BETWEEN:
and
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Appeal heard on August 15, 2005 at Halifax, Nova Scotia
Before: The Honourable Justice G. Sheridan
Appearances:
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JUDGMENT
The appeal from the reassessment made under the Excise Tax Act is allowed, with costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment on the basis that SAS Restaurants Limited supplied bottled beer to its customers in "returnable containers" and accordingly, pursuant to subsection 226(3) of the Act, no tax shall be collected or collectible in respect of their supply.
Signed at Ottawa, Canada, this 13th day of October, 2005.
BETWEEN:
SAS RESTAURANTS LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
[1] The Appellant, SAS Restaurants Limited, appeals from a Notice of Reassessment made by the Minister of National Revenue under the Excise Tax Act. SAS filed an application for a rebate for tax collected in error in respect of returnable containers in which non-alcoholic and alcoholic beverages were sold in its licenced premises. Although the Minister allowed a rebate for returnable containers of non-alcoholic beverages, he disallowed any rebate for returnable beer bottles. This appeal pertains only to the bottles in which bottled beer (as opposed to draft beer which is served in glasses) is served when sold to customers.
Background
[2] SAS operates two restaurants, a catering business and a pub. The company was represented by its agent, Mr. Allan MacPherson. The only witness called on its behalf was Ms. Simone A. Stewart, the president of the company. Ms. Stewart is familiar with the day-to-day operation of the businesses[1] and oversees all aspects of their administration, including the bookkeeping, ordering and costing inventory, and calculating and remitting Harmonized Sales Tax. She also handles the purchase of bottled beer from the Nova Scotia Liquor Commission; the purchase price includes the unit price of each bottle of beer plus HST and a deposit[2] of 10 cents. The deposit forms part of the marked-up price of bottled beer sold in the pub. SAS also sells non-alcoholic drinks in returnable containers. The company pays to have the empty beer bottles and non-alcoholic beverage containers returned for recycling; for each bottle or container it returns, SAS receives a portion of its 10-cent deposit, duly recorded as revenue in the company's books.
[3] SAS has been collecting and remitting HST on these bottles and containers since January 1, 1999. At some point after that time, Ms. Stewart came to the conclusion that on a proper reading of the Act, the company was not required to do so. On April 23, 2002, she filed an application for a rebate of "tax paid in error" under subsection 261(1) of the Act to recover the $18,038.14 already remitted. The rebate application was rejected, with the official responsible (mistakenly) informing Ms. Stewart that SAS could achieve the same result by simply claiming that amount as an input tax credit on its next quarterly return. Based on this advice, in its June 30, 2002 return, SAS claimed an ITC of $18,038.14, reporting a net tax of $49,247.51.
[4] An audit ensued and by Notice of Assessment dated June 9, 2003, the Minister assessed SAS in the amounts of $49,247.51 tax, $337.95 interest and $844.81 penalties for the period April 1 to June 30, 2002. SAS objected. On October 8, 2004, the Minister issued a Notice of Reassessment[3] denying any rebate for the beer bottles but allowing a rebate of $1,313.13 in respect of returnable containers of non-alcoholic beverages.
[5] In denying a rebate for the tax collected in respect of the beer bottles returned, the Minister assumed, among other things, that:
...
20(d) under Nova Scotian law, alcoholic beverages, when sold in a bar, may be served in their original container to the consumer (i.e. beer in the bottle) or may be poured and served in a cup or glass;
20(e) there is no difference in price as to whether a drink is sold in its original container or in a cup or glass;
20(f) when a drink is sold in its original container in a bar no portion of the price is attributable to the container;
20(g) alcoholic beverages may not be sold in a bar unopened and the Appellant sold all alcoholic beverages either in cups, glasses or their original bottles which had been opened;
20(h) alcoholic beverages sold in a bar must be consumed on the premises and the original container, if given to the consumer, cannot be removed from the premises;
20(i) non-alcoholic beverages are not subject to the foregoing rules and are sold both opened and unopened and the containers may be removed from the premises by the consumer;
20(j) the Appellant charged prices for its beverages on a tax inclusive basis;
20(k) the Appellant paid a deposit as required by the Nova Scotia Solid Waste Resource Management Regulations ("N.S. Waste Regulations") on returnable containers when it purchased bottled beverages from its suppliers;
20(l) the Appellant returned the empty containers [for both alcoholic and non-alcoholic beverages] for a portion of the deposit originally paid on them;
20(m) the Appellant was not able to return the containers for non-alcoholic beverages that customers removed from the bars;
20(n) it was reasonable to assume, considering all the surrounding circumstances, that for sales of non-alcoholic beverages where the Appellant took the container from the premises, that $0.10 of the total sales price was attributable to the container;
20(o) $0.10 is the deposit amount required to be paid by the Appellant to its distributor for a returnable container under 1 litre in size pursuant to the N.S. Waste Regulations;
...
[6] The Crown's position is that although a beer bottle is a "returnable container" as defined in subsection 226(1), on the facts of this case, SAS is unable to satisfy the statutory criteria in subsection 226(2) of the Act. Because this provision is written conjunctively, unless all the criteria are met, SAS is not entitled to the exemption from collecting HST under subsection 226(3); by the same token, it is not precluded from claiming ITC's in respect of the beer bottles under subsection 226(4). The relevant provisions are set out below:
226.(1) Meaning of "returnable container" - In this section, "returnable container" means a beverage container (other than a usual container for a beverage the supply of which is included in Part III of Schedule VI) of a class that
(a) is ordinarily acquired by consumers;
(b) when acquired by consumers, is ordinarily filled and sealed; and
(c) is ordinarily supplied empty by consumers for consideration.
(2) Separate supply of beverage and container - For the purposes of this section, where a person supplies a beverage in a returnable container,
(a) the provision of the container shall be deemed to be a supply separate from, and not incidental to, the provision of the beverage;
(b) section 137 does not apply to deem the container to form part of the beverage; and
(c) the consideration for the supply of the container shall be deemed to be equal to that part of the total consideration for the beverage and the container that is reasonably attributable to the container. [Emphasis added.]
(3) Tax collectible on returnable containers - Tax that is collected or that becomes collectible by a registrant in respect of a supply of a returnable container shall not be included in determining the net tax of the registrant.
(4) Input tax credit for returnable containers - Tax that is paid or that becomes payable by a registrant in respect of a supply or the bringing into a participating province of a returnable container shall not be included in determining an input tax credit of the registrant unless the registrant is acquiring the container or bringing it into the province, as the case may be, for the purpose of making a zero-rated supply of the container or a supply of the container outside Canada.
[7] According to the Crown's submission, in respect of the bottled beer sold in the pub, SAS has failed to meet the requirements of subsection 226(2) on three counts:
1. SAS did not supply a beverage in a returnable container as contemplated by the opening words of subsection 226(2) because there was no supply of the bottle, only of the beer inside it;
2. there was no provision of the container under paragraph 226(2)(a) because the bottle was not provided, only the beer and accordingly, there was no actual or deemed supply of the bottle;
3. no part of the consideration for the supply of the beer was reasonably attributable to the bottle under paragraph 226(2)(c).
[8] Under the first submission, counsel for the Respondent argues that when SAS served a bottle of beer to a paying customer for his consumption in its licenced premises, it was not a situation "where a person supplies a beverage in a returnable container" as set out in the preamble to subsection 226(2). This argument is not supported by either the evidence presented or the clear language of the Act. Whether there has been a supply of a returnable container depends on the triggering of the deeming provision in paragraph 226(2)(a); the triggering event for that provision is meeting the requirements of the preamble to subsection 226(2). This requires only that the evidence support a finding that (1) a "person" has (2) "supplied" a beverage, and (3) that beverage is "in" a "returnable container". There is no dispute that SAS is a "person"[4], that beer is a beverage that was "supplied"[5] when SAS sold it to its consumer, and that the beer was physically contained "in" a beer bottle which is a "returnable container". Thus, the threshold requirements of the preamble having been established, subsection 226(2) is triggered; it remains only to consider whether the criteria listed in paragraphs 226(2)(a), (b) and (c) have also been met.
[9] Under the second head of the Crown's argument, SAS is unable to bring its circumstances within the meaning of paragraph 226(2)(a) because there was no "provision" of the beer bottle, only of the beer in it. Turning first to the language of the statute, paragraph 226(2)(a) states that "the provision of the container shall be deemed to be a supply separate from, and not incidental to, the provision of the beverage." It is notable that paragraph 226(2)(a) speaks only of a "container", not a "returnable container", the wording used in both the preamble to subsection 226(2) and in subsections 226(3) and (4) which deal, respectively, with the collection of the HST and the claiming of ITC's. In choosing to use the word "container" in paragraphs 226(2)(a) and (b) instead of the defined term, Parliament must have intended that it be given its ordinary meaning. Clearly, the bottle is what contains the beer supplied; it is not too much of a leap to conclude that the bottle qualifies as a "container", as that term is normally understood.
[10] According to the Crown's argument, however, even if the bottle is a container, there was no "provision" of it because under Nova Scotia law, it could not be removed from the licenced premises. The word "provision" is not defined in the Act. Its use in the statutory definition of "supply" suggests that it is to be given its ordinary meaning. Support for this conclusion lies in paragraph 226(2)(a), the purpose of which is to elevate a "provision" of a "container" to a "supply", "that is separate from, and not incidental to, the provision of the beverage". Buttressing even further the separateness of the provision of the container and provision of the beverage, paragraph 226(2)(b) stipulates that section 137 (which would normally apply to deem the bottle to form part of the supply of the beer) has no application.
[11] In the absence of a statutory definition, what is meant by "provision" may be determined from its ordinary meaning: "the act of or an instance of providing"[6]. The verb "to provide" is defined[7] as "to make available, furnish, to supply or equip" and lists as synonyms "give" and "render". Any one of these words could easily be substituted to describe the act of serving a bottled beer to an SAS patron: the physical properties of beer render its supply impossible without the "provision" of a bottle in which to contain the liquid. Nova Scotia liquor laws require bottled beer to remain sealed until ordered. Upon receipt of an order, the bottle must be opened and presented to the consumer who may choose to drink it directly from the bottle or from a glass provided for the purpose. He may keep the bottle in his possession, empty or full, undisturbed and at his leisure, until he leaves the pub. The mere fact that he may not make off with the bottle does not negate the act of its "provision" to him. I see nothing in the legislation to shore up the Crown's position that inherent in the notion of "provision" is some sort of right of ownership or permanent possession. In these circumstances, I am satisfied that there was a provision of the bottle concurrent with the provision of the beer. The conditions required to unleash the deeming power of paragraph 226(2)(a) having been established, there is a deemed supply of the bottle, separate from and not incidental to, the supply of the beer.
[12] Finally, the Crown argues that no part of the total consideration for the supply of the beer and the bottle is "reasonably attributable" to the bottle under paragraph 226(2)(c) of the Act, a submission not borne out by the evidence presented at the hearing. Ms. Stewart testified that the deposit paid[8] by SAS on the bottles was passed on to the consumer in the bottled beer's marked-up price. The calculation of the retail price of the bottled beer also took into account general overhead costs such as the wages of staff serving the bottled beer, the wear-and-tear on the glasses provided with the bottled beer, and the cost of delivering the empty bottles to the recycling plant. Further, when the empty beer bottles (or non-alcoholic beverage containers) are returned for recycling, only a portion of the 10-cent deposit is reimbursed, not the entire deposit amount as assumed[9] by the Minister in respect of the non-alcoholic beverage containers. The Act requires only that some portion of the total consideration for the beverage and the returnable container be reasonably attributable to the returnable containers; by this standard and on the very credible evidence of Ms. Stewart, I am satisfied that this requirement has been met.
[13] Section 226 creates a rare exception to the general rule of the Excise Tax Act that all supplies are taxable, and that ITC's may be claimed in respect of their purchase for supply. In drafting subsection 226(2) as it did, Parliament set out in precisely what circumstances the exemption would apply. If the legislators had meant to exclude bottled beer sold in licenced premises from its application, it ought to have drafted the provision accordingly; indeed, there exists at the time of this writing a proposed amendment to the legislation that would accomplish this very objective. But this Court must interpret the law as it is, not as it may be. I am unable to identify anything in the Act to justify reading into the clear language of section 226 the qualifications or restrictions urged by the Crown.
[14] For all of these reasons the appeal is allowed, with costs, and the matter is referred back to the Minister for reconsideration and reassessment on the basis that SAS supplied bottled beer to its customers in "returnable containers" and accordingly, pursuant to subsection 226(3) of the Act, no tax shall be collected or collectible in respect of their supply.
Signed at Ottawa, Canada, this 13th day of October, 2005.
"G. Sheridan"
Sheridan, J.
COURT FILE NO.: 2005-400(GST)I
STYLE OF CAUSE: SAS Restaurants Limited v. H.M.Q.
PLACE OF HEARING: Halifax, Nova Scotia
DATE OF HEARING: August 15, 2005
REASONS FOR JUDGMENT BY: The Honourable Justice G. Sheridan
DATE OF JUDGMENT: October 13, 2005
APPEARANCES:
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Agent for the Appellant: |
Allan MacPherson |
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Counsel for the Respondent: |
Catherine M.G. McIntyre |
COUNSEL OF RECORD:
Firm:
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada
[1] Bottled beer was sold primarily in the pub but my comments apply equally to bottled beer sold in all the licenced premises operated by SAS.
[2]As prescribed by the Nova Scotia Environment Act, 1994-95, c.1, s.1.
[3] Because of a clerical error in the amount of tax reassessed, a subsequent Notice of Reassessment was issued on October 21, 2004 reducing the tax to the amount initially reassessed, slightly reducing the interest and penalties, and effectively confirming the rebate for non-alcoholic beverage containers.
[4] Subsection 123(1) of the Excise Tax Act.
[5] Subsection 123(1), definition of "supply".
[6] Oxford English Dictionary.
[7] Random House Dictionary of the English Language.
[8] Exhibit A-1 - Nova Scotia Liquor Commission invoice.
[9] Paragraphs 20(n) and (o) of the Reply to the Notice of Appeal.