1068827 ONTARIO INC. O/A GRACE MOTORS Plaintiff v. HER MAJESTY THE QUEEN IN RIGHT OF, 2011 FC 33

Federal Court Cour fédérale Date: 20110113 Docket: T-407-09 Citation: 2011 FC 33 Ottawa, Ontario , January 13, 2011 PRESENT: The Honourable Madam Justice Heneghan BETWEEN: 1068827 ONTARIO INC.

O/A GRACE MOTORS Plaintiff and HER MAJESTY THE QUEEN IN RIGHT OF CANADA AS REPRESENTING THE MINISTER OF NATIONAL REVENUE Defendant REASONS FOR JUDGMENT AND JUDGMENT Introduction [ 1 ] On March 18, 2009, 1068827 Ontario Inc., carrying on business as Grace Motors (the ​Plaintiff​) commenced this action against the Minister of National Revenue (the ​Defendant​) by filing a Statement of Claim pursuant to the Federal Courts Act , R.S.C. 1985, c. F-7 and the Federal Courts Rules , SOR/98-106 (the ​Rules​).

The action is an appeal from a decision of the Canadian International Trade Tribunal (the ​CITT​) dated September 11, 2008.

In its decision, the CITT dismissed the Plaintiff​s appeal from the Defendant​s decision disallowing the Plaintiff​s claim for a refund of excise taxes. [ 2 ] Following an unsuccessful motion by the Defendant to strike the Plaintiff​s Statement of Claim or dismiss the action, the Plaintiff filed an Amended Statement of Claim on December 22, 2009. [ 3 ] The parties submitted an Agreed Statement of Facts on June 30, 2010. [ 4 ] The Plaintiff imports used motor vehicles from the United States of America for re-sale in Canada .

The Plaintiff is neither a ​manufacturer​ nor a ​licensed wholesaler​ of motor vehicles under the Excise Tax Act , R.S.C. 1985, c. E-15 (the ​ETA​).

[5] Between April 1, 2005 and April 30, 2006, the Plaintiff imported 270 used motor vehicles that contained air conditionerunits. The Defendant collected excise taxes in the amount of $100 per vehicle, for a total of $27,000, pursuant to

section 23 and ScheduleI,

section 7, of the ETA. [6] The Plaintiff filed an excise tax refund application on April 1, 2007. On April 27, 2007, the Defendant issued a Notice ofDetermination, disallowing the refund claim. The Plaintiff filed a Notice of Objection on May 8, 2008 and this was disallowed onOctober 25, 2007. [7] According to the Plaintiff​s Amended Statement of Claim, the CITT dismissed its appeal on September 11, 2008. [8] This action raises only one issue: Does the ETA impose an excise tax on air conditioner units that are included aspermanently installed equipment in used automobiles, station wagons, vans, or trucks imported into Canada? [9] This action is brought pursuant to

section 81.24 of the ETA, which provides as follows: Any party to an appeal to the Tribunal undersection 81.19, 81.21, 81.22 or 81.23 may, withinone hundred and twenty days after the day onwhich the decision of the Tribunal is sent to thatparty, appeal the decision to the Federal Court. Toute

partie à un appel entendu par le Tribunalen vertu de l​article 81.19, 81.21, 81.22 ou 81.23peut, dans un délai de cent vingt jours suivant ladate d​envoi de la décision du Tribunal, enappeler de cette décision à la Cour fédérale. [10] This

section provides that appeals from decisions of the CITT are to proceed as a trial de novo, subject to

Part 4 of the Rules.It is not a judicial review and it is unnecessary to engage in an analysis of an applicable standard of review; see the decision in ZaleCanada Diamond Sourcing Inc. v. Canada (2010), 2010 FC 202 , 363 F.T.R. 251. Plaintiff​s Submissions [11] The Plaintiff argues that the provisions of the ETA dealing with automobiles that have air conditioning units do not apply toair conditioning units installed in used vehicles that are being imported into Canada.

The Plaintiff submits that the object and intention ofParliament in enacting the ETA are clearly stated in the Parliamentary debates from January 27, 1977. The Plaintiff quotes these debatesin its Memorandum of Fact and Law, paragraphs 15, 16, and 18. They read, in part, as follows: The purpose of this tax is not to raise revenue but rather to encourage Canadians to demand and the automotive industry to producelighter more energy efficient cars. [The ETA] is a significant deterrent to the purchase and hence production of energy inefficient automobiles​.

The Amendment pertaining to the special $100.00 excise tax on the air conditioners for cars, station wagons, vans and light trucks isanother measure to promote energy conservation. Automobile air conditioners have a marked effect on gas consumption either directly,by using the car engine as power source or, indirectly, by adding weight to the vehicle. [12] In other words, the Plaintiff submits that the tax is forward-thinking.

It is an attempt to influence the automobile productionindustry, and was not intended to retrospectively punish the industry by imposing a tax on automobiles that had already beenmanufactured with air conditioners. [13] As well, the Plaintiff argues that the ETA must be read in its entire context in order to infer Parliament​s true intention, relyingon the decision in R. v. Sharpe, 2001 SCC 2 , [2001] 1 S.C.R. 45. [14] Subsection 23(1) of the ETA focuses on identifying the goods that will attract excise tax, namely, goods that are imported,

and goods that are produced in Canada and delivered to a purchaser. In relation to goods that are produced in Canada, this clearly appliesto new goods and there is a clear connection between the manufacturing or production of the goods and their delivery to the purchaser. [15] Subsection 23(2) focuses on the party, the time and the relevant statutory regime by which the tax is to be paid.

Whensubsection 23(2) is engaged, the tax is payable by the manufacturer or the producer at the time of delivery of the goods to the purchaser.According to the Plaintiff, the language of this subsection clearly refers to newly produced goods. Neither subsection refers tosubsequent sales or purchasers, so neither subsection contemplates used vehicles. [16] The Plaintiff notes that ​manufacturer or producer​ is defined in paragraph 2(1)(

g) of the ETA, as ​any person who imports intoCanada new motor vehicles designed for highway use, or chassis thereof​. The Plaintiff submits that if Parliament intended to includeused vehicles in this definition, it would have included the word ​used​ or excluded the word ​new​ in this definition. [17] Further, if ​import​ in subsection 23(2) of the ETA applies to used cars, the Plaintiff submits that the

section would taximported used cars, but would not tax the sale of used cars within Canada. According to the Plaintiff, this yields a ridiculous result andwould be contrary to the legislative intent to reduce emissions and improve fuel efficiencies. [18] The Plaintiff further argues that the automobile provisions of the ETA do not make reference to used vehicles, but specificallyrefer to new vehicles. The Plaintiff relies upon the decision of the Supreme Court of Canada, in Markevich v. Canada, 2003 SCC 9, [2003] 1 S.C.R. 94, where the Court said that: a basic principle of statutory

interpretation that the court should not accept an

interpretation which requires the insertion of extra wordingwhere there is another acceptable

interpretation which does not require any additional wording. The Plaintiff submits that in order to accept the

interpretation offered by the Defendant, the word ​used​ must be inserted into the relevantprovisions of the ETA, that is

Schedule I,

section 7. [19] When a textual, contextual, and purposive analysis is used for statutory

interpretation, following the decision in CanadaTrustco Mortgage Co. v. Canada, 2005 SCC 54 , [2005] 2 S.C.R. 601, the Plaintiff submits that it is clear that the provisions ofthe ETA relate to new motor vehicles that have air conditioning units, and do not apply to air conditioning units that are attached to usedmotor vehicles. Defendant​s Submissions [20] The Defendant also advances arguments concerning the principles of statutory

interpretation and submits that context isparamount in this exercise. He argues that subsection 23(1) makes it clear that when goods are either imported into, or manufactured inCanada, excise tax is levied in accordance with

Schedule I.

Section 7 of

Schedule I provides that air conditioners designed forautomobiles attract an excise tax, not the vehicles in which the air conditioners are installed. Subsection 23(2) indicates that the importerpays the excise tax. [21] Further, the Defendant argues that the language chosen by Parliament is clear and precise. The $100 tax on air conditionersinstalled in automobiles does not just apply to new automobiles. If that were Parliament​s intention, Parliament would have said so.According to the Defendant, the Plaintiff​s

interpretation amounts to reading down

section 7 of

Schedule I to exclude used vehicles in away that is inconsistent with the plain meaning of the provision. [22] The Defendant further notes that the excise tax measure was adopted to promote energy conservation. At the time Bill C-21was tabled, most vehicles did not include air conditioners. The new tax was meant to deter wasting energy by taxing all vehiclesmanufactured with air conditioners in Canada, and all vehicles imported into Canada with air conditioners.

The Defendant argues that thetax applies to vehicles already manufactured in Canada. [23] The excise tax also applies to all vehicles with air conditioners imported into Canada, which ensures that individuals could notavoid the tax by buying vehicles manufactured in the United States and later imported into Canada.

[ 24 ] Further, the Defendant notes that the word ​automobiles​ is used in

section 6 of

Schedule I, which imposes an excise tax on vehicles of a certain weight. It is assumed that Parliament uses the term ​automobiles​ consistently. The Defendant submits that if the Plaintiff​s

interpretation is used,

section 7 of

Schedule I has a narrower meaning of ​automobile​ than

section 6, and this result is contrary to the principles of statutory

interpretation. [ 25 ] The Defendant further notes that paragraph 2(1) (g), which defines ​manufacturer or producer​, includes any person that imports new motor vehicles. This provision must be read in conjunction with subsection 2(4.1) of the ETA , which deems a manufacturer or producer under paragraph 2(1) (

g) to be the manufacturer of the imported new vehicles. The effect of these provisions is that the $100 excise tax is only paid once. In other words, according to the Defendant, paragraph 2(1)(

g) does not indicate that only imported new vehicles with air conditioners are subject to the tax. Discussion and Disposition [ 26 ] This appeal turns essentially on a question of statutory

interpretation. The excise tax in question was imposed pursuant to subsection 23(1) and subsection 23(2) of the ETA , which provide as follows: 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.

(2) Where goods are imported, the excise tax imposed by subsection (1) shall be paid in accordance with the provisions of the Customs Act by the importer, owner or other person liable to pay duties under that Act, and where goods are manufactured or produced and sold in Canada, the excise tax shall be payable by the manufacturer or producer at the time of delivery of the goods to the purchaser thereof. 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.

(2) Lorsque les marchandises sont importées, la taxe d​accise prévue par le paragraphe (1) est payée conformément à la

Loi sur les douanes, et lorsque les marchandises sont de fabrication ou de provenance canadienne et vendues au Canada, cette taxe d​accise est exigible du fabricant ou du producteur au moment de la livraison de ces marchandises à leur acheteur. [ 27 ] Subsection 2(1) provides relevant

definitions. Paragraph 2(1)(

g) defines ​manufacturer or producer​ as including ​any person who imports into Canada new motor vehicles designed for highway use, or chassis thereof​. [ 28 ] Subsection 2(4.1) is also relevant and provides as follows: For the purposes of this Act, a person who is a manufacturer or producer within the meaning of paragraph (

g) of the definition of that term in subsection (1), other than a member of a class of small manufacturer or producer that is exempted by virtue of regulations made under subsection 54(2) from the requirement of subsection 54(1) to apply for a licence, and who imports new motor vehicles designed for highway use, or chassis therefor, into Canada shall be deemed to be the manufacturer or producer in Canada thereof and not the importer thereof and the vehicles or chassis shall be deemed to be goods produced or manufactured in Canada and not imported goods.

Pour l​application de la présente loi, le fabricant ou producteur, au sens de l​alinéa g) de la définition de ce terme au paragraphe (1), à l​exception d​un membre d​une catégorie de petits fabricants ou producteurs exemptée, par règlement d​application du paragraphe 54(2), de l​obligation de demander une licence en vertu du paragraphe 54(1), qui importe au Canada des véhicules automobiles neufs conçus pour servir sur les routes, ou leur châssis, est réputé en être le fabricant ou producteur au Canada, et non leur importateur; les véhicules ou les châssis sont réputés être des marchandises fabriquées ou produites au Canada et non des marchandises importées.

[ 29 ] Finally, sections 7 and 8 of

Schedule I are relevant and provide 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.

Section 7 does not apply in the case of any air conditioner described therein (

a) that is purchased or imported for permanent installation in an ambulance or hearse or is included as permanently installed equipment in such a vehicle; (

b) that is sold under conditions that would qualify the sale as a zero-rated supply for the purposes of

Part IX of the Act or that is purchased by and for the personal or official use of a person who is entitled to the tax exemptions specified in

article 34 of the Convention set out in

Schedule I to the Foreign Missions and International Organizations Act or in

article 49 of the Convention set out in

Schedule II to that Act; or (

c) that is included as permanently installed equipment in an automobile, station wagon, van or truck, that is sold under conditions that would qualify the sale as a zero-rated supply for the purposes of

Part IX of the Act or that is purchased by and for the personal or official use of a person who is entitled to the tax exemptions specified in

article 34 of the Convention set out in

Schedule I to the Foreign Missions and International Organizations Act or in

article 49 of the Convention set out in

Schedule II to that Act. 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. 8. L​article 7 ne s​applique pas dans le cas d​un climatiseur visé à cet

article qui, selon le cas :

a) est acheté ou importé pour être installé en permanence dans une ambulance ou un corbillard ou est compris dans l​équipement installé en permanence dans ces véhicules;

b) est vendu dans des conditions qui feraient de la vente une fourniture détaxée pour l​application de la

partie IX de la loi ou est acheté, pour son usage personnel ou officiel, par une personne exempte d​impôts et de taxes visée à l​article 34 de la convention figurant à l​annexe I de la

Loi sur les missions étrangères et les organisations internationales ou à l​article 49 de la convention figurant à l​annexe II de cette loi;

c) est inclus à

titre d​équipement installé en permanence dans une automobile, une familiale, une fourgonnette ou un camion, qui est vendu dans des conditions qui feraient de la vente une fourniture détaxée pour l​application de la

partie IX de la loi ou est acheté, pour son usage personnel ou officiel, par une personne exempte d​impôts et de taxes visée à l​article 34 de la convention figurant à l​annexe I de la

Loi sur les missions étrangères et les organisations internationales ou à l​article 49 de la convention figurant à l​annexe II de cette loi.

[30] The principles of statutory

interpretation were summarized by the Supreme Court of Canada in Canada Trustco Mortgage Co.at paragraph 10 as follows: The

interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning thatis harmonious with the Act as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the wordsplay a dominant role in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, theordinary meaning of the words plays a lesser role. The relative effects of ordinary meaning, context and purpose on the interpretiveprocess may vary, but in all cases the court must seek to read the provisions of

an Act as a harmonious whole. [31] The purpose of

section 23 and of

section 7 of

Schedule I of the ETA is to promote energy efficient automobiles, by imposing atax on the production and importation of vehicles that include air conditioning units. [32] When an automobile is manufactured with an air conditioner in Canada, the tax is levied on the manufacturer at the point ofsale. [33] By operation of the definition of ​manufacturer and producer​ in paragraph 2(1)(

g) and subsection 2(4.1), those who importnew motor vehicles for highway use are deemed to have manufactured the vehicles in Canada. As a result, those importing new motorvehicles with air conditioners are liable to pay the $100 tax only once, at the time of sale in Canada. [34] This occurs pursuant to operation of

section 23 of the ETA. This $100 tax is not imposed on subsequent vendors orpurchasers. In other words, neither vendors nor purchasers of used vehicles in Canada are taxed if the used vehicle has an air conditioner. [35] If an individual imports a used vehicle that has been purchased in another country and the tax is levied pursuant to

section 23of the ETA, the result may appear to be unusual; that is, the purchase and sale of a used vehicle with air conditioning in Canada is notaffected by the tax, but an importer of a like vehicle must pay the $100 tax. However, insofar as the purpose of

section 23 is concerned,the importer of the used vehicle is in the same position as the Canadian manufacturer of the new vehicle. The comparison is not betweenthe importer of the used vehicle and the vendor or purchaser of a used vehicle in Canada. [36] The tax is a deterrent against the use of energy inefficient motor vehicles. Air conditioners are high energy using componentsthat decrease the energy efficiency when installed in motor vehicles.

The legislative scheme operates so that this deterrent tax is levied atthe point at which the vehicle will be put into use in Canada. [37] When a used vehicle is purchased in Canada, the tax has already been paid by the Canadian manufacturer. However, theimporter of a used vehicle purchased abroad is bringing into Canada an energy inefficient vehicle that has not yet been put into use inCanada. This is the behaviour that Parliament wished to deter by imposing the excise tax. [38] It then follows that the

interpretation that the excise tax applies to both new and used imported vehicles with air conditioners,is most consistent with the purpose of

section 23 of the ETA. [39] Furthermore, the

interpretation advanced by the Defendant is most consistent with a textual and contextual analysis. Thatinterpretation does not require reading in the words ​used​ for

section 23 or

section 7 of

Schedule I. It is to be assumed that the use of theword ​automobile​ will be precise and consistent throughout the ETA. In this regard, I refer to the decision in Thomson v. Canada (DeputyMinister of Agriculture), (SCC), [1992] 1 S.C.R. 385, where the Supreme Court of Canada said the following at page400: The word is used in other provisions of the Act. Unless the contrary is clearly indicated by the context, a word should be given the sameinterpretation or meaning whenever it appears in

an act. [40] The definition of ​manufacturer or producer​ in paragraph 2(1)(

g) and subsection 2(4.1) of the ETA illustrates the point:

(1) The following

definitions apply in this section, Parts I to VIII (other than

section 121) and Schedules I to IV: ​manufacturer or producer​ (

g) any person who imports into Canada new motor vehicles designed for highway use, or chassis therefor,

(4.1) For the purposes of this Act, a person who is a manufacturer or producer within the meaning of paragraph (

g) of the definition of that term in subsection (1), other than a member of a class of small manufacturer or producer that is exempted by virtue of regulations made under subsection 54(2) from the requirement of subsection 54(1) to apply for a licence, and who imports new motor vehicles designed for highway use, or chassis therefor, into Canada shall be deemed to be the manufacturer or producer in Canada thereof and not the importer thereof and the vehicles or chassis shall be deemed to be goods produced or manufactured in Canada and not imported goods. 2.

(1) Les définitions qui suivent s​appliquent au présent article, aux parties I à VIII (sauf l​article 121) et aux annexes I à IV. « fabricant ou producteur »

g) toute personne qui importe au Canada des véhicules automobiles neufs conçus pour servir sur les routes, ou leur châssis;

(4.1) Pour l​application de la présente loi, le fabricant ou producteur, au sens de l​alinéa g) de la définition de ce terme au paragraphe (1), à l​exception d​un membre d​une catégorie de petits fabricants ou producteurs exemptée, par règlement d​application du paragraphe 54(2), de l​obligation de demander une licence en vertu du paragraphe 54(1), qui importe au Canada des véhicules automobiles neufs conçus pour servir sur les routes, ou leur châssis, est réputé en être le fabricant ou producteur au Canada, et non leur importateur; les véhicules ou les châssis sont réputés être des marchandises fabriquées ou produites au Canada et non des marchandises importées. [ 41 ] The purpose of these provisions is to deem an importer of new vehicles to be the manufacturer of the vehicle, thereby deferring the collection of the excise tax to the point of sale, and ensuring that the importer is only required to pay the tax once.

To further this purpose, Parliament uses the language ​new motor vehicles​, creating a subset of the more general term ​automobile​. In its analysis, the CITT noted that

section 7 of

Schedule I makes the

section 23 tax payable on automobiles, not new motor vehicles. [ 42 ] The Plaintiff​s

interpretation also leads to textual redundancy. Subsection 7(

b) of

Schedule I stipulates that the tax is paid upon the ​sale or importation of the vehicle by the manufacturer or importer​. Those importing new vehicles are deemed manufacturers that manufactured the vehicle within Canada , and are deemed not to have imported the vehicles. If the tax were only to apply to new imported vehicles, the words ​importation​ and ​importer​ would be purposeless. [ 43 ] In the result, the Defendant applied the correct statutory

interpretation and the Plaintiff​s appeal will be dismissed with costs.

JUDGMENT THIS COURT ORDERS AND ADJUDGES that the appeal from a decision of the Canadian International Trade Tribunal dated September 11, 2008 is dismissed with costs. ​E. Heneghan​ Judge FEDERAL COURT SOLICITORS OF RECORD DOCKET: T-407-09 STYLE OF CAUSE: 1068827 ONTARIO INC. O/A GRACE MOTORS v. HER MAJESTY THE QUEEN IN RIGHT OF CANADA AS REPRESENTING THE MINISTER OF NATIONAL REVENUE PLACE OF HEARING: Ottawa, Ontario DATE OF HEARING: November 2, 2010 REASONS FOR JUDGMENT AND JUDGMENT: HENEGHAN J. DATED: January 13, 2011 APPEARANCES : Mr. David A. MacKenzie Mr. Patrick Brennan FOR THE PLAINTIFF Mr. Alexandre Kaufman FOR THE DEFENDANT

SOLICITORS OF RECORD : Szemenyei Kirwin MacKenzie LLP London, ON FOR THE PLAINTIFF Myles J. Kirvan Deputy Attorney General of Canada Ottawa, ON FOR THE DEFENDANT