T-5596-79
Bristol-Myers Canada Inc. (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Addy J.—Ottawa, April 20 and
May 5, 1983.
Customs and excise — Refunds — Limitation — Plaintiff
required by Department of National Revenue to pay sales tax
on 'Alpha-Keri Bath Oil" and "Keri Lotion" on ground
products cosmetics — Appeal to Tariff Board — Refund
claimed pending Board's decision — Board ruling products
therapeutic thereby exempt from sales tax — Claim for refund
allowed in part save for $102,559.26 — Plaintiff seeking
declaration amount refundable — Whether s. 44(7) two-year
limitation or s. 59(4) one-year limitation from date of claim
for refund applicable — Whether combined effect of ss.
27(1)(a) and 50(1) requiring manufacturer to pay sales tax
notwithstanding dispute or exemption — Declaration granted,
plaintiff entitled to refund of $102,559.26 — No specific
provision in Act creating immediate liability or requiring
payment of taxes notwithstanding dispute as to liability —
Monies paid following appeal to Board neither due nor pay
able — Paid under mistake of law — One-year limitation in s.
59(4) relating to payments under dispute before Board — No
such dispute in case at bar — S. 59(4) not relating to payments
made subsequently to Board application — Two-year limita
tion applicable — Excise Tax Act, R.S.C. 1970, c. E-13, ss.
2(1), 27(1)(a) (as am. by S.C. 1970-71-72, c. 62, s. 1; 1974-75-
76, c. 24, s. 13), 29(1), 44(1)(a),(c),(7), 50(1), 59(4).
The plaintiff manufactures and sells "Alpha-Keri Bath Oil"
and "Keri Lotion". Following a notice by the Department of
National Revenue it was required to pay a 12% sales tax
effective January 1, 1975, on the ground that the products were
cosmetics. The plaintiff filed an appeal before the Tariff Board
on February 26, 1976. The Board ruled on October 27, 1977,
that the products were therapeutic thereby exempt from sales
tax. The plaintiff meanwhile continued to pay sales taxes for
the period before and after the Board hearing. Informed by an
employee of the defendant that it was under no obligation to
pay the sales tax pending the decision of the Board, the plaintiff
ceased all payments and claimed a refund, on October 21,
1977, for all amounts paid from the date of the appeal to the
Board, on the ground they were paid in error or by mistake of
law or fact. The Department reimbursed part of the original
amount chimed, save for $102,559.26 representing taxes paid
from February 27, 1976 to October 21, 1976. The plaintiff now
seeks a declaration that it is entitled to that amount. The
plaintiff claims that the amount is subject to the two-year
limitation in subsection 44(7), thereby refundable since the
period at issue falls within the two-year period preceding the
date the refund was claimed, i.e. October 21, 1977. The
defendant argues that the amount is not refundable because of
the one-year limitation in subsection 59(4), and that, as a result
of the combined effect of paragraph 27(1)(a) and subsection
50(1), the plaintiff is under an obligation to pay the sales tax
notwithstanding any dispute or exemption, so that payment of
the tax cannot constitute a mistake of law.
Held, the declaration is granted, and the Department of
National Revenue can properly pay to the plaintiff the sum of
$102,559.26. Taxing statutes must be strictly interpreted
against the taxing authority. The Excise Tax Act does not, as
in the case of the Income Tax Act, contain any specific
provision for an assessment by the Minister or any other
authorized person creating an immediate liability, nor does it
contain a specific provision that notwithstanding any dispute as
to liability, the taxes must in the meantime be paid. It follows
that the monies paid following the appeal to the Board were not
due and payable under the Act and the monies paid under the
mistaken belief that they were, constitute monies paid under a
mistake of law. Furthermore, the limitation of one year on past
payments provided for in subsection 59(4) relates to payments
under dispute before the Board, which is not the case here. The
claim was made by letter pending the decision of the Board on
previous payments made affecting the same subject-matter.
Subsection 59(4) does not in any way relate to payments made
subsequently to any application before the Board. The two-year
limitation provision of section 44 therefore applies to the facts
in issue and is not affected by subsection 59(4).
CASE JUDICIALLY CONSIDERED
REFERRED TO:
Her Majesty The Queen v. Premier Mouton Products
Inc., [ 1961 ] S.C.R. 361.
COUNSEL:
P. S. A. Lamek, Q.C. and G. J. Adair for
plaintiff.
E. R. Sojonky, Q.C. and Judith McCann for
defendant.
SOLICITORS:
Fraser & Beatty, Toronto, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
ADDY J.: The plaintiff is suing for a declaration
that it is a person to whom a refund of $102,-
559.26 should be granted for overpayments of
sales tax made to the defendant in error under the
Excise Tax Act.'
The main facts are uncontradicted. For many
years the plaintiff, engaged in the business of
manufacturing and selling lotions and other prod
ucts, had been manufacturing and selling "Alpha-
Keri Bath Oil" and "Keri Lotion", without paying
or being called upon to pay any tax. On January 7,
1975, an official of the Customs and Excise
Branch of the Department of National Revenue
(hereinafter called "the Department") wrote to the
plaintiff claiming that the products in question
were cosmetics and, as such, fell within subsection
2(1) of the Excise Tax Act (hereinafter referred to
as "the Act") and were, therefore, subject to a
12% sales tax effective January 1, 1975. The plain
tiff complied but on February 26, 1976, it filed an
appeal with the Tariff Board under section 59 of
the Act claiming exemption from the tax pursuant
to subsection 29 (1) on the grounds that the prod
ucts, being therapeutic in nature, fell within sec
tion 1 of Part VIII of Schedule III of the Act. The
Tariff Board heard the appeal in May 1977,
reserved its decision and eventually rendered it on
October 27 of that year, ruling that the products
were therapeutic as claimed by the plaintiff and as
such were exempt from the tax imposed by section
27 of the Act. The decision of the Tariff Board
was eventually upheld by the Federal Court of
Appeal and leave to appeal to the Supreme Court
of Canada was refused.
Meanwhile, the plaintiff had, as originally
requested, paid and continued to pay taxes result
ing with a total of $550,186.64 in sales taxes being
paid for the whole period both before and after the
Tariff Board hearing.
R.S.C. 1970, c. E-13 (as am. by (2nd Supp.), c. 10;
1970-71-72, c. 62; 1973-74, cc. 12, 24, 53; and 1974-75-76, cc.
24, 62).
During a conversation with one of the employees
of the defendant in September 1977, the plaintiff
was informed that it was under no obligation to
pay tax pending the decision of the Board. As a
result of that conversation no further payments
were made and a letter was written, on October
21, 1977, to the Department stating that a refund
was being claimed for all amounts paid from the
date of the appeal to the Tariff Board as the
amounts were paid in error or by mistake of law or
fact. Normally, monies paid under a mistake of
law would not be recoverable. However, subsection
44(7) of the Act contains the following provisions:
44. ...
(7) 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 the moneys were paid or overpaid.
The evidence adduced on behalf of the plaintiff,
which evidence I accept, was to the effect that up
until September 1977 its officer truly believed that
there was a legal obligation to pay the tax.
Eventually the Department reimbursed a total
of $447,627.38 of the total of $550,186.64 origi
nally claimed. The amounts reimbursed covered
the taxes paid as follows:
For the period of February 28, 1975
to February 27, 1976 (the later date
being the date of filing of the
appeal to the Board): $199,724.79
For the period of October 22, 1976
to October 21, 1977 (the later
being the date of the Plaintiffs
letter): $247,902.59
TOTAL $447,627.38
The disputed amount of $102,559.26 represents
the taxes paid for the period from February 27,
1976 to October 21, 1976. The defendant claims
that this amount is not refundable because of a
one-year limitation provided for in subsection
59(4) of the Act. The plaintiff on the other hand
alleges that its claim is not subject to the one-year
limitation provided for in subsection 59(4) but
rather to the two-year limitation mentioned in the
above-quoted subsection 44(7) of the Act as it
read at that time. (The limitation is now four
years. S.C. 1976-77, cc. 6, 10, 15, 28.)
Section 59 provides for the adjudication of dif
ferences as to whether any tax is payable or what
rate of tax might be payable. Subsection (4) of
that section reads as follows:
59....
(4) Notwithstanding the provisions of section 44 relating to
the time within which an application for a refund or deduction
may be made, no refund or deduction shall be made under that
section as the result of any declaration of the Tariff Board
under this section or an order or judgment under section 60 in
respect of taxes paid prior to such declaration, order or judg
ment unless the application mentioned in section 44 is made
within twelve months after such taxes were paid.
I have already cited subsection 44(7). The other
relevant provisions of that section as it existed in
1977 read as follows:
44. (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;
(c) where the tax was paid in error;
Should subsection 59(4) and not section 44
apply to the situation in issue, then the amount of
$102,559.26 paid between February 27 and Octo-
ber 21, 1976, would not be refundable. On the
other hand, should subsection 44(7) apply it
would, of course, be refundable as the period falls
fully within the two-year period preceding the
letter of October 21, 1977.
The defendant argues that by reason of the
combined effect of paragraph 27(1)(a) and sub
section 50(1) of the Act, every person who is a
manufacturer is obliged to pay the tax notwith
standing any dispute and notwithstanding the fact
that he might be exempt. It would follow therefore
that payment of tax by an exempt person would
not constitute a mistake in law. The relevant por
tions of the two above-mentioned sections read as
follows:
27. (1) There shall be imposed, levied and collected a con
sumption or sales tax of twelve 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), by the producer or manufacturer 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, and
50. (1) Every person who is required by or pursuant to Part
III, IV or V to pay taxes shall make each month a true return
of his taxable sales for the last preceding month, containing
such information in such form as the regulations require.
(3) The return required by this section shall be filed and the
tax payable shall be paid not later than the last day of the first
month succeeding that in which the sales were made.
Counsel for the defendant also relied on the
following statement of Abbott J. (dissenting) in
the Supreme Court of Canada decision of Her
Majesty The Queen v. Premier Mouton Products
Inc. 2 at pages 365-366:
There is no doubt that the officers of the Department were in
good faith in claiming payment of the tax from respondent and
the trial judge so found. They were doing no more than their
duty in insisting upon payment of a tax, which they believed to
be exigible from respondent as well as from all other like
processors. To have allowed those who were unwilling to pay, to
postpone or avoid payment of the tax, while receiving payment
from those who did not dispute liability, would have been
manifestly unfair, since it is a reasonable inference that those
who paid would be obliged to try to recover the tax paid in the
resale price of the finished product.
Section 27 is found in Part V of the Act. Sub
section 50(1) obliges every person to pay who is
required to do so under Part V, but section 29 is
also found in Part V and it is precisely section 29
which provides for the exemption of the articles in
question. Section 50 must therefore be read in the
light of the whole Part V and not merely of section
27. It is obvious that a manufacturer or distributor
of therapeutic products in not a person "required
by or pursuant to Part ... V to make a tax return
and pay taxes in accordance with same".
The Act does not, as in the case of the Income
Tax Act [R.S.C. 1952, c. 148 (as am. by S.C.
1970-71-72, c. 63, s. 1)], contain any specific
provision for an assessment by the Minister or any
other authorized person creating an immediate
liability to pay, nor does it as in the case of that
Act contain an additional specific provision to the
effect that, notwithstanding any dispute as to lia
bility, the taxes must in the meantime be paid.
Taxing statutes must be strictly interpreted
2 [1961] S.C.R. 361.
against the taxing authority and, as there is no
provision for assessment and no specific provision
that the taxes must be paid, if claimed, notwith
standing that there is no liability to do so under
the taxing provisions of the Act, I am prepared to
hold that the monies paid following the appeal to
the Tariff Board were not due and payable under
the Act and that the monies paid under the mis
taken belief that they were, constitute monies paid
under a mistake of law.
Furthermore, the limitation of one year on past
payments provided for in subsection 59(4) relates
to payments which are under dispute before the
Tariff Board. Such is not the case here. The claim
was made by letter and without any reference to
the Board but pending the decision of the Board on
previous payments made affecting the same
subject-matter. Conversely, subsection 59(4) does
not in any way relate to payments made subse
quently to any application before the Tariff Board.
The purpose of the limitation in subsection
59(4) is to require the taxpayer to act quickly and
to prevent him from raising a right to reimburse
ment years after payments have been made by
mistake. Such was obviously not the case here: the
Department knew that the payments in issue
before me were being contested at the time that
they were made, as payments of precisely the same
nature affecting identical products had been con
tested and were sub judice at the time.
I therefore conclude the two-year limitation
provision of section 44 applies to the facts in issue
and that the limitation is not affected by the
provisions of subsection 59(4).
This Court, in effect, is merely being asked to
declare whether the Department can, in the par
ticular circumstances of this case, in accordance
with the provisions of the Act, properly pay to the
plaintiff the amount of $102,559.26. The request
ed declaration will be granted. The plaintiff will be
entitled to its 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.