhancement for resale purposes and certainly
bears no influence on the purchaser such as "blis-
ter" packaging which is "enhancing the commer
cial presentation".
In concluding counsel submitted that adminis
trative policy and interpretation, though not deter-
minative, should be given some weight and should
be considered "an important factor" in the case of
doubt concerning the meaning of the legislation,
this principle having been established by Mr. Jus
tice Dickson [as he then was] in Nowegijick v. The
Queen, [1983] 1 S.C.R. 29, at page 37; 144
D.L.R. (3d) 193, at page 199.
Counsel for the defendant advanced the argu
ment that the Court should apply the literal
approach or the "plain meaning" rule in interpret
ing paragraph 2(1)(f) of the Excise Tax Act. That
rule provides that the words of the statute are to
be examined and, if they are clear and unambig
uous in their meaning, then they should be inter
preted in their ordinary and grammatical sense.
Accordingly, the defendant has submitted and
relies upon various dictionary definitions of the
word "package" and urges the Court to apply
those definitions to the words "packages, repack
ages" in paragraph 2(1) (f) of the Act. In applying
this "plain meaning" rule of statutory interpreta
tion, the defendant maintains that the words
"packages, repackages" used in the definition sec
tion of the Excise Tax Act extend the meaning of
manufacturer or producer to cover what was done
in this case.
Further, the defendant argues that I should
refrain from basing my decision on the administra-
tive policy of the Minister of National Revenue for
Customs and Excise, because such reliance is only
justified if the words of a statute are ambiguous or
unclear in their meaning. As long as the words of a
legislative enactment are clear, it is unnecessary
for a court interpreting the statute to go outside
the four corners of the statute itself in order to
ascertain the intention of Parliament. In support of
this argument, the defendant relies upon the
Supreme Court of Canada decision in Harel v.
Dep. M. Rev. of Quebec, [1978] 1 S.C.R. 851
wherein de Grandpré J. stated at page 858:
If I had the slightest doubt on this subject, I would neverthe
less conclude in favour of appellant on the basis of respondent's
administrative policy. Clearly, this policy could not be taken
into consideration if it were contrary to the provisions of the
Act. In the case at bar, however, taking into account the
historical development that I will review rapidly, this adminis
trative practice may validly be referred to since the best that
can be said from respondent's point of view is that the legisla
tion is ambiguous. [Emphasis added.]
There is no question that the literal approach is
a well established one in statutory interpretation.
Nevertheless, it is always open to the Court to look
to the object or purpose of a statute, not for the
purpose of changing what was said by Parliament,
but in order to understand and determine what
was said. The object of a statute and its factual
setting are always relevant considerations and are
not to be taken into account only in cases of doubt.
The defendant argues that the words "packages,
repackages" are to be read in their ordinary and
grammatical sense. While this is true, there is one
fundamental important step which must first be
taken. That is that the Act under consideration is
to be read in its entire context so as to ascertain
the intention of Parliament, the object of the Act
and the scheme of the Act. The words of the
individual provisions under consideration are then
to be read in the grammatical and ordinary sense
in light of the intention of Parliament embodied in
the Act as a whole, the object of the Act and the
scheme of the Act.
I have carefully reread what was stated in the
Excise News issued by Revenue Canada in
December 1980. There is no doubt that at that
time they intended to expand the definition of
manufacturer and created a new class called "mar-
ginal manufacturing". It is clearly stated in that
policy that they want to bring within the definition
any entity that performs one or more packaging or
repackaging operations, that prepares the goods
for sale.
In Fiat Auto Canada Limited v. The Queen
(supra), Grant J. in construing the ejusdem gener-
is rule could not find that the installing or connect
ing of a radio to an automobile was part of those
new functions enumerated in paragraph 2(1)(f)
and relate them to "the preparation of goods for
sale"; as a result, he dismissed National Revenue's
assessment. That case is clearly distinguishable
from the one at bar.
I am also convinced that this is not the type of
situation where administrative policy should be
given restrictive interpretation as suggested by the
plaintiff nor should I rely on the principle estab
lished in the Nowegijick case (supra) since no
doubt has risen in my mind as to what was intend
ed by the statute. The amendments clearly enunci
ate those operations which are to be considered
"marginal manufacturing". Doubtless the tubes
themselves required to be placed in a container for
the purposes of handling, storage and shipping and
that this may have been the primary purpose of
the intervening acts. Nevertheless, these operations
relate directly to the definition of "packages,
repackages" and the plain meaning of the section.
The extended definition given to manufacturing
was intended by Parliament to tax all procedures
which are described in paragraph 2(1)(f). The
words in the section are clear and unambiguous
and were properly interpreted by the Minister.
I hereby confirm the assessment of the Excise
Branch of the Department of National Revenue
and I dismiss the plaintiff's case with costs.
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.