Date: 20020510
Docket: 2000-4853-ST, 2000-4854-ST, 2000-4855-ST
BETWEEN:
1146491 ONTARIO LTD., 964211 ONTARIO LIMITED,
105572 ONTARIO INC.,
Appellants
BETWEEN:
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Miller J.T.C.C
[1] The appeals of 1146491 ONTARIO LTD., 964211 ONTARIO LIMITED and 105572 ONTARIO INC., (the "Companies") were heard on common evidence. The Companies carried on business under the common name of Market Fresh. Their business was the sale of fresh fruits and vegetables along with meat and seafood. Two of their products were salad kits. The Minister of National Revenue (the "Minister") assessed each of the companies for the 1995, 1996, 1997, 1998 and 1999 taxation years, on the basis that the salad kits constituted salads and were therefore exceptions to basic groceries found in subsection 1(o.1) of Part III of Schedule VI of the Excise Tax Act (the "Act"). As such they were not zero-rated. The Appellants objected to such assessments on the basis that the salad kits were basic groceries and were not salads.
[2] The President of the Companies, Mr. Brazeau, testified on behalf of the Appellants. He indicated that Market Fresh operated nine stores in the Ottawa-Gatineau area. The assessments in issue arose from two stores in Gatineau and one in Hull. Mr. Brazeau produced the two salad kits in issue: the Greek salad kit and the Caesar salad kit. I will describe the Caesar salad kit. It was contained in a transparent bag labeled as a Caesar salad kit. It contained washed and cut romaine lettuce which would serve four to six people. The bag also contained transparent zip lock bags with parmesan, bacon bits and croutons. Finally there was a small container (with a lid) holding the Caesar salad dressing. The bag itself also closed with a zip lock seal. Mr. Brazeau described how his employees would manually force as much air as possible out of the bag without bruising the lettuce. The zip lock was then immediately sealed. This took place at Market Fresh's premises.
[3] The Greek salad kit was similar though its contents included the lettuce and separate packages within the bag of olives, feta cheese, red onion and croutons as well as a Greek dressing. Mr. Brazeau presented two other demonstrative exhibits: first, a transparent zip lock bag of just washed and cut lettuce, again in a serving of four to six. This bag was not treated as a salad by the Minister but was zero-rated as being basic groceries. Second, Mr. Brazeau presented a single serving of spinach salad which was already mixed with egg, bacon and dressing, resting on a styrofoam base and covered with cellophane. This salad was not sold by Market Fresh on a zero-rated basis but was considered a salad subject to the exception to basic groceries set forth in subsection 1(o.1) of Part III of Schedule VI of the Act.
[4] The quantities of the ingredients in a salad kit were determined by Market Fresh's employees by mixing them together and assessing which combinations produced the best result.
[5] The Appellant Companies submitted as evidence a survey of its customers in which they asked whether the customers considered the product a salad or the ingredients to make a salad. While I allowed this to be introduced, I attach very little weight to it, not just because, as the Respondent pointed out, Mr. Brazeau is not a qualified pollster, but because it is an attempt to answer the very question before me. I will only say that the resounding results in favour of identifying the kit as ingredients, rather than the salad itself, is hardly surprising.
[6] The parties helpfully provided an agreed summary of the assessments which is reproduced below: (Exhibit A-1)
SUMMARY
NOTICES OF (RE) ASSESSMENT - GST - AUGUST 6, 1999
|
1146491 Ontario Limited (Period: Dec. 13/95 - Jan. 31/99) |
964211 Ontario Limited (Period: Jul. 1/95 - Feb. 28/99) |
105572 Ontario Limited (Period: Jun. 1/95 - Aug. 31/98) |
TOTALS |
|
|
Tax Adjustment |
Salad 28,015.39 Other 17,127.55 45,142.94 |
Salad 50,205.33 Other 57,818.89 108,024.22 |
Salad 96,934.47 Other 0.00 96,934.47 |
Salad 175,155.19 Other 74,946.44 250,101.63 |
|
Interest |
1,396.33 |
4,143.75 |
7,026.26 |
12,566.34 |
|
Penalties |
2,548.29 |
7,784.30 |
9,601.98 |
19,934.57 |
|
TOTALS |
49,087.56 |
119,952.27 |
113,562.71 |
282,602.54 |
[7] The Respondent submitted copies of various pages of the Appellant's website. One page indicated "... where customers can pick-up ready-made salads and ... chain's signature toss-and-serve salad kits".
[8] The starting point for the analysis is subsection 1(o.1) of Part III of Schedule VI of the Act. It is helpful to reproduce all of section 1 as it provides the flavour to the nature of the exception from basic groceries:
1. Supplies of food or beverages for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), other than supplies of
(a) wine, spirits, beer, malt liquor or other alcoholic beverages;
(b) (Repealed by S.C. 1997, c. 10, S. 137(1).)
(c) carbonated beverages;
(d) non-carbonated fruit juice beverages or fruit flavoured beverages, other than milk-based beverages, that contain less than 25% by volume of
(i) a natural fruit juice or combination of natural fruit juices, or
(ii) a natural fruit juice or combination of natural fruit juices that have been reconstituted into the original state, or goods that, when added to water, produce a beverage included in this paragraph;
(e) candies, confectionery that may be classed as candy, or any goods sold as candies, such as candy floss, chewing gum and chocolate, whether naturally or artificially sweetened, and including fruits, seeds, nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners;
(f) chips, crisps, puffs, curls or sticks (such as potato chips, corn chips, cheese puffs, potato sticks, bacon crisps and cheese curls), other similar snack foods or popcorn and brittle pretzels, but not including any product that is sold primarily as a breakfast cereal;
(g) salted nuts or salted seeds;
(h) granola products, but not including any product that is sold primarily as a breakfast cereal;
(i) snack mixtures that contain cereals, nuts, seeds, dried fruit or any other edible product, but not including any mixture that is sold primarily as a breakfast cereal;
(j) ice lollies, juice bars, flavoured, coloured or sweetened ice waters, or similar products, whether frozen or not;
(k) ice cream, ice milk, sherbet, frozen yoghurt or frozen pudding, non-dairy substitutes for any of the foregoing, or any product that contains any of the foregoing, when packaged or sold in single servings;
(l) fruit bars, rolls or drops or similar fruit-based snack foods;
(m) cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where
(i) they are prepackaged for sale to consumers in quantities of less than six items each of which is a single serving, or
(ii) they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six,
but not including bread products, such as bagels, English muffins, croissants or bread rolls, without sweetened filling or coating;
(n) beverages (other than unflavoured milk) or pudding, including flavoured gelatine, mousse, flavoured whipped dessert product or any other products similar to pudding, except
(i) when prepared and prepackaged specially for consumption by babies,
(ii) when sold in multiples, prepackaged by the manufacturer or producer, of single servings, or
(iii) when the cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a sing
(o) food or beverages heated for consumption;
(o.1) salads not canned or vacuum sealed;
(o.2) sandwiches and similar products other than when frozen;
(o.3) platters of cheese, cold cuts, fruit or vegetables and other arrangements of prepared food;
(o.4) beverages dispensed at the place where they are sold;
(o.5) food or beverages sold under a contract for, or in conjunction with, catering services;
(p) food or beverages sold through a vending machine;
(q) food or beverages when sold at an establishment at which all or substantially all of the sales of food or beverages are sales of food or beverages included in any of paragraphs (a) to (p) except where
(i) the food or beverage is sold in a form not suitable for immediate consumption, having regard to the nature of the product, the quantity sold or its packaging, or
(ii) in the case of a product described in paragraph (m),
(A) the product is prepackaged for sale to consumers in quantities of more than five items each of which is a single serving, or
(B) the product is not prepackaged for sale to consumers and is sold as single servings in quantities of more than five,
and is not sold for consumption at the establishment; and
(r) unbottled water, other than ice.
[9] Counsel for both the Appellants and Respondent brought to my attention how the provision formerly read, though there was no further guidance as to the significance of such a change. Suffice it to say that previously, for salads to be an exception to basic groceries they needed to be "prepared foods in a form suitable for immediate consumption". As the exception now just reads "salads not canned or vacuum sealed", I am no longer specifically required to determine whether the salad was prepared or fit for immediate consumption. However, the characteristics of the exceptions to basic groceries cannot be overlooked in determining the issue before me, and certainly one characteristic of many exceptions is that they are suitable for immediate consumption. That alone however should not be determinative.
[10] There was agreement between counsel that the correct approach to this matter of interpretation can be found in the decision Shaklee Canada Inc. v. Canada, (1995) 191 N.R. 227 (F.C.C.A.), which suggests it is appropriate to look at the common understanding of a word. Having agreed on this, both counsel went on to provide a number of dictionary definitions of salad. Frankly these are of little or no assistance. To be told that a salad is "green vegetables (as lettuce, endive, or romaine) and often tomatoes, cucumbers or radishes served with dressing" has not considerably expanded my understanding of salad. Neither was I much further ahead to be advised that a salad is "a mixture of usually raw vegetables, eaten either as a separate dish or with other food". The Respondent's counsel produced a history of the American salad. While it was indeed fascinating reading, and acknowledged the emergence in 1990 of the convenience salad, it did not specifically address the matter of the salad kit. "Salad" has evidently not been judicially defined. I am certainly not going to do so. What I will do however is determine if the Market Fresh salad kits are basic groceries or are exceptions to basic groceries.
[11] The answer to this question hangs less on establishing a definition for salad than it does on ensuring the Government's Policy of exempting basic groceries from tax is implemented sensibly and appropriately. A four to six serving bag of lettuce containing separately packaged other ingredients which must be taken home, and some or all tossed in a bowl before being consumed, constitute basic groceries and not a salad.
[12] The Government made it clear from the very early days of the Goods and Services Tax that basic groceries were not to be included in the tax base. Rather than attempting to define what is included in basic groceries, subsection 1(o.1) of Part III of Schedule VI sets out a list of exceptions from basic groceries. In reviewing the list, two themes become evident as to what type of foods are not to be considered basic groceries: snacks or junk food, including anything that most people would find not particularly healthy; and foods intended to be eaten immediately after opening or removing the packaging. Salads would not fall in the former category in most people's view, so to be caught by the exception in keeping with this common characteristic, a salad should fall in the latter category. Specifically, looking at the foods contained in subsections 1(o.1), (o.2), (o.3), (o.4) and (o.5), the common thread can perhaps more aptly be described as a total convenience food. These are foods that require no preparation - it is all done for you. Respondent's counsel argued that the salad kit is just such a food. I disagree. The purchaser must take the salad kit home to assemble the salad. The salad may indeed be used two or three days running by being re-sealed, or it might well serve a family of four their salad for supper. It is certainly more convenient than a head of lettuce, but it is not the same level of convenience as the pre-made and assembled spinach salad proffered as an exhibit. The Respondent's counsel acknowledged the degrees of convenience, for the shopper went from a head of lettuce, to pre-cut, pre-washed bags of lettuce, to the salad kit, to the fully assembled salad. He maintained the line of convenience between the bag of cut and washed lettuce and the salad kit was the line over which the tax bite arose. Again, I disagree. The context of salad as one of an exception of foodstuffs with common characteristics suggest to me that a salad as an exception must be a fully assembled ready to eat salad, requiring no further effort to make it so. A salad is a salad - a salad kit is a salad kit.
[13] In this fast-paced day and age, where retailers market convenience to households, in which spending more than one half hour on food preparation is a rare luxury, it is inappropriate to find a salad kit not to be part of basic groceries. Those steeped in culinary arts might pooh pooh the idea that assembling a Caesar salad from a salad kit constitutes food preparation or cooking. I have no doubt there are a far greater number, be they university students, law clerks, young urban professionals or retired couples who think the assembly of the salad from the kit is indeed cooking. As such, the kit itself cannot be considered the salad.
[14] The Respondent's counsel presented a number of cases dealing with the concept of multiple versus single (compound) supply. He relied on the following passage from Judge Rip in the case of O.A. Brown Ltd. v. Canada, [1995] G.S.T.C. 40, reads as follows:
22. In deciding this issue, it is first necessary to decide what has been supplied as consideration for the payment made. It is then necessary to consider whether the overall supply comprises one or more than one supply. The test to be distilled from the English authorities is whether, in substance and reality, the alleged separate is an integral part, integrant or component of the overall supply. One must examine the true nature of the transaction to determine the tax consequences...
[15] I do not see this as particularly helpful to the Respondent's position. He suggests that the various ingredients are a single supply, the essence of which is a salad. Certainly the package was sold as a single item; no one claimed the lettuce by itself (because a bag of lettuce is not taxable) should trigger the whole bag to be not taxable. Neither was there any argument that parts of the package should be treated differently. The fact is that the single supply is a single supply of a kit, not a salad.
[16] In summary, the following factors lead me to find that on balance Market Fresh salad kits are not salads for purposes of subsection 1(o.1) of Part III of Schedule VI of the Act:
- the bag is labelled as a kit, not a salad;
- in Market Fresh's advertising, ready-made salads were distinguished from the salad kits;
- the serving is not a single serving but multi-servings;
- not all the contents of the package need to be used in one sitting, but can be re-sealed for a subsequent meal;
- the content cannot be consumed on the spot;
- the package must be brought home, as a bowl and utensils are required to assemble the salad;
- although there is an element of convenience to the kit, it is not to the extent of a fully assembled salad;
- the common sense approach would be to differentiate between a salad and a salad kit;
- the characteristics of the salad kit do not match the characteristics of the other exceptions in subsection 1(o.1) of Part III of Schedule VI of the Act.
[17] Having found the salad kits are not salads for the purposes of subsection 1(o.1) of Part III of Schedule VI of the Act, it is unnecessary to consider the matter of whether the packages are vacuum sealed.
[18] The appeals are allowed, and the matter is referred back to the Minister for reassessment on the basis that the Market Fresh salad kits are basic groceries and not salads. Costs to the Appellant.
Signed at Ottawa, Ontario, this 10th day of May, 2002.
"Campbell J. Miller"
J.T.C.C.
COURT FILES NO.: 2000-4853(GST)G; 2000-4854(GST)G;
and 2000-4855(GST)G
STYLES OF CAUSE: 1146491 Ontario Ltd. and the Queen
964211 Ontario Limited and the Queen
105572 Ontario Inc. and the Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: May 6, 2002
REASONS FOR JUDGMENT BY: The Hon. Judge Campbell J. Miller
DATE OF JUDGMENT: May 10, 2002
APPEARANCES:
Counsel for the Appellants: Terry D. McEwan
Counsel for the Respondent: Pierre Zemaitis
COUNSEL OF RECORD:
For the Appellants:
Name: Terry D. McEwan
Firm: Gowling Lafleur Henderson LLP
Ottawa, Ontario
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-4853(GST)G
BETWEEN:
1146491 ONTARIO LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeals of 964211 Ontario Limited. (2000-4854(GST)G) and the 105572 Ontario Inc.(2000-4855(GST)G)
on May 6, 2002 at Ottawa, Ontario, by
the Honourable Judge Campbell J. Miller
Appearances
Counsel for the Appellant: Terry D. McEwan
Counsel for the Respondent: Pierre Zemaitis
JUDGMENT
The appeal from the assessment made under the Excise Tax Act, with respect to assessment number H990120, dated August 6th, 1999, for the period of December 13th, 1995 to January 31st, 1999, is allowed, with costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, on the 10th day of May, 2002.
|
"Campbell J. Miller" |
J.T.C.C.
2000-4854(GST)G
BETWEEN:
964211 ONTARIO LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeals of 1146491 Ontario Ltd. (2000-4853(GST)G) and 105572 Ontario Inc. (2000-4855(GST)G)
on May 6, 2002 at Ottawa, Ontario, by
the Honourable Judge Campbell J. Miller
Appearances
Counsel for the Appellant: Terry D. McEwan
Counsel for the Respondent: Pierre Zemaitis
JUDGMENT
The appeal from the assessment made under the Excise Tax Act, with respect to assessment number H990119, dated August 6th, 1999, for the period of July 1st, 1995 to August 31st, 1998, is allowed, with costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, on the 10th day of May, 2002.
|
"Campbell J. Miller" |
J.T.C.C.
2000-4855(GST)G
BETWEEN:
105572 ONTARIO INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeals of 1146491 Ontario Ltd. (2000-4853(GST)G) and 964211 Ontario Limited (2000-4854(GST)G)
on May 6, 2002 at Ottawa, Ontario, by
the Honourable Judge Campbell J. Miller
Appearances
Counsel for the Appellant: Terry D. McEwan
Counsel for the Respondent: Pierre Zemaitis
JUDGMENT
The appeal from the assessment made under the Excise Tax Act, with respect to assessment number H990121, dated August 6th, 1999, for the period of July 1st, 1995 to August 31st, 1998, is allowed, with costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, on the 10th day of May, 2002.
|
"Campbell J. Miller" |
J.T.C.C.