Date: 20050531
Docket: T-816-04
Citation: 2005 FC 771
BETWEEN:
PIÈCES D'AUTOS USAGÉES RTA (1986) INC.
Plaintiff
and
HER MAJESTY THE QUEEN
Defendent
REASONS FOR ORDER
de MONTIGNY J.
[1] This is an appeal pursuant to sections 81.24 and 81.28 of the Excise Tax Act, R.S.C. 1985 c. E-15 (the "Act"), of a decision of the Canadian International Trade Tribunal (the "Tribunal"), dated April 21st, 2004 (the "Decision"), in which the Board denied the plaintiff's refund application for overpayment of excise tax.
Background
[2] The plaintiff, Pièces d'autos usagées RTA (1986) Inc., is in the business of importing vehicles which are damaged beyond repair. The vehicles are not imported to be used as or sold as vehicles to be driven on the roads. The plaintiff extracts any salvageable parts from the vehicles, and then sells the hulk, along with any non-salvageable parts, as scrap metal to shredders.
[3] The goods in issue consisted of a compressor, a condenser, an evaporator unit and hoses, which, taken together, are called an air conditioning system.
[4] The plaintiff paid an excise tax of $100 for each air conditioner included in the vehicles, in accordance with Schedule I, s. 7 of the Act.
[5] The plaintiff argues that the components of the air conditioning are either so badly damaged that they can no longer function as an air conditioning system, or that it is not economically feasible to salvage and sell them.
[6] On June 10, 1997, the plaintiff filed an excise tax refund application in the amount of $129 042 for the overpayment of excise tax of $100 with respect to each of the vehicles as imported by the plaintiff.
[7] On January 18, 1999, the defendant issued a Notice of Determination disallowing the plaintiff's refund claim. The explanation given for the determination is rather terse, and reads as follows:
The vehicles which you import are classified as being potentially road worthy or useful for the sale of parts under one of several tariff items in Chapter 87 of the Customs Tariff this would include air conditioners and excise tax must therefore be paid.
[8] On February 16, 1999, the Plaintiff then filed a Notice of Objection. Again, he alleged that the vehicles imported are clearly identified on the customs documentation as being "damaged vehicles for parts only". Furthermore, the "Salvage Certificate" of the State from which the vehicle was imported bears the stamp "for parts only. Vehicle cannot be re-titled". The Plaintiff adds that the air-conditioners can not be salvaged as such since the complete dismantlement of all or most of the components is "impractical and non-economical". For that reason, it is claimed that these air-conditioners are incidental to the purchase of the scrapped vehicle and are not intended for sale or commercial use as such.
[9] On August 22nd, 2002, a Notice of Decision was issued confirming the determination of January 18, 1999. The salient part of that Notice states:
Les paragraphes 23(1) et (2) de la Partie III de la Loi sur la taxe d'accise imposent une taxe d'accise sur les climatiseurs, des marchandises énumérées à l'Annexe I. Il s'agit d'une taxe spécifique de $100 payable au moment de l'importation, par l'importateur, conformément aux susdits paragraphes et à l'article 7 de l'Annexe I.
La Loi sur la taxe ne contient aucune exemption de la taxe d'accise à l'égard des climatiseurs des véhicules usagés ou endommagés, acquis pour la revente en pièces détachées.
[10] On October 8, 2002, the Plaintiff appealed the decision to the Tribunal. Counsel for the Plaintiff contended that the conditions for the imposition of the tax set forth in Section 7 of Schedule I did not apply to the transactions in issue in that: 1) the goods in issue were not air conditioners as described in Section 7; 2) the goods in issue were not permanently installed equipment as required by paragraph 7(b) of Schedule I to the Act; and 3) the goods in which the "air conditioners" were found at the time of importation were not "automobiles" as that word is ordinarily understood.
[11] By decision dated April 21, 2004, the Tribunal dismissed the plaintiff's appeal. This is the decision that is the subject of the present appeal.
The Board's Decision
[12] In its decision, the Tribunal agreed with the Plaintiff that section 7 of Schedule I to the Act sets out a three-part test that must be met for the tax to be applicable; however, it dismissed Pièces d'auto's arguments on each of these three points. With respect to the first part of the test, that the parts be "designed for use in automobiles, station-wagons, vans or trucks", the Tribunal came to the conclusion that this part of the test does not turn on whether the air conditioning units were functional or actually in use in automobiles, station wagons, vans or trucks at the time of importation, but rather on whether they were designed for this use. What was crucial, in the Tribunal's view, was that the air conditioners in issue were designed specifically for use in vehicles and that they are not suitable for any other application.
[13] The Tribunal was also convinced, based on the evidence, that the air conditioners in issue were "permanently installed" in vehicles, thereby meeting the second part of the test. The fact that they can be removed does not differentiate them from other "permanently installed" goods. Referring again to the evidence, the Tribunal found particularly compelling the fact that the goods were designed and installed for the life of the vehicles, which in its view was a clear indication of the permanence of their installation.
[14] Finally, the Tribunal was of the view that the host items in which the air conditioners are imported are vehicles, even if they had been disabled and can no longer function as conveyances. According to the Tribunal, both common parlance and the language used in the industry include damaged automobiles in the term "vehicle", and a vehicle does not cease to be a vehicle in the plain and ordinary sense of that term when it is no longer functional.
Issues
[15] The Plaintiff raises two issues in this appeal:
1. Were the air conditioners imported as permanently installed equipment in the vehicles; and
2. Are the vehicles as imported by the Plaintiff "vehicles" for the purpose of section 7 of Schedule I to the Act?
Relevant Legislative Provisions
[16] Section 81.24 of the Excise Tax Act provides:
| 81.24 Any party to an appeal to the Tribunal under section 81.19, 81.21, 81.22 or 81.23 may, within one hundred and twenty days after the day on which the decision of the Tribunal is sent to that party, appeal the decision to the Federal Court.
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81.24 Toute partie à un appel entendu par le Tribunal en vertu de l'article 81.19, 81.21, 81.22 ou 81.23 peut, dans un délai de cent vingt jours suivant la date d'envoi de la décision du Tribunal, en appeler de cette décision à la Cour fédérale. |
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[17] Paragraph 81.28(1)(b) of the same Act then indicates how an appeal by a party other than the Minister under section 81.24 is to be instituted in the Federal Court:
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81.28(1) An appeal to the Federal Court under section 81.2, 81.22 or 81.24 shall be instituted a) in the case of an appeal by a person, other than the Minister, in the manner set out in section 48 of the Federal Courts Act.
(b) in the case of an appeal by the Minister, in the manner provided by the rules made under the Federal Courts Act for the commencement of an action.
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81.28 (1) Un appel à la Cour fédérale en vertu des articles 81.2, 81.22 ou 81.24 doit être interjeté_: a) dans le cas d'un appel interjeté par une personne, autre que le ministre, de la manière énoncée à l'article 48 de la Loi sur les Cours fédérales;
b) dans le cas d'un appel interjeté par le ministre, de la manière prévue par les règles établies conformément à cette loi pour l'introduction d'une action. |
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[18] Section 81.28(3) of the Act spells out the procedure to be followed in an appeal:
| 81.28 (3)An appeal to the Federal Court under this Part is deemed to be an action in the Federal Court to which the Federal Courts Act and the rules made under that Act applicable to an ordinary action apply¼[subject to exceptions which are not relevant here].
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81.28 (3) Un appel à la Cour fédérale en vertu de la présente partie est réputé être une action devant celle-ci à laquelle la Loi sur les Cours fédérales et les règles établies conformément à cette loi s'appliquent comme pour une action ordinaire... (sujet à des exceptions qui ne s'appliquent pas dans ce cas). |
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[19] Subsection 23(1) of the Act imposes an excise tax on goods mentioned in Schedules I and II of that Act:
| 23. (1) Subject to subsections (6) to (8), whenever goods mentioned in Schedule I are imported or are manufactured or produced in Canada and delivered to a purchaser of those goods, there shall be imposed, levied and collected, in addition to any other duty or tax that may be payable under this or any other law, an excise tax in respect of the goods at the applicable rate set out in the applicable section of that Schedule, computed, if that rate is specified as a percentage, on the duty paid value or the sale price, as the case may be. |
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23. (1) Sous réserve des paragraphes (6) à (8), lorsque les marchandises énumérées à l'annexe I sont importées au Canada, ou y sont fabriquées ou produites, puis livrées à leur acheteur, il est imposé, prélevé et perçu, outre les autres droits et taxes exigibles en vertu de la présente loi ou de toute autre loi, une taxe d'accise sur ces marchandises, calculée selon le taux applicable figurant à l'article concerné de cette annexe. Lorsqu'il est précisé que ce taux est un pourcentage, il est appliqué à la valeur à l'acquitté ou au prix de vente, selon le cas.
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[20] Section 7 of Schedule I reads as follows:
| 7. Air conditioners designed for use in automobiles, station wagons, vans or trucks whether (a) separate, or (b) included as permanently installed equipment in an automobile, station wagon, van or truck at the time of sale or importation of the vehicle by the manufacturer or importer thereof, as the case may be, one hundred dollars and, for purposes of this section and section 8, an evaporator unit designed for use with or as part of an automotive type air conditioning system shall be deemed to be an air conditioner described in this section except where the evaporator unit is used for repair or replacement purposes. |
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7. Les climatiseurs conçus pour être installés dans les automobiles, les familiales, les fourgonnettes ou les camions, qu'ils soient_: a) ou bien distincts; b) ou bien inclus à titre d'équipement installé en permanence dans ces véhicules au moment de la vente ou de l'importation par le fabricant ou l'importateur, selon le cas, cent dollars. Pour l'application du présent article et de l'article 8, une unité d'évaporation destinée à entrer dans la fabrication de climatiseurs conçus pour être installés dans les automobiles est réputée être un climatiseur décrit dans le présent article sauf lorsqu'elle est utilisée pour fins de réparations ou de remplacement. |
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Analysis
[21] By agreement between the parties, the evidence and exhibits which were before the Tribunal, including the testimony of Mr. Raymond Burke, General Manager of Pièces d'autos, constitutes the evidence before me.
[22] The first issue to be resolved is the determination of the appropriate standard of review against which the decision of the Tribunal will be assessed. This determination is essentially an attempt to find out the legislative intent behind the statute creating the tribunal whose decision is being reviewed. In other words, the question that I must answer is whether, and to what extent, the challenged decision is one that Parliament wanted to insulate from review by the courts.
[23] The Federal Court of Appeal has consistently held that reasonableness simpliciter is the appropriate standard of review of the Tribunal's decisions in customs tariff classification appeals: Canada (A.G.) v. Suzuki Canada Inc., [2004] FCA 131; Minister of National Revenue v. Yves Ponroy Canada (2000), 259 N.R. 238; Flora Manufacturing & Distributing Ltd. v. Canada (Deputy Minister of National Revenue) (2000), 258 N.R. 134; Minister of National Revenue (Customs & Excise) v. Schrader Automotive Inc.(1999), 240 N.R. 381. The same standard has been applied in appeals of CIT decisions dealing with anti-dumping legislation: 2703319 Canada Inc. (c.o.b. VWV Enterprises) v. Canada (Deputy Minister of National Revenue) (1999), 250 N.R. 381; Specialized Vicycle Components Canada Inc. v. Canada (Deputy Minister of National Revenue), [2000] F.C.J. No. 77.
[24] I can see no reason why this same standard should not be applied to the Tribunal's decisions in excise tax classification appeals. Indeed, the elaborate reasons given by Justice Sharlow to conclude, on the basis of the four factors elaborated in Pushpanathan v. Canada (Minister of Citizenship and Immigration), [1998] 1 S.C.R. 982, that the reasonableness standard should be applied in the context of the Customs Tariff, can be transposed with equal force when the Excise Tax Act is at play.
[25] Of particular relevance here is the expertise of the Tribunal and the complexity of the Excise Tax Act, which is comprised of a number of Schedules classifying a large number of goods and services for tax purposes. Equally of importance is the fact that the classification of a good under that Act involves mixed questions of fact and law. The Tribunal is first required to determine what are the requirements for the tax prescribed by section 7 of Schedule I to be applicable; it must then examine the goods that are imported to assess their true nature, before deciding whether they meet the criteria set out by the Act. It is of course true that on appeal, this Court is entitled to substitute its decision to that of the decision maker whose decision is being appealed. But this should not be done lightly, and for that reason the standard of reasonableness is the most appropriate in the circumstances.
[26] This standard has been described in the following terms by Iacobucci J. in Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748, at par. 56:
An unreasonable decision is one that, in the main, is not supported by any reasons that can stand up to a somewhat probing examination. Accordingly, a court reviewing a conclusion on the reasonableness standard must look to see whether any reasons support it. The defect, if there is one, could presumably be in the evidentiary foundation itself or in the logical processes by which conclusions are sought to be drawn from it.
[27] There is no definition of the word "vehicle" in the Excise Tax Act. I must therefore apply the agreed upon principles of statutory interpretation to give meaning to this word. These principles were enunciated by Iacobucci in the case of Rizo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at paras. 21 and 22:
Although much has been written about the interpretation of legislation (see, e.g., Ruth Sullivan, Statutory Interpretation (1997); Ruth Sullivan, Driedger on the Construction of Statutes (3rd ed., 1994) (hereinafter "Construction of Statutes"); Pierre-André Côté, The Interpretation of Legislation in Canada (2nd ed., 1991). Elmer Driedger in Construction of Statutes (2nd ed., 1983) best encapsulates the approach upon which I prefer to rely. He recognizes that statutory interpretation cannot be founded on the wording of the legislation alone.
At p. 87 he states:
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
Recent cases which have cited the above passage with approval include: R. v. Hydro-Québec, [1997] 3 S.C.R. 213; Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411; Verdun v. Toronto-Dominion Bank, [1996] 3 S.C.R. 550; Friesen v. Canada, [1995] 3 S.C.R. 103.
I also rely upon s. 10 of the Interpretation Act, R.S.O. 1980, c. 219, which provides that every Act "shall be deemed to be remedial" and directs that every Act shall "receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Act according to its true intent, meaning and spirit".
[28] A useful starting point is to look at the various definitions given by dictionaries to the word "vehicle". In Seaspan International Ltd. v. Her Majesty the Queen (1998), 229 N.R. 132, Justice Joyal enumerated a few of these definitions. They all have as a common denominator the idea that a vehicle is meant to convey or to carry persons or goods. The definition found in the Shorter Oxford English Dictionary on Historical Principles is illustrative of what is found in other dictionaries:
Vehicle: A means of conveyance provided with wheels or runners and used for the carriage of persons or goods.
[29] The same idea transpires from the various decisions that have considered the proper construction to be given to this word. Justice Joyal provides a useful analysis of the case law in the Seaspan decision, supra. More recently, Justice Lemieux proceeded to a similar analysis to determine whether Le Tro-porters, used to lift and handle containers in shipyards, were "vehicle" for the purpose of s. 23(8)(c) of the Excise Tax Act. After having reviewed the evidence and the relevant case law, Justice Lemieux concluded:
I have no doubt in concluding the Cast and Racine Le Tro-porters are vehicles within the meaning of paragraph 23(8)(c) of the Act. Assessing the design characteristics of that machine, appreciating what it is designed to do and what it actually does clearly fits with the ordinary meaning of a vehicle contextually appreciated.
In essence, the Le Tro-porter carries or moves containers from one place to another from the trailer flatbed to the stack and from the stack to the trailer flatbed and, in other yards, from one stack to another.
[30] Finally, I note that the Defendant's own administrative policy as expressed in Excise Communiqué number 191/T1, dated December 1989, provides under the heading "Interpretation" (insofar as the interpretation of paragraph 23(8)(c) of the Act is concerned):
The word "vehicle", for the purposes of the aforementioned exemptions, has a broad meaning referring to carriages or conveyances of all kinds which are used to carry or transport persons or goods, for example, ships, trucks, tractor-trailers, locomotives and railway rolling stock.
[31] The jurisprudence makes it clear, of course, that absent a contrary intention, a word is to be given the same meaning whenever it appears in the same act. Thus, in the case of S.T.B. Holdings Ltd. v. Canada, [2002] FCA 386, the Federal Court of Appeal held as follows:
[22] ¼It is a known principle of interpretation that "unless the contrary is clearly indicated by the context, a word should be given that same interpretation or meaning whenever it appears in an act": see P.-A. Côté, The Interpretation of Legislation is Canada (3rd ed.), Scarborough, Thomson Canada Ltd., 2000, at page 332; R. Sullivan, Driedger on the Construction of Statutes (3rd ed.), Toronto, Butterworths Canada Ltd., 1994, at page 163. This is even truer when the words are found in the same provision. Professor Côté writes, at page 33, citing R. v. Zeolkowski, [1989] 1S.C.R. 1378:
Another relevant factor is the physical proximity of the words. The closer they are, the greater the likelihood that they have the same meaning.
[32] In light of the foregoing, and given the Tribunal's factual finding that the vehicles which are in issue in the present appeal can no longer serve as a means of conveyance, it seems to me that the "vehicles" as imported are not vehicles within the ordinary meaning of the word. At the
time of importation, which is the relevant time at which the status of the goods in issue is to be determined for excise tax purposes, the "vehicles" in which the air conditioners are found are not capable, nor will they ever be, of transporting people or goods from one place to another.
[33] The Tribunal was of the view that automobiles, station wagons, vans or trucks remain identifiable by these terms even if they have been disabled and can no longer function as "vehicles". They would lose that characterization only when they could no longer be recognized as such, for example when they are compressed in a box-like form to be subsequently shredded.
[34] I respectfully disagree with that finding. Once an object is damaged beyond repair, it loses its nature as defined by its primary finality. It becomes a collection of bits and pieces to which we may refer by its former name in common parlance and on invoices, but it is merely for ease of reference. Indeed, the "vehicles" imported by the Plaintiff could be dismantled in the United States before being imported, and no one would think of the salvageable parts as vehicles. The fact that this operation takes place on this side of the border, for practical and economic reasons, should not be material for tax purposes.
[35] In reaching this conclusion, I find comfort in the fact that the air conditioners for which the Plaintiff is seeking a tax refund were all part of vehicles imported into Canada under a tariff item of Schedule I to the Customs Tariff that relates to parts (No. 8708.99.99) rather than under a
[36] tariff item that relates to vehicles (No. 8703.21.90). This is further confirmation that a distinction must be drawn between a vehicle (be it severely damaged) and an object that used to be a vehicle but which will never again fulfill that function.
[37] It would of course be much different if the damaged cars were imported for the purpose of being put back on the road after having been repaired. In his testimony before the Tribunal, Mr. Burke agreed that the $100 tax on air conditioners must be paid for those cars.
[38] The Act itself is not oblivious to that distinction. It is of note that section 7 of Schedule I to the Act mentions, in fine, that an evaporator unit shall be deemed to be an air conditioner "except where the evaporator unit is used for repair or replacement purposes". I must confess that I fail to see why that which is true for the evaporator should not equally be true for the other parts of an air conditioner.
[39] There is another argument that militates against the imposition of a tax on the air conditioners that are the subject of the present appeal. To fall within the purview of section 7 of Schedule I, the air conditioners must not only be designed for use in automobiles, station wagons, vans or trucks, but they must also be either separate (and there is no question that a tax would have to be collected if they were to be sold as units) or included as "permanently installed equipment" in an automobile, station wagon, van or truck "at the time of ¼importation of the vehicle by the ¼ importer".
[40] The plaintiff has argued, and rightly so in my view, that the air conditioners in issue were not permanently installed in the vehicles at the time of their importation because it was always intended that they would not be sold as a whole but that what could be salvaged from them would be removed for parts. As a result, they can not be said to be included in the automobiles as "permanently installed equipment". Since they will never again function as air conditioners in those vehicles as imported by the Plaintiff, they cannot be considered as "equipment" for those vehicles. Moreover, they may have been designed by the manufacturer to be permanently installed for the life of the vehicle; but once the life of that vehicle has run its course, the importer's intention can only be to take it apart to sell its pieces. Accordingly, at this point in time, the air conditioner cannot be considered a permanently installed equipment anymore, considering the change in nature of the object into which it is found and in light of the intention of the importer.
[41] I realize that this whole discussion around the true nature of a vehicle may look like an theoretical exercise that is far removed from the practicalities to be addressed by the Excise Tax Act. But I believe that this interpretation of section 7 of Schedule I is the only one consistent with the true intent and purpose of the tax on air conditioners that was enacted as part of Bill C-21, in 1977. It is clear from a careful reading of the parliamentary debates that this new excise tax was a measure adopted to promote energy conservation. This was meant to be a significant deterrent to the purchase and hence the production of energy-inefficient automobiles (House of Commons Debates, January 27, 1977, p. 2477 ff.)
[42] If this was the intention of Parliament and the object of that provision, we must come to an interpretation of the operative concepts found in s. 7 of Schedule I that is consistent with that intention and object. One must not lose sight of the fact that those who buy a component of an air conditioner for repair purposes have already paid the excise tax on the air conditioner that is incorporated in their cars. If the excise tax was to be levied on the air conditioners that are dealt with here, the consumers would eventually be made to pay the excise tax twice: first when they buy a car in which is found an air conditioner, and then every time they have to buy a part for repair purposes (as it can safely be assumed that the importer would pass on to the consumers the amount of tax paid when the cars are imported). This was most certainly not the intent of Parliament, as indeed is made clear with respect to the evaporator.
[43] Finally, counsel for the Defendant has argued that the Applicant cannot ask for a refund of the tax paid, since the Applicant bears the onus of demonstrating that each and every one of the air conditioners that were imported could no longer function as an air conditioning system. As it is probably not possible now to locate all the air conditioners, the Plaintiff cannot prove that those air conditioners were not sold separate and as a whole, instead of being disassembled and sold in parts.
[44] In my view, this argument can not stand as an obstacle to the Plaintiff's claim. We cannot expand the ambit of the Act and its Schedule with the only objective of preventing fraud. Either the air conditioners in issue are covered by section 7 of Schedule I or they are not. As is the case for any taxation system based on self-assessment, it is presumed that the taxpayers will be of good faith and will make an honest declaration of the goods manufactured or imported. If the Minister believes that a fraud is being committed, there are inspections and enforcement mechanisms provided by the Act.
[45] For all these reasons, I have come to the conclusion that the present appeal should be allowed and that the Tribunal's decision in appeal number AP-2002-097 dated April 21, 2004, should be set aside.
(s) "Yves de Montigny"
Judge
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-816-04
STYLE OF CAUSE: PIÈCES D'AUTOS USAGÉES RTA (1986) INC.
v. HER MAJESTY THE QUEEN
PLACE OF HEARING: OTTAWA, ONTARIO
DATE OF HEARING: MAY 16, 2005
REASONS FOR ORDER: THE HONOURABLE JUSTICE de MONTIGNY
APPEARANCES:
Michael Kaylor FOR THE PLAINTIFF
Jean-Robert Noiseux FOR THE DEFENDANT
Yannick Landry
SOLICITORS OF RECORD:
Lapointe Rosenstein FOR THE PLAINTIFF
Montréal, Québec
Mr. John H. Sims, Q.C. FOR THE DEFENDANT
Deputy Attorney General of Canada
Ottawa, Ontario