T-486-85
Saugeen Indian Band, as represented by its Chief,
Vernon Roote, and by its Councillors, Arnold
Solomon, Roy Wesley, Oliver Kahgee Sr., Chester
Ritchie, Mildred Ritchie, Harriet Kewaquom,
Marie Mason, and Franklin Shawbedees (Plain-
tiff)
v.
The Queen (Defendant)
INDEXED AS: SAUGEEN INDIAN BAND V. CANADA (T.D.)
Trial Division, Reed J.—Ottawa, October 24, 25
and November 17, 1988.
Native peoples — Taxation — Excise Tax Act, s. 27(1)
imposing tax on sale price of all goods manufactured in
Canada — Indian Band seeking refund of taxes paid on goods
purchased for use on reserve — Indian Act, s. 87 exempting
Indians and Indian bands from direct and indirect taxation,
but not from incidence of indirect taxation — Tax levied on
commodity while owned by manufacturer — Not tax with
respect to personal property of Indians or Indian bands — Not
tax on property situated on reserve — Sales tax too remote to
be considered indirect taxation.
Customs and excise — Excise Tax Act — Indian band
seeking to recover s. 27 sales tax paid by others on goods
purchased for use on reserve — No right to refund even if
exempted from incidence of indirect tax — Excise Tax Act, s.
46.1 denying right of action for refunds unless specific right of
action for recovery of amounts set out in statute — No such
provision in either Indian Act or Excise Tax Act.
This was an action for a refund of federal sales tax paid with
respect to certain commodities. The goods had been purchased
for use on an Indian reserve. The taxes were paid pursuant to
subsection 27(1) of the Excise Tax Act, which imposes a sales
tax on the sale price of all goods manufactured in, or imported
into, Canada or sold or retained by a licensed wholesaler. The
tax is paid by the manufacturer, importer or wholesaler. It is
based upon the manufacturer's sale price or the duty paid value
of imported goods, and becomes payable when the commodity
is delivered to the first unlicensed purchaser, or when the
property in the commodity passes to that purchaser. It is an
indirect tax, in that it is expected that the taxpayer will recoup
the amount of tax paid in the price charged to the next
purchaser. However, there is no legal obligation on anyone
other than the manufacturer, importer or licensed wholesaler to
pay the tax. It is a matter of contract as to whether the tax is
passed on.
Nine transactions were included in the agreed statement of
facts. In some cases, property in the goods passed to the band
off the reserve, and in others it passed on the reserve. Likewise,
in some cases the tax had become payable before delivery; in
others, upon delivery; and in others, had become payable much
earlier in the distribution chain. There were purchases from the
manufacturer, licensed wholesaler, and vendors further down
the distribution chain. In all these cases the plaintiff knew the
amount of federal sales tax paid. With regard to many of the
several thousand transactions included in the statement of
claim, the amount of federal sales tax was, however, neither
known nor easily ascertainable.
Section 87 of the Indian Act exempts the personal property
of an Indian or band situated on a reserve from taxation and
provides that no Indian or band is subject to taxation in respect
of the ownership, occupation, possession or use of any property
on a reserve. The issues were: (1) whether section 87 exempted
Indians and Indian bands from the burden or incidence of
indirect taxes as well as from direct liability as a taxpayer; (2)
whether there was a right to a refund; (3) what limitation
period would pertain; and (4) how the amount of any refund
should be calculated.
Held, the claim should be dismissed.
(1) The tax was not levied with respect to the personal
property of an Indian or Indian band. The commodity is taxed
at the time it is owned by the manufacturer. The phrase
"consumption or sales tax", used in subsection 27(1) to
describe the tax, may signify only that the subsection encom
passes taxes triggered by a sale, appropriation or importation.
It does not mean that it is a tax on the consumption or purchase
of the property by the end-user. Nor was it a tax on property
situated on a reserve. The passing of property from vendor to
purchaser and delivery are factors relevant to determining
when the tax becomes payable. The fact that, after property
has passed, the article becomes the property of an Indian band
and is situated on a reserve does not make the tax one in
respect of personal property of an Indian band situated on a
reserve.
Some incidences of taxation are too remote to fall within
section 87. The test of an indirect tax which was developed for
determining the extent of provincial taxing jurisdiction (those
taxes which "cling as a burden to the unit of commodity") is
not economically sound. There was no compelling reason why
that test should be adopted for the purposes of section 87. The
Supreme Court's comments in Nowegijick that "in respect of'
was wording of the widest scope did not relate to section 87 as a
whole. Nothing indicated that section 87 accorded Indians and
Indian bands exemption from the incidence of tax as well as
exemption as a taxpayer. The words of section 87 stating that
no Indian band "is subject to taxation in respect or mean that
Indian bands are not to be taxed as taxpayers. They do not
mean that Indian bands were to be exempt from all incidence
or burden of indirect taxes.
(2) There was no legal basis for a refund. The plaintiffs
argued that section 87 of the Indian Act should be read
together with the Excise Tax Act to allow the plaintiff to claim
a refund. It is not sound statutory construction to read the two
Acts together because when the Indian Act was enacted federal
sales taxes were not in existence, and when the Excise Tax Act
was first enacted, there was no express provision for refunds to
Indians and Indian bands. The absence of an express exemption
for Indian bands and Indians in the Excise Tax Act is not an
indication that Parliament considered it unnecessary in that
provision for exemption and refund already existed under the
Indian Act. In addition, section 46.1 of the Excise Tax Act
applies. It denies any right of action for a refund of amounts
paid as taxes except as provided by statute. Thus, even if
section 87 of the Indian Act created an exemption as claimed,
section 46.1 precludes a right to a refund since neither the
Indian Act nor the Excise Tax Act provide a right of action for
recovery of amounts paid.
(3) There being no exemption under section 87, it was
unnecessary to consider the relevant limitation period and
method of refund calculation. For completeness, it was to be
pointed out that as to the limitation period, the claim was not a
"specialty debt" as required by paragraph 45(1)(b) of the
Ontario Limitations Act. The amounts in question were not
ascertained. An action on a specialty is an action for a liquidat
ed amount. Since May 23, 1985 the Excise Tax Act, subsection
44(6) has provided a two year limitation period. Prior to that
date it was four years.
(4) With respect to calculation of refunds, the Formula
Refunds Regulations apply only to refunds expressly provided
for by the Excise Tax Act.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Constitution Act, 1867, 30 & 31 Vict., c. 3 (U.K.)
[R.S.C. 1970, Appendix II, No. 5] (as am. by Canada
Act 1982, 1982, c. 11 (U.K.), Schedule to the Consti
tution Act, 1982, Item I)].
Excise Tax Act, R.S.C. 1970, c. E-13, ss. 27(1),(1.2) (as
am. by S.C. 1980-81-82-83, c. 68, s. 10), (1.3) (as am.
by S.C. 1985, c. 3, s. 16), (1.4) (as am. idem),
28(1)(d), 29 (as am. by S.C. 1980-81-82-83, c. 104, s.
9), 44, 44.2 (as enacted by S.C. 1986, c. 9, s. 34), 46.1
(as enacted idem), Sch. III.
Federal Court Act, R.S.C., 1985, c. F-7, s. 39.
Federal Court Rules, C.R.C., c. 663, R. 474.
Formula Refunds Regulations, C.R.C., c. 591, s. 3.
Indian Act, R.S.C. 1970, c. 1-6, s. 87 (as am. by S.C.
1980-81-82-83, c. 47, s. 25).
Indian Act, R.S.C. 1952.
Limitations Act, R.S.O. 1980, c. 240, s. 45(1 )(b).
The Indian Act, 1876, S.C. 1876, c. 18, ss. 64, 65.
CASES JUDICIALLY CONSIDERED
CONSIDERED:
Cairns Construction Ltd. v. Government of Saskatche-
wan, [1960] S.C.R. 619; Bank of Toronto v. Lambe
(1887), 12 App. Cas. 575 (P.C.); Francis, Louis v. The
Queen, [1954] Ex.C.R. 590; affd. [1956] S.C.R. 618;
Nowegijick v. The Queen, [1983] 1 S.C.R. 29.
REFERRED TO:
Canadian Industrial Gas & Oil Ltd. v. Government of
Saskatchewan et al., [1979] 1 S.C.R. 37; Atlantic Smoke
Shops v. Conlon, [1943] A.C. 550 (P.C.); Minister of
Finance of New Brunswick et al. v. Simpsons-Sears Ltd.,
[1982] 1 S.C.R. 144; C.P.R. v. A.G. for Saskatchewan,
[1952] 2 S.C.R. 231; B.A.C.M. Const. Co. Ltd. v. R. in
Right of B.C. (1978), 8 B.C.L.R. 391 (S.C.); The Queen
v. Stevenson Construction Co. Ltd. (1978), 79 DTC 5044
(F.C.A.); Brown v. R. in Right of B.C., [1980] 3 W.W.R.
360 (B.C.C.A.); Danes v. R. in Right of B.C.; Watts v. R.
in Right of B.C. (1985), 61 B.C.L.R. 257 (C.A.); Re Hill
and Minister of Revenue et al. (1985), 50 O.R. (2d) 765
(H.C.); Re Bernard and The Queen in right of New
Brunswick (1986), 31 D.L.R. (4th) 303 (N.B.Q.B.);
Smith (A.M.) & Co. v. R. (1981), 20 C.P.C. 126
(F.C.A.); Cork & Brandon Ry. v. Goode (1853), 13 C.B.
826 (C.P.); Auckland Harbour Board v. The King,
[1924] A.C. 318 (P.C.).
AUTHORS CITED
Hogg, Peter W. Constitutional Law of Canada, 2nd ed.
Toronto: The Carswell Company Limited, 1985.
COUNSEL:
Maureen M. Gregory for plaintiff.
Dogan D. Akman for defendant.
SOLICITORS:
Tweedy, Ross, Charlottetown, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
REED J.: The main issue raised by the plaintiff
in this case is whether section 87 of the Indian Act,
R.S.C. 1970, c. I-6, operates so as to entitle the
plaintiff, as purchaser of certain commodities, to a
refund of the federal sales tax paid with respect to
those commodities.
Federal Sales Tax—Indirect Taxation—Agreed
Statement of Facts
The taxes were paid pursuant to subsection
27(1) of the Excise Tax Act, R.S.C. 1970, c. E-13:
27. (1) There shall be imposed, levied and collected a con
sumption or sales tax ... on the sale price of all goods
a) produced or manufactured in Canada ...
b) imported into Canada...
e) sold by a licensed wholesaler ...
d) retained by a licensed wholesaler for his own use or for
rental by him to others ...
The tax is paid by the manufacturer or producer
of the commodity, unless the product is sold to a
licensed wholesaler. In this latter case the tax is
paid by the licensed wholesaler. In the case of
importation the tax is paid by the importer or the
transferee who takes the goods out of bond. The
word "manufacturer" shall hereinafter be used as
referring to both manufacturers and producers.
The word "importer" shall hereinafter be used as
including transferees and "importation" shall be
used as including the taking of goods out of bond.
When the word "taxpayer" is used in these rea
sons, it refers to the person having the legal obliga
tion to pay the tax: the manufacturer, the licensed
wholesaler or the importer.
The taxes payable are assessed on the sale price
at which the manufacturer sells the product.
Whether the tax is paid by the manufacturer or by
a licensed wholesaler (who may be one or more
steps removed from the manufacturer in the distri
bution chain) the amount of tax is the same, i.e., it
is calculated on the basis of the manufacturer's
sale price. In the case of imported goods the sale
price is deemed to be the duty paid value of the
goods (whether or not the goods are purchased on
importation is irrelevant). When the product is
produced for the use of the manufacturer, not for
sale, the value of the commodity for the purposes
of tax assessment may be determined by the Min
ister, see paragraph 28(1)(d) of the Excise Tax
Act. The tax is often described as a manufacturer's
sales tax. The rate of tax applied to the sale price
can vary depending on the nature of the product
(e.g., see subsections (1.1) [as am. by S.C. 1985, c.
3, s. 16] (1.3) [as am. idem] and (1.4) [as am.
idem] of section 27 of the Excise Tax Act).
The tax becomes payable at the time the com
modity is delivered to the first unlicensed purchas
er, or when the property in the commodity passes
to that purchaser, whichever occurs first. When
the product is appropriated by a manufacturer for
its own use, or when a product is appropriated by a
licensed wholesaler for its own use or for rental,
the tax becomes payable on appropriation. There
are special rules with respect to instalment sales.
In the case of goods which are imported, the tax
becomes payable on importation.
The person purchasing the product from a
manufacturer will in many cases be a wholesaler
(licensed or unlicensed). In some cases, that person
may be what has been referred to in argument as
their "end-user" of the product (for example, when
the manufacturer performs its own wholesale and
distribution functions). Counsel for the defendant
objected to the notion of "end-user". He argued;
commodities on which tax has been paid can be
incorporated into new and different articles; the so
called "end-use" purchaser can use the commodity
as a component of a new article; federal sales tax
paid on that component will be recouped by the
"end-use" purchaser in the price charged for the
new article.' In this regard, counsel referred to
Cairns Construction Ltd. v. Government of Sas-
katchewan, [1960] S.C.R. 619. I took counsel's
reference to the Cairns case to be a reference to
the factual situation in that case and not to the
legal conclusion drawn. The court held that ma
terials purchased by a builder for incorporation
into houses which were being built for resale,
should be classified as being consumed by an
end-user and provincial tax was therefore payable.
As a factual matter, of course, the cost of the
materials would be recouped by the builder in the
price charged to the purchaser of the house. It is to
this factual circumstance which I understood
counsel for the defendant to refer. While I accept
that an "end-user" may pass on the burden of the
tax in this fashion, the concept is, nevertheless, a
' There are of course exemptions in the Excise Tax Act
which relate to such a situation but counsel's argument was
general in nature.
useful one. To me it describes the last person in a
specific chain of distribution.
As noted, it is the manufacturer, importer or
licensed wholesaler who has the legal obligation to
pay the tax. At the same time, it is expected (in
the language of the jurisprudence "intended") that
the tax will be "passed on". It is expected that,
usually, the taxpayer will recoup the amount of tax
paid in the price charged for the article to the next
purchaser. It is expected that that purchaser will
in turn recoup the amount paid, if the article is
resold, in the sale price charged to any subsequent
purchaser. The tax is a classic example of an
indirect tax.
I do not think anyone disputes counsel for the
plaintiff's claim that the tax fits John Stuart Mill's
definition, set out in Bank of Toronto v. Lambe
(1887), 12 App. Cas. 575 (P.C.) at page 582. 2
A direct tax is one which is demanded from the very persons
who it is intended or desired should pay it. Indirect taxes are
those which are demanded from one person in the expectation
and intention that he shall indemnify himself at the expense of
another; such are the excise or customs.
"The producer or importer of a commodity is called upon to
pay a tax on it, not with the intention to levy a peculiar
contribution upon him, but to tax through him the consumers
of the commodity, from whom it is supposed that he will
recover the amount by means of an advance in price."
While the Mill definition has been adopted for
constitutional purposes it is well to keep in mind
that in an economic sense it is not a very satisfac
tory one (see infra page 14).
Counsel for the plaintiff also referred to the
exemption and refund provisions of the Excise Tax
Z Counsel for the plaintiff referred as well to the various
constitutional cases which have distinguished between direct
and indirect taxes as support for her argument that the federal
sales tax was indirect; Canadian Industrial Gas & Oil Ltd. v.
Government of Saskatchewan et al., [1979] 1 S.C.R. 37;
Atlantic Smoke Shops v. Conlon, [1943] A.C. 550 (P.C.);
Minister of Finance of New Brunswick et al. v. Simpsons-
Sears Ltd., [1982] 1 S.C.R. 144; C.P.R. v. A. G. for Saskatch-
ewan, [1952] 2 S.C.R. 231; Cairns Construction Ltd. v. Gov
ernment of Saskatchewan, [1960] S.C.R. 619. See also:
B.A.C.M. Const. Co. Ltd. v. R. in Right of B.C. (1978), 8
B.C.L.R. 391 (S.C.) and The Queen v. Stevenson Construction
Co. Ltd. (1978), 79 DTC 5044 (F.C.A.).
Act as evidence of the tax's indirect nature. Refer
ence was made to the exemptions provided for by
section 29 [as am. by S.C. 1980-81-82-83, c. 104,
s. 9] and Schedule III of the Act:
29. (1) The tax imposed by section 27 does not apply to the
sale or importation of the goods mentioned in Schedule III,
other than those goods mentioned in Part XIII of Schedule III
that are sold to or imported by persons exempt from consump
tion or sales tax under section 31(2).
Some Schedule III items are exempt uncondition
ally (e.g., foodstuffs); others are exempt condition
ally on the basis of the status of the purchaser
(e.g., hospitals, municipalities) or on the basis of
the use to which the item is put (eg., pollution
control, municipal transportation systems). 3 When
a commodity is conditionally exempt, the person
who fulfills the condition (by virtue of its status or
the use to which the commodity has been put) may
apply for a refund of the taxes which were paid in
respect to the commodity even though that person
was not the taxpayer (see section 44 of the Excise
Tax Act). In addition, as of February 16, 1984,
when a taxpayer writes off, as a bad debt, the price
charged with respect to the sale of a commodity,
he may obtain a refund of the taxes which had
been paid with respect to the commodity (section
44.2, added by S.C. 1986, c. 9, s. 34).
It must be emphasized, however, that while the
legislature expects that the burden of an indirect
tax will usually be borne by someone other than
the taxpayer, there is no legal obligation on that
other person to pay the tax as such. The legal
obligation resides at all times with the manufac
turer, importer or licensed wholesaler. It is a
matter of contract between the taxpayer and the
purchaser as to whether or not the tax is in fact
passed on. The vendor might sell the goods at less
than cost and not recoup the tax paid. In the case
of taxes paid on appropriation for use by the
manufacturer or by the licensed wholesaler the tax
will not be passed on unless, of course, the use is of
a commercial or business nature. In this latter
case, the taxes paid will be recouped in the same
3 Goods used by a municipality in the operation of a munic
ipal public passenger transportation system (Schedule III, Part
XII); goods purchased by hospitals for hospital use (Schedule
III, Part VIII); foodstuffs (Schedule III, Part V).
way all costs of doing business are recouped: in the
price charged for the goods or services which the
business sells.
The plaintiff and the defendant filed, for the
purposes of this case, an agreed statement of facts.
Nine transactions were agreed upon, for inclusion
in that statement, to allow the main question of
law raised, by this case, to be dealt with by way of
Rule 474 of the Federal Court Rules [C.R.C., c.
663]. These transactions are illustrative of the
types of situations which may occur. The goods
dealt with in these transactions were purchased for
use on the reserve (nuts and bolts, calcium chlo-
ride—both liquid and solid—road signs, hazard
markers, service tubes used in plumbing, fluores
cent lights, diesel fuel, thrust washers, machine
plugs). The goods were used for purposes such as
road maintenance and the building of houses on
the reserve.
In some of the nine transactions, the property in
the article passed from the vendor to the Band off
the reserve (e.g., to the vendor's place of business
or when delivered to a carrier f.o.b. plant gate). In
other cases, the property in the article passed to
the Band on the reserve. Transactions numbered 1,
3, 5 and 7 involved sales where the property in the
goods passed to the Indian band on the reserve. Of
these, transactions 5 and 7 involve situations where
the federal sales tax had become payable before
the delivery of the article to the reserve. Transac
tions 5 and 7 were sales to the Band by vendors
who were themselves neither manufacturers nor
licensed wholesalers and therefore had not been
taxpayers—the tax with respect to the goods pur
chased in those transactions had become payable
at an earlier stage in the distribution chain. Trans
actions 1 and 3 involve sales where the federal
sales tax became payable at the time of delivery of
the property to the Band on the reserve. Transac
tion 1 was a purchase from a licensed wholesaler;
the commodity (nuts and bolts) was delivered to
the Band by courier f.o.b. the reserve. Transaction
3 was a purchase from the manufacturer; the
commodity (liquid calcium chloride) was delivered
to the Band f.o.b. the reserve.
Of the nine transactions, some involve a pur
chase directly from the manufacturer (numbers 2,
3, 4, 8 and 9), some involve a purchase from a
licensed wholesaler (number 1) and the rest
involve purchases from vendors further down the
distribution chain who never had direct responsi
bility for paying the federal sales tax to the Crown
(numbers 5, 6 and 7).
In all of the nine cases which have been included
in the agreed statement of facts the plaintiff knows
how much federal sales tax was paid with respect
to the commodity. In transactions 2 and 3 the
amount paid is shown on the invoice which the
plaintiff received. In the other cases the plaintiff
has been able to ascertain how much was paid
from the records of the manufacturer or licensed
wholesaler, who paid the tax. The plaintiff's state
ment of claim, however, encompasses some several
thousand transactions. In many of these, the
amount of federal sales tax which has been paid is
neither known nor easily ascertainable. This is
particularly the case where the plaintiff purchased
the product from vendors who had not themselves
been directly liable to the Crown for the tax. (see
infra: arguments with respect to the calculation of
refunds).
Exemption created by section 87 of the Indian Act
[as am. by S.C. 1980-81-82-83, c. 47, s. 25]
Section 87 of the Indian Act provides:
87. Nowithstanding any other Act of the Parliament of
Canada or any Act of the legislature of a province, ... the
following property is exempt from taxation, namely:
(b) the personal property of an Indian or band situated on a
reserve;
and no Indian or band is subject to taxation in respect of the
ownership, occupation, possession or use of any property men
tioned in paragraph ... (b) or is otherwise subject to taxation
in respect of any such property.....
The question raised is whether federal sales
taxes, which have been levied with respect to com
modities which are purchased by an Indian band,
should be characterized as (1) the taxation of
personal property of an Indian band situated on a
reserve or (2) taxation of a band in respect of the
ownership, occupation, possession or use of person
al property of the band situated on the reserve or
the otherwise taxation of the band in respect of
such property. Specifically, the question is whether
section 87 exempts Indians and Indian bands from
the burden or incidence of indirect taxes as well as
from direct liability as a taxpayer.
I will deal first with the defendant's argument
that the federal sales and consumption tax is a
transaction tax. Section 87 of the Indian Act
addresses itself to a tax on property and to a tax on
persons in relation to property. As I understand
the defendant's argument, it is that the federal
sales and consumption tax is not a tax on property,
nor is it a tax on persons. Rather, it is argued that
it is a tax on business transactions (on a sale or on
importation or on appropriation for use). The tax
is expressed to be "on the sale price" and in the
case of importation on the "duty paid value". It is
argued that the tax, as a transaction tax, is outside
the scope of section 87 completely.
I have trouble with this argument. First of all, I
cannot easily characterize the federal sales tax as a
transaction tax. While it is imposed on the manu
facturer's sale price, that sale price is relevant to a
determination of the amount of tax payable rather
than establishing that the sale transaction itself is
the subject of the tax. When one considers that the
tax is also levied on importation (by reference to
the duty paid value of the article) and on appro
priation for use (by a manufacturer or a licensed
wholesaler), it becomes even more difficult to cha
racterize the tax as a transaction tax. One would
assume in the case of a transaction tax that the
transaction had some constancy of definition. In
addition, the rate of tax payable varies with the
type of commodity in question. These factors, in
my view, indicate that the tax is closer to a com
modity tax than to a transaction tax. In any event,
I do not have to decide that issue because, what
ever may be the correct characterization of the
tax, the "otherwise" caveat at the end of section 87
governs. All taxes are in one sense taxes on persons
because it is persons who pay them. The federal
sales tax is, in this sense, a tax on persons with
respect to property. As such, it cannot escape the
strictures of section 87 by being classified as a
transaction tax rather than as a tax on property or
a tax on persons.
Secondly, I will refer to the federal sales taxes
payable on importation (even though the fact sit
uations in the agreed statement of fact do not deal
with importation); there is existing jurisprudence
relating thereto. The jurisprudence seems to
demonstrate that federal sales taxes payable on
importation do not fall within the protection
afforded by section 87 of the Indian Act. In Fran-
cis, Louis v. The Queen, [1954] Ex.C.R. 590, an
Indian imported his own goods into Canada. That
individual, the plaintiff, lived on the St. Regis
Reserve; this was adjacent to another reserve
belonging to the same tribe in the United States.
The plaintiff brought two items across the interna
tional boundary to his home on the reserve; a third
item was delivered by the seller. The goods were
not taken through a port of entry. The plaintiff
argued that he was exempt from paying customs
duties and federal sales taxes on the importation of
the goods. He argued that this tax exempt status
was assured to him by virtue of the provisions of
the Jay Treaty [November 19, 1794, United King-
dom-United States, 8 Stat. 116; T.S. 105]. Alter
natively he argued that such exemption existed by
operation of the then section 86 of the Indian Act
[R.S.C. 1952, c. 149] (now section 87). At pages
608-610 of the Exchequer Court decision, Mr.
Justice Cameron held:
This provision [section 86] first appeared in that form in the
Indian Act, Statutes of Canada, 1951 ch. 29, s. 86; prior
thereto a somewhat similar right was provided in a different
form in the Indian Act, R.S.C. 1927, ch. 98, s. 102. I am of the
opinion that subsection (11) (b) [sic] is of no assistance to the
suppliant in this case. The exemption from taxation therein
provided relates to personal property of an Indian or band
situated on a reserve, and not elsewhere. The importance of
that limitation is seen also from a consideration of sections 88
and 89.
Whatever be the extent of the exemption from taxation
granted to Indians in respect of their personal property on a
reserve, it does not in my view extend to an exemption from
customs duties and excise taxes ....
... the section has no application whatever to the payment of
customs duties or excise taxes.
The Supreme Court upheld this decision; see
[1956] S.C.R. 618. While the Supreme Court
decision referred, in the main, to customs duties it
is clear that it dealt also with the federal sales
taxes payable on importation. At page 620 of the
Supreme Court decision, the Chief Justice summa
rized the question arising for decision:
... the question is whether three articles, a washing machine, a
refrigerator and an oil heater, brought by him [the appellant]
into Canada from the United States of America are subject to
duties of customs and sales tax under the relevant statutes of
Canada. [Underlining added.]
The Supreme Court held that the goods did not
enjoy tax exempt status.
The present fact situations before me, of course,
do not involve any federal sales taxes paid on
importation. The fact situations relate only to
taxes paid with respect to goods manufactured or
produced in Canada.
The plaintiff argues that the tax is one with
respect to the personal property of an Indian band
situated on a reserve. I do not find this argument
compelling. While the tax may be in the nature of
a commodity tax, it is not a tax which is levied
with respect to property situated on a reserve
belonging to an Indian or Indian band. To the
extent that the federal sales tax is a tax on com
modities (i.e., on personal property), it is a tax on
the commodity at the time it is owned by the
manufacturer. The tax is, in general, calculated by
reference to the sale price from the manufacturer
to the first purchaser in the distribution chain. It is
in the first instance paid by the manufacturer
(except of course when sold to a licensed whole
saler). When the tax is paid by a licensed whole
saler the amount paid is that which would have
been paid by the manufacturer had it been levied
from him.
Counsel for the plaintiff argues that the federal
sales tax is a consumption tax; a tax on property
that was purchased for consumption on the reserve
and therefore the property is exempt from taxation
pursuant to section 87 of the Indian Act. In this
regard she argues that whether the property in the
various articles passed to the band on or off the
reserve is an irrelevant consideration since the
property was intended for use on the reserve and
was in fact used on the reserve. I think this
argument confuses the nature of the federal sales
tax with that of the provincial retail sales taxes.
Provincial retail sales taxes are levied on the con
sumption of end-users; the vendor of the product is
the collector of the tax, 4 as agent for the Crown.
Federal sales taxes are levied on the vendor not the
purchaser and the primary focus of the tax is the
sale of finished products at the manufacturer's
level. The word "consumption" is used to describe
the tax; subsection 27 (1) of the Excise Tax Act
refers to the tax as a "consumption or sales tax".
This may signify no more than the fact that the
subsection encompasses both taxes triggered by a
sale and taxes triggered on appropriation (by
manufacturer or licensed wholesaler) or on impor
tation. Whatever may be the significance of the
use of that description, it is not accurate to classify
the tax imposed by subsection 27(1) as a tax on
the consumption or purchase of the property by
the end-user.
Not only is it difficult to characterize the tax as
being one in respect of the personal property of an
Indian band, it is also difficult to characterize it as
a tax in respect of property situated on a reserve.
The passing of property from the vendor to the
purchaser and the delivery of the commodity by
the vendor to the purchaser are factors relevant for
determining the time at which the tax becomes
payable. The fact that, after the property has
passed, the article becomes the property of an
Indian band, and it is situated on the reserve does
not make the tax one in respect of personal prop
erty of an Indian band situated on a reserve. It
would be absurd to say that the tax levied with
respect to transaction number 3 (where property
passed to the band on the reserve and the purchase
was made directly from the manufacturer) con
stituted a tax on the personal property of a band
on a reserve while the tax levied with respect to
transaction number 5 (where the property passed
to the band on the reserve but the purchase was
from an unlicensed vendor who had not itself paid
any federal sales tax to the Crown) was not.
4 See generally: Brown v. R. in Right of B.C., [1980] 3
W.W.R. 360 (B.C.C.A.); Danes v. R. in Right of B.C.; Watts v.
R. in Right of B.C. (1985), 61 B.C.L.R. 257 (C.A.); Re Hill
and Minister of Revenue et al. (1985), 50 O.R. (2d) 765
(H.C.); Re Bernard and The Queen in right of New Brunswick
(1986), 31 D.L.R. (4th) 303 (N.B.Q.B.).
The plaintiff argues that the federal sales tax
constitutes the "otherwise" taxation of the band
"in respect of personal property ... situated on the
reserve" because, while not directly liable as a
taxpayer, the band indirectly bears the burden of
the tax. It is argued that this indirect bearing of
the burden, constitutes taxation from which the
band is exempt by virtue of section 87 of the
Indian Act.
Counsel argues that support for the proposition,
that section 87 exempts the plaintiff from all
incidence of federal sales tax can be found in the
Constitution Act, 1867 [30 & 31 Vict., c. 3 (U.K.)
[R.S.C. 1970, Appendix II, No. 5] (as am. by
Canada Act 1982, 1982, c. 11 (U.K.), Schedule to
the Constitution Act, 1982, Item 1)]. In that Act a
distinction was made between direct and indirect
taxes; the provinces were given authority to levy
direct taxes only. Since the distinction between
direct and indirect taxes was known at the time of
the drafting of the Constitution Act, 1867 (from
the writings of John Stuart Mill) it is argued that
this distinction was present to the minds of the
drafters of The Indian Act, 1876 (S.C. 1876, c. 18,
sections 64, 65) and the precursor to section 87
was not, at that time, limited to direct taxes only.
I have difficulty with this argument. In the first
place, the Constitution Act, 1867 and the Indian
Act are not in pari materia. They were not even
passed by the same legislature. Secondly, it is far
too tenuous an argument to conclude that, because
the drafters of the Constitution Act, 1867 restrict
ed the provincial taxing authority to direct taxa
tion, the drafters of the Indian Act, either in 1876 5
(when the precursor to section 87 was enacted) or
in 1951 (when the text in its present form was
drafted) consciously considered the distinction be
tween direct and indirect taxation. Nevertheless, I
agree that section 87 encompasses both direct and
indirect taxation. But, that does not in itself assist
the plaintiff. The plaintiff's argument requires that
section 87 be interpreted not only as according an
exemption to Indians and Indian bands as taxpay
ers of indirect taxes but also as the bearers of any
5 The legislation of 1876, itself, was preceded by preconfeder-
ation legislation; see S. S.C. 1850, c. 74. s. 4.
incidence or burden of such taxes. The reference to
the Constitution Act, 1867 simply does not assist
this argument.
If section 87 does provide an exemption from
the incidence of taxation, as well as from its direct
liability, then there is a need to draw a line
between those incidences which are too remote or
indirect to fall within the scope of section 87 and
those which are not. Many taxes are in fact indi
rect in an economic sense: income taxes paid by
business corporations; property taxes paid by busi
nesses. These are in fact indirect because they are
passed on to the consumers of the goods and
services sold by the respective businesses.
Counsel for the plaintiff argues that the test of
an indirect tax which has been developed for con
stitutional purposes should be adopted to deter
mine the dividing line between those incidences
which are too remote to fall within section 87 and
those which are not. That test states that, if the
general tendency of a tax is such that the burden
of the tax is borne by someone other than the
taxpayer, then the tax is indirect. The test classi
fies those taxes which "cling as a burden to the
unit of commodity" as indirect. If the tax is likely
to be recouped only because, like other expenses, it
is a cost of doing business, then it is not considered
to be indirect for constitutional purposes (see
Hogg, Constitutional Law of Canada, 2nd ed.
1985, pages 604-609). Counsel for the plaintiff
argues that, similarly, indirect taxes which cling to
a commodity should be considered as falling
within section 87 while those which are recouped
only as a general cost of doing business should not.
As noted, the test which counsel for the plaintiff
proposes was developed for the purpose of deter
mining the extent of provincial taxing jurisdiction.
Hogg, at page 606, states:
... it is obviously neither possible nor desirable to exclude from
the provincial taxing power all taxes that are in fact recouped
by the initial taxpayer. The test of directness is a justiciable
means of excluding from provincial power at least those taxes
that are most likely to be passed on, and thereby confining
provincial power to those taxes the burden of which is most
likely to remain within the province.
It is widely recognized that the definition of indi
rect taxes which has been developed for constitu
tional purposes is not economically sound. In fact
Hogg, at page 605, notes: "economists would no
longer accept the validity of Mills' distinction".
While that test plays a significant role in deter
mining the division of legislative authority as be
tween the federal and provincial governments, it is
not immediately obvious why it should be adopted
for the purposes of section 87 of the Indian Act.
There is no compelling legal reason why the test
should be adopted for the purposes for which
counsel argues; there may be administrative rea
sons or reasons stemming from familiarity with the
definition.
The Supreme Court decision in Nowegijick v.
The Queen, [1983] 1 S.C.R. 29 is cited for the
proposition that the wording of section 87 is
"wording of the widest possible scope". The
Supreme Court's statement, however, did not
relate to section 87 as a whole. At page 39,
Dickson J. [as he then was] said that the words "in
respect of" are words of the widest possible scope.
The argument being made was that taxes in
respect of income were not taxes in respect of
wages or personal property situated on a reserve.
This it was argued followed from the fact that
"income" is a notional concept, the content of
which is determined by a series of calculations. In
the Nowegijick case it was admitted that the situs
of the plaintiff's wages was on the reserve. It was
clear that the taxpayer was an Indian. The only
argument was whether or not income tax fell
outside the scope of section 87 because it is a tax
on income which is an aggregate or net concept.
The Chief Justice held that the distinction between
a tax in respect of wages and a tax in respect of
income was too fine a one for his liking. He stated,
at page 38: "If wages are personal property it
seems to me difficult to say that a person taxed in
respect of wages is not being taxed in respect of
personal property".
I do not think the Nowegijick decision helps the
plaintiff. There is absolutely no indication, in that
decision, that the Supreme Court was of the view
that section 87 accorded Indians and Indian bands
exemption from the incidence of tax as well as
exemption as a taxpayer. In the present case, the
property being taxed is not the property of an
Indian band situated on a reserve, nor is the
taxpayer an Indian or Indian band. I do not think
the Supreme Court's comments in the Nowegijick
case, regarding the words "in respect of' assist the
plaintiff.
The Supreme Court in the Nowegijick case, at
page 36, made certain statements concerning the
principles of interpretation applicable to statutes
relating to Indians.
It is legal lore that, to be valid, exemptions to tax laws should
be clearly expressed. It seems to me, however, that treaties and
statutes relating to Indians should be liberally construed and
doubtful expressions resolved in favour of the Indians. If the
statute contains language which can reasonably be construed to
confer tax exemption that construction, in my view, is to be
favoured over a more technical construction which might be
available to deny exemption. In Jones v. Meeham, 175 U.S. 1
(1899), it was held that Indian treaties "must ... be construed,
not according to the technical meaning of [their] words ... but
in the sense in which they would naturally be understood by the
Indians".
However, I do not find section 87 doubtful or
ambiguous. I think it relates to Indians and Indian
bands as taxpayers.
In my view then, the words of section 87 stating
that no Indian band "is subject to taxation in
respect of ..." , must be read as meaning that
such bands are not to be taxed as taxpayers. Had
it been intended that the Indians and Indian bands
were to be exempt from all incidence or burden of
indirect taxes, as well as from direct liability for
taxes, surely section 87 would have been more
specifically worded to so provide.
Right to Refund—Limitation Period—Refund
Calculation
Strictly speaking, since I do not find that section
87 gives the exemption claimed, it is not necessary
to consider: whether and how a right to a refund
arises; what limitation period would pertain; how
such refund should be calculated. Nevertheless, for
the sake of completeness, I shall set out the argu
ments made.
Counsel for the plaintiff argues that section 87
of the Indian Act should be read as creating an
exemption to subsection 27(1) of the Excise Tax
Act, comparable to the express exemptions pro
vided for by subsection 29(1) of that Act and a
concomitant right to a refund. As noted above
subsection 29(1), read together with Schedule III,
establishes a number of exemptions. When the
exemption is a conditional one, the person who
satisfies the condition may seek a refund of the
taxes, which were paid in respect of the commodi
ty, even though that person was not the taxpayer.
It is argued that section 87 of the Indian Act
should be read together with the Excise Tax Act
to allow the plaintiff, in a similar fashion, to claim
a refund of the taxes which were paid on the
commodities which the band purchased. It is
argued that a refund should be paid on proof that
the goods were purchased by an Indian band and
were used on the reserve.
I find it difficult to agree that the Indian Act
and the Excise Tax Act, should be read together
in this fashion. It is not sound statutory construc
tion. At the time the precursor of section 87 of the
Indian Act was enacted federal sales taxes were
not in existence. At the time the Excise Tax Act
was first enacted, no express provision was made
therein to provide for refunds to Indians and
Indian bands. As a policy matter certain exemp
tions and refund provisions were provided (e.g., to
make the tax less regressive by exempting food
stuffs). I cannot, however, read the absence of an
express exemption, for Indians and Indian bands,
in the Excise Tax Act as any indication that
Parliament intended an exemption and refund to
apply by operation of the Indian Act. The argu
ment that Parliament considered it unnecessary to
expressly provide for a conditional exemption in
the Excise Tax Act because it considered that
such exemption already existed by virtue of the
operation of section 87 of the Indian Act is a
difficult one to accept.
With respect to the limitation period, the plain
tiff argues that its cause of action arises under the
Indian Act and since no period of limitation is set
out therein, the claim is not subject to any limita
tion period. Alternatively, it is argued that the
claim is governed by paragraph 45(1)(b) of the
Limitations Act, R.S.O. 1980, c. 240 (made appli
cable by operation of section 39 of the Federal
Court Act [R.S.C., 1985, c. F-7]). 6 Paragraph 45
(1)(b) provides that when an action is "upon a
bond, or other speciality" a limitation period of
twenty years applies. The plaintiff argues that a
claim which arises by statute is a speciality debt:
Smith (A.M.) & Co. v. R. (1981), 20 C.P.C. 126
(F.C.A.), at page 135 citing Cork & Brandon Ry.
v. Goode (1853), 13 C.B. 826 (C.P.).
The defendant's position is that if a right to a
refund exists, subsection 44(6) of the Excise Tax
Act applies. Under that provision, as of May 23,
1985, the limitation period is two years (S.C.
1986, c. 9, ss. 44-49). Prior to that time subsection
44(6) provided for a four-year limitation period:
44... .
(6) Subject to subsections (7) and (7.1), no refund of or
deduction from any of the taxes imposed by this Act shall be
granted, and no payment of an amount equal to tax paid shall
be made, under this section unless application in writing there-
for is made to the Minister by the person entitled to the refund,
deduction or amount within four years after the time the
refund, deduction or amount first became payable under this
section or the regulations.
Alternatively, counsel for the defendant argues
that if the Ontario Limitations Act applies it is
paragraph 45(1)(h) of the Act which is applicable.
Under that paragraph a two-year period is pre-
6 39. (1) Except as expressly provided by any other Act, the
laws relating to prescription and the limitation of actions in
force in any province between subject and subject apply to any
proceedings in the Court in respect of any cause of action
arising in that province.
(2) A proceeding in the Court in respect of a cause of action
arising otherwise than in a province shall be taken within six
years after the cause of action arose.
(3) Except as expressly provided by any other Act, the laws
relating to prescription and the limitation of actions referred to
in subsections (I) and (2) apply to any proceedings brought by
or against the Crown.
scribed. That paragraph relates to actions "for a
penalty, damages or sum of money given by any
statute to the Crown or the party aggrieved".
Counsel for the plaintiff argues that the limita
tion period set out in subsection 44(6) of the
Excise Tax Act only applies with respect to
exemptions and refunds expressly provided for in
the Excise Tax Act. She argues that since the
exemption claimed by the plaintiff in this case
arises under the Indian Act, subsection 44(6) of
the Excise Tax Act would not apply to that
exemption nor to the right to a refund arising
therefrom. She supports this position by reference
to section 46.1 of the Excise Tax Act: 7
46.1. Except as provided in this or any other Act of Parlia
ment, no person has a right of action against Her Majesty for
the recovery of any moneys paid to Her Majesty that are taken
into account by Her Majesty as taxes, penalties, interest or
other sums under this Act.
It is argued that, since section 46.1 refers to a
recovery of moneys paid as taxes "provided in this
or any other Act of Parliament", it is clear that
recovery of a refund is intended to be available
pursuant to other Acts as well as pursuant to the
Excise Tax Act. In this case it is argued that it is
the Indian Act which so provides.
While the plaintiff eschews the Excise Tax Act
for the purposes of determining a limitation
period, it seeks the benefit of that Act and the
regulations passed pursuant thereto for the pur
pose of determining, in certain cases, the amount
of refund it should obtain. When the exact amount
of tax paid is not easily ascertainable the plaintiff
asks that the Formula Refunds Regulations,
C.R.C., c. 591, passed pursuant to the Excise Tax
Act be applied. Section 3 of those Regulations
states:
3.(1) Where by the Act a person is entitled
(a) to make a deduction from tax payable by him,
(b) to a refund of tax paid, or
(c) to receive a payment from the Minister in an amount
equal to tax paid,
and circumstances exist that render it difficult to determine the
exact amount of such deduction, refund or payment by the
' S.C. 1986, c. 9, s. 34.
Minister, the amount of the deduction, refund or payment by
Minister shall, where the person consents, be determined in the
manner set out in subsection (2).
(2) The exact amount of deduction, refund or payment by
the Minister, determined for the purpose of subsection (1),
shall be equal to the tax that would have been paid at the time
of imposition of the tax on the goods on a price or value
determined by reducing
(a) the sale price of the goods in the transactions in respect
of which the deduction, refund or payment by the Minister is
applied for, or
(b) the contract price where the goods were used in carrying
out a contract and no sale price of the goods in the transac
tion in respect of which the deduction, refund or payment by
the Minister is applied for can be established,
by a percentage thereof determined by the Minister after
taking into account the class of the goods and the nature of and
parties to the transaction that resulted in the application of a
deduction, refund or payment by the Minister. [Underlining
added.]
Counsel for the defendant argues that the For
mula Refunds Regulations cannot apply because
they are expressly stated, in subsection (1), to
apply to deductions and refunds to which a person
is entitled by operation of "the Act", that is, the
Excise Tax Act. Since there are no refund provi
sions in the Excise Tax Act applicable to Indian
bands, it is argued that the Regulations cannot
apply.
As I have already indicated, if I am wrong with
respect to the proper interpretation of section 87
and if that section exempts the plaintiff from the
incidence of federal sales taxes, there would still
remain the difficulty of finding a legal basis for
granting the plaintiff the refund sought. With
respect to counsel's arguments concerning the
appropriate limitation period, it is difficult to cha
racterize the claim as a "specialty debt" in order
to bring it under paragraph 45(1)(b) of the
Ontario Limitations Act. The amounts in question
are not ascertained. The jurisprudence to which
counsel refers, while relating to debts arising by
statute, clearly indicates that an action on a spe
ciality is an action for a liquidated or ascertained
amount. In addition, I think section 46.1 of the
Excise Tax Act pertains but not to effect the
result for which counsel for the plaintiff argues
(i.e., not as an escape from the two-(four-) year
limitation period set out in subsection 44(6)). Sec
tion 46.1 provides "no person has a right of action
against Her Majesty for the recovery of any
moneys paid ... as taxes ... under this Act"
except as provided "in this or any other Act".
[Underlining added]. Even if section 87 of the
Indian Act provided an exemption from the inci
dence of indirect taxes it does not provide for "a
right of action against Her Majesty for the recov
ery of moneys paid" ... as taxes under the Excise
Tax Act. Nor is such right of action found in the
Excise Tax Act itself. I read section 46.1 as
denying any right of action for a refund of
amounts paid as taxes unless such is expressly set
out in a statute. This accords with the jurispru
dence, cited to me by counsel for the defendant,
illustrating the common law principle that monies
cannot be taken out of the Consolidated Revenue
Fund except by authorization from Parliament. In
this respect see Auckland Harbour Board v. The
King, [1924] A.C. 318 (P.C.). Thus, even if a
successful argument could be made that section 87
of the Indian Act created an exemption as claimed,
I do not see how the plaintiff could successfully
assert a right to the refunds sought.
With respect to the calculation of refunds, coun
sel for the defendant is clearly right when he says
that the Formula Refunds Regulations only apply
to refunds which are expressly provided for by the
Excise Tax Act.
Conclusion
The first question set out in the order of the
Associate Chief Justice, filed September 15, 1988
will be answered as follows:
The plaintiff is not entitled to any exemption with respect to
any of the nine transactions set out in the agreed statement of
facts, nor is it entitled to any refund from the Defendant of the
sales taxes remitted pursuant to section 27 of the Excise Tax
Act with respect thereto.
The plaintiff's claim will accordingly be dismissed.
The defendant shall have her costs of the action.
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.