PRESENT: THE HONOURABLE MR. JUSTICE SHORE
BETWEEN:
and
THE MINISTER OF NATIONAL REVENUE
REASONS FOR ORDER AND ORDER
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INTRODUCTION
A rose by any other name is still a rose. The principles of statutory interpretation apply. By calling something by one word rather than another does not make it what one wants it to be. It is what it is, in the context of principles of statutory interpretation.
AY 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.@[1]
AYIt is a well established principle of statutory interpretation that the legislature does not intend to produce absurd consequences. According to Côté,Y, an interpretation can be considered absurd if it leads to ridiculous or frivolous consequences, if it is extremely unreasonable or inequitable, if it is illogical or incoherent, or if it is incompatible with other provisions or with the object of the legislative enactment (at pp. 378-80). Sullivan echoes these comments noting that a label of absurdity can be attached to interpretations which defeat the purpose of a statute or render some aspect of it pointless or futile.@[2]
Furthermore, practical considerations should be taken into account to ensure that statutory provisions are not interpreted in a vacuum, without considering practical realities, if such practical considerations are not precluded.
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JUDICIAL PROCEDURE
This is an application for judicial review, pursuant to s. 18.1 of the Federal Courts Act[3] from a decision rendered July 24, 2003 on behalf of the Minister of National Revenue, whereby the Applicant=s request for relief from the payment of customs duties and taxes with respect to the textile cuttings that resulted from the production in Canada of dresses made from imported fabrics was denied.
BACKGROUND
The relevant facts are stated in the Agreed Statement of Facts filed by the parties on January 30, 2004.
The Applicant, A & R Dress Co. Inc. (A & R Dress), imported fabric from Korea and paid the applicable customs duty in respect of the said imported fabric.
A & R Dress cut the imported fabric in Canada and manufactured or produced dresses from the cut fabric. The dresses were sold by A & R Dress in Canada.
As a result of the process by which the dresses were manufactured in Canada, certain textile cuttings remained as leftover material. The leftover textile cuttings were no longer usable to
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manufacture dresses and were subsequently destroyed by A & R Dress. The leftover textile cuttings were, themselves, not damaged prior to being destroyed by A & R Dress.
A & R Dress filed a claim for a refund, by way of drawback, of the customs duty which had been paid in respect of the leftover textile cuttings resulting from the manufacturing process. The ADrawback Claim@ was filed on form K32 under claim number M246470 dated October 22, 2002 and stamped by the Respondent, the Minister of National Revenue, on October 28, 2002. The refund claim was accompanied by a Certificate of Destruction/Exportation (E15) dated June 19, 2002 signed by a representative of the Minister which attested to the fact that textile cuttings for which a refund of customs duty was claimed had been destroyed.
By letter dated July 24, 2003, a representative of the Minister denied A & R Dress= refund claim. For ease of reference, the representative of the Minister will simply be referred to as the Minister.
DECISION UNDER REVIEW
The Minister determined that the leftover textile cuttings could not qualify as Aobsolete or surplus goods@ within the meaning of sections 109 and 110 of the Customs Tariff[4] and therefore rejected A & R Dress= refund claim in the following terms:
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As outlined in your request, your client imports rolls of fabric to produce dresses for domestic consumption and is seeking relief from the payment of customs duties and taxes with respect to the textile cuttings that result from the production in Canada of the dresses. In addition, your client is also seeking relief relating to the production in Canada of any dresses in excess of the original number required that are unused and subsequently destroyed.
Section 109 of the Customs Tariff stipulates that the goods that are the subject of the request for relief must not be used in Canada in order to qualify under the Obsolete or Surplus Goods Program. In this instance, the rolls of fabric are the goods that are under consideration. As these goods were used for the purpose intended, which was the production of dresses, they are considered as used in Canada and do not qualify under the program.
With respect to the second part of your request, the Obsolete or Surplus Goods Program does not provide for textile cuttings that result during the manufacturing process of goods. In addition, additional goods that are produced in excess of the original number required do not qualify as obsolete or surplus goods under the program.
The Minister=s decision with respect to the second relief requested presented by A & R Dress remains unchanged, as it was not contested nor argued before this Court.
ISSUE
Was the Minister correct in rejecting the Applicant=s refund claim based on his finding that the textile cuttings leftover from the production of dresses were not surplus goods within the meaning of sections 109 and 110 of the Customs Tariff?
ANALYSIS
Standard of review
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To determine the appropriate standard of review of administrative decisions, a pragmatic and functional approach must be adopted. As outlined in Dr. Q v. College of Physicians and Surgeons of British Columbia [5], four factors need to be taken into account: (i) the presence or absence of a privative clause or statutory right of appeal; (ii) the expertise of the tribunal relative to that of the reviewing judge on the issue in question; (iii) the purposes of the legislation and the provision in particular; and (iv) the nature of the problem.
With respect to the first factor, there is no privative clause protecting the Minister=s decision nor is there a statutory right of appeal. This silence is neutral and does not imply a high standard of scrutiny.
With respect to the expertise of the tribunal relative to that of the Court on the issue in question, the Minister does not have more expertise than the Court in the interpretation of statutory provisions, section 109 and following of the Customs Tariff in this case.
The Customs Tariff provides for duties imposition and duties relief. Section 109 and following of the Customs Tariff provide for duties relief in respect of obsolete and surplus goods. This is not a polycentric issue, where competing rights are at stake. It is a question of whether these sections entitle an entity to a refund. This factor points to a low deferential standard of review.
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With respect to the nature of the question, the issue is one of statutory interpretation of section 109 and following, which is a question of law. The statutory interpretation factor, in and of itself, favors low deference.
Thus, as the parties agreed, the analysis of the above factors leads to the conclusion that the correctness standard of review with respect to the law, itself, is to be applied in this case.
Was the Minister correct in rejecting the Applicant=s refund claim based on his finding that the textile cuttings leftover from the production of dresses were not surplus goods within the meaning of sections 109 to 112 of the Customs Tariff?
Paragraph 110(b) of the Customs Tariff indicates the conditions to be met in order for a duty refund to be issued:
| Y a refund shall be granted of Y (b) all duties, other than taxes imposed under the Excise Tax Act, paid in respect of imported goods processed in Canada, if the goods that result from the processing become obsolete or surplus goods; Y |
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| Y un remboursement de la totalité des droits qui ont été payés Y b) à l'exception des taxes imposées en vertu de la Loi sur la taxe d'accise, sur les marchandises importées et transformées au Canada, si les marchandises découlant de la transformation deviennent des marchandises surannées ou excédentaires; |
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For ease of reference, these conditions will be broken down as follows:
1. duty must have been paid on imported goods;
2. the imported goods must be processed in Canada;
3. goods must result from the processing;
4. goods which result from the processing must become surplus goods ("surplus goods" being defined in section 109 of the Customs Tariff)
1. Duty must have been paid on imported goods
The "imported goods" are clearly the imported fabric. It is also agreed between the parties that duty was paid in respect of the imported fabric.
2. The imported goods must be processed in Canada
"Process" is defined in section 80 of the Customs Tariff as follows:
| "process", in respect of goods, includes the adjustment, alteration, assembly, manufacture, modification, production or repair of the goods |
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| * transformation + S'entend notamment de l'ajustement, la modification, l'assemblage, la fabrication, la production ou la réparation de marchandises. |
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Following this definition of "process", the imported goods, i.e. the imported fabric, was clearly "processed" in Canada: the fabric was cut into pieces that were assembled into dresses.
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3. Goods must result from the processing
The issue here, and it is the determinative one for the entire case, is whether the legislative intent was for leftover textile cuttings to fall within the meaning of the word "goods" in the phrase "if the goods that result from the processing becomeY surplus goods". It should be noted that the Customs Tariff does not define the word "good". Subsection 2(1) of the Customs Act[6] provides a definition that is not useful in this case, as it states that "goods", for greater certainty, includes conveyances, animals and any document in any form.
A & R Dress argues that "goods" includes both material and articles/finished goods. A & R Dress states that the imported fabric being a "material", the leftover textile cuttings equally qualify as a "material" since these cuttings are simply small pieces of the imported fabric. Therefore A & R Dress says, leftover textile cuttings, being material, are goods.
One of the rules of statutory interpretation consists of looking at surrounding provisions dealing with the same subject-matter in order to try and see if these provisions can help determine what meaning was intended for a specific term. The Court agrees with the Minister that, with respect to paragraph 110(b) of the Customs Tariff, Parliament did not intend leftover textile cuttings to be included in the term "goods" but rather that it be characterized as "scrap and waste". This finding is based on the distinction made in sections 120 to 122 of the Customs Tariff between "goods" and "scrap and waste". These sections read:
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| Definition of "value" |
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120. For the purposes of sections 121 and 122, "value" means, in respect of a by-product, goods or merchantable scrap or waste,
(a) if the processor has sold the by-product, goods or merchantable scrap or waste in an arms-length transaction, the price at which the processor sold the by-product, goods or merchantable scrap or waste; and
(b) in any other case, the price at which the processor would ordinarily have sold the by-product, goods or merchantable scrap or waste in an arms-length transaction,
(i) in the case of an application for a drawback or refund, at the time the application is made, or
(ii) if relief from the payment of duties has been granted under section 89, at the time the goods are exported.
Relief reduced by value of by-product
121. (1) If relief from payment of duties is granted in respect of goods under section 89 and the goods enter into a process that produces a by-product in respect of which relief could not have been granted, the processor shall, within 90 days after production of the by-product, pay to Her Majesty in right of Canada an amount that bears the same proportion to the amount of the relief as the value of the by-product bears to the total value of the products produced from the processing of the goods.
Debt to Her Majesty
(2) An amount referred to in subsection (1), while it remains unpaid, is deemed to be a debt owing to Her Majesty in right of Canada under the Customs Act.
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| Définition de * valeur + |
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120. Pour l'application des articles 121 et 122, * valeur + de sous-produits, de marchandises ou de résidus ou déchets vendables s'entend :
a) dans le cas où la personne effectuant la transformation les vend à un acheteur avec qui elle n'a aucun lien de dépendance, du prix de vente;
b) dans les autres cas, du prix auquel elle les aurait normalement vendus à un acheteur avec qui elle n'a aucun lien de dépendance, au moment :
(i) de la présentation de la demande, en cas de demande de drawback ou de remboursement,
(ii) de l'exportation des marchandises, en cas d'exonération de droits en application de l'article 89.
Sous-produits
121. (1) Lorsque la transformation de marchandises bénéficiant d'une exonération en application de l'article 89 occasionne des sous-produits pour lesquels l'exonération ne pourrait pas avoir été accordée, la personne qui effectue la transformation est tenue, dans les quatre-vingt-dix jours qui suivent, de payer à Sa Majesté du chef du Canada le montant de l'exonération dans la même proportion que celle qui existe entre la valeur du sous-produit et la valeur totale des produits tirés de la transformation des marchandises.
Créance de Sa Majesté
(2) Toute somme visée au paragraphe (1) qui demeure impayée est réputée, pour l'application de la Loi sur les douanes, une créance de Sa Majesté du chef du Canada au titre de cette loi.
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| Réduction du montant non payé |
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(3) Lorsque la transformation de marchandises faisant l'objet de la demande prévue aux articles 110 ou 113 occasionne, avant le versement du remboursement ou du drawback, des sous-produits pour lesquels l'un ou l'autre de ceux-ci ne peut pas être accordé, le montant du drawback ou du remboursement est réduit dans la même proportion que celle qui existe entre la valeur du sous-produit et la valeur totale des produits tirés de la transformation des marchandises.
Résidus ou déchets vendables
122. (1) Lorsque la transformation de marchandises bénéficiant d'une exonération de droits en application de l'article 89 occasionne des résidus ou des déchets vendables pour lesquels l'exonération ne pourrait pas avoir été accordée, la personne qui effectue la transformation est tenue, dans les quatre-vingt-dix jours qui suivent, de payer à Sa Majesté du chef du Canada un montant égal au produit de la multiplication de la valeur des résidus ou déchets par le taux applicable, au moment de la production de ceux-ci, aux résidus ou aux déchets vendables du même type.
Créance de Sa Majesté
(2) Toute somme visée au paragraphe (1) qui demeure impayée est réputée, pour l'application de la Loi sur les douanes, une créance de Sa Majesté du chef du Canada au titre de cette loi.
Réduction du montant non payé
(3) Lorsque la transformation de marchandises faisant l'objet de la demande prévue aux articles 110 ou 113 occasionne, avant le versement du remboursement ou du drawback, des résidus ou des déchets vendables pour lesquels l'un ou l'autre de ceux-ci ne peut pas être accordé, le montant du drawback ou du remboursement est réduit d'un montant égal au produit de la multiplication de la valeur des résidus ou déchets par le taux applicable, au moment de la production de ceux-ci, aux résidus ou déchets vendables du même type. (La Cour souligne.)
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| Amount of drawback or refund not paid reduced by value of by-product |
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(3) If goods in respect of which an application was made under section 110 or 113 enter into a process that produces a by-product in respect of which a refund or drawback cannot be granted and the drawback or refund has not yet been paid, the amount of the drawback or refund shall be reduced by the same proportion that the value of the by-product bears to the total value of the products produced from the processing of the goods.
Relief reduced by value of merchantable scrap or waste
122. (1) If goods in respect of which relief is granted under section 89 enter into a process that produces merchantable scrap or waste in respect of which the relief could not have been granted, the processor shall, within 90 days after the production of the scrap or waste, pay to Her Majesty in right of Canada an amount equal to the product obtained by multiplying the value of the merchantable scrap or waste by the rate of customs duty that applies, at the time that the scrap or waste was produced, to merchantable scrap or waste of the same kind.
Debt to Her Majesty
(2) An amount referred to in subsection (1), while it remains unpaid, is deemed to be a debt owing to Her Majesty in right of Canada under the Customs Act.
Drawback or refund reduced by value of merchantable scrap or waste
(3) If goods in respect of which an application was made under section 110 or 113 enter into a process that produces merchantable scrap or waste in respect of which a refund or drawback cannot be granted and the drawback or refund has not yet been paid, the amount of the drawback or refund shall be reduced by an amount equal to the product obtained by multiplying the value of the merchantable scrap or waste by the rate of customs duty that applies, at the time the merchantable scrap or waste results from the process, to merchantable scrap or waste of the same kind. (Emphasis added.)
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If it had been the intent of Parliament to apply a refund for "scrap or waste" in the context of 110(b) of the Customs Tariff, Parliament would have used those words specifically since it used those words in contrast with the term "goods" in sections 120 to 122.
The scrap or waste, the leftover textile cuttings, that remains after the processing of the imported fabric is not a good within the meaning of paragraph 110(b) (and therefore cannot become afterwards a "surplus" good, which is the last criterion in paragraph 110(b) to qualify for a duty refund). In the present case, the "goods" that really result from the processing of the imported fabric are the dresses made from the imported fabric. It is the dresses that would have needed to be looked at when considering whether there is a surplus or not. But this is not the question before this Court.
Having concluded that the leftover textile cuttings are not "goods" that result from the processing, the Court needs not analyze whether these cuttings are "surplus goods" within the meaning of paragraph 110(b) read in combination with section 109 of the Customs Tariff. The leftover textile cuttings are not surplus goods and therefore cannot qualify for a duty refund under paragraph 110(b).
4. Goods which result from the processing must become surplus goods
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Had the Court concluded that the leftover textile cuttings were goods that resulted from the processing of the imported goods, the Court would have continued its analysis by asking itself "if the goods which result from the processing becomeYsurplus goods" (paragraph 110(b)). Surplus goods are defined in section 109 of the Customs Tariff:
| 109. In this Division, "obsolete or surplus goods" means goods that are |
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(a) found to be obsolete or surplus
(i) in the case of imported goods, by their importer or owner, or
(ii) in any other case, by their manufacturer, producer or owner;
(b) not used in Canada;
(c) destroyed in such manner as the Minister of National Revenue may direct; and
(d) not damaged before their destruction.
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| 109. Dans la présente section, * marchandises surannées ou excédentaires + s'entend des marchandises qui, à la fois : |
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a) sont jugées surannées ou excédentaires par :
(i) leur importateur ou propriétaire, dans le cas de marchandises importées,
(ii) leur fabricant, producteur ou propriétaire, dans les autres cas;
b) ne sont pas utilisées au Canada;
c) sont détruites selon les instructions du ministre du Revenu national;
d) n'ont pas été endommagées avant leur destruction.
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CONCLUSION
For these reasons, the Court answers the question in the affirmative. The Court notes that, although the Minister came to the same conclusion, as it did, the Minister did so following a different reasoning. The Court=s chronology of reflection is outlined in its reasons; thereby, the application for judicial review is dismissed.
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ORDER
THIS COURT ORDERS that
1. The application for judicial review be dismissed.
2. Recognizing that both parties have contributed to a greater understanding of the matter under review, each party is to bear its own costs.
Judge
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Obiter
| Scrap or Waste |
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23. Normally a claim would include any scrap or waste resulting from a processing operation or the destruction of goods, provided the scrap or waste is not subject to duties, when imported as scrap or waste, and does not have a merchantable (sales) value.
24. When the scrap or waste has a sales value and would be subject to duties, if it were imported as such, only claim a refund if the scrap or waste is exported or destroyed. Otherwise, the claim must be reduced by the amount of duty that would be applicable to the sales value of the scrap or waste.)
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| Résidus ou déchets |
| 23. Habituellement une demande inclut tous résidus ou déchets découlant des opérations de transformation ou de destruction de marchandises, pourvu que ces résidus ou déchets ne soient pas assujettis à des droits lorsqu=ils sont importés en tant que résidus ou déchets et qu=ils n=aient pas de valeur marchande (vendable). 24. Si les résidus ou déchets ont une valeur marchande et sont assujettis à des droits puisqu=ils ont étéimportés en tant que tel, un remboursement est accordéseulement si les résidus ou déchets sont exportés ou détruits. Sinon, le montant de droits qui s=applique à la valeur marchande des résidus ou déchets devra être réduit.
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With respect to Sections 23 and 24 (previously sections 30-31 of the Memorandum D7-2-3 on Obsolete and Surplus Goods), in the present context, it is important to recall that when the fabric in question was imported, it was neither defined as scrap nor waste, it became scrap or waste only in the processing (by the processor)[7]. It was the processor who defined it a scrap or waste after processing, not before.
That is not scrap or waste as defined in sections 23 and 24. The scrap or waste in sections 23 and 24 is imported as scrap or waste; that is not the case at bar.
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-1374-03
STYLE OF CAUSE: A & R DRESS CO. INC. v.
THE MINISTER OF NATIONAL REVENUE
PLACE OF HEARING: Montreal, Quebec
AND ORDER BY: The Honourable Mr. Justice Shore
APPEARANCES:
Mr. Michael Kaylor FOR THE APPLICANT
Mr. Jacques Mimar FOR THE RESPONDENT
SOLICITORS OF RECORD:
LAPOINTE ROSENSTEIN FOR THE APPLICANT
Montreal (Quebec)
JOHN H. SIMS Q.C. FOR THE RESPONDENT
Deputy Minister of Justice and
Deputy Attorney General
[1]Driedger as quoted in Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27 at paragraph 21.
[2]Ruth Sullivan, Statutory Interpretation (1997); Ruth Sullivan, Driedger on the Construction of Statutes (3rd ed. 1994) (hereinafter AConstruction of Statutes@; Pierre-André Côté, The Interpretation of Legislation in Canada (2nd ed 1991) Elmer Driedger in Construction of Statutes (2nd ed 1983).
[3] R.S.C. 1985, c. F-7.
[4]S.C. 1997, c. 36.
[5] [2003] 1 S.C.R. 226.
[6] R.S., 1985, c. 1 (2nd Supp.).
[7] As defined by importer.