Triple M Metal LP v. The Queen

Triple M Metal LP v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2016-12-23
Neutral citation
2016 TCC 293
File numbers
2014-4563(GST)G
Judges and Taxing Officers
Randall S. Bocock
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2014-4563(GST)G
BETWEEN:
TRIPLE M METAL LP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on October 5, 2016, in Toronto, Ontario
Before: The Honourable Mr. Justice Randall S. Bocock
Appearances:
Counsel for the Appellant:
Louise Summerhill
Counsel for the Respondent:
Meghan Cowan
Charles Camirand
JUDGMENT
IN ACCORDANCE with the Reasons for Judgment attached THIS COURT ORDERS THAT:
1. the appeal is allowed;
2. the Appellant is a “selected person” within the meaning of section 236.01 of the Excise Tax Act, RSC 1985, c. E-15, as amended and related Regulations and agreements;
3. the Appellant is not required to recapture the specified provincial input tax credit for its baling and shredding operations for the reporting periods from August 1, 2010 to September 30, 2010;
4. the matter is referred back to the Minister for reconsideration and reassessment; and
5. the Court shall receive brief written submissions from the parties on the issue of costs within 30 days of the date of this judgment.
Signed at Ottawa, Canada, this 23rd day of December 2016.
“R.S. Bocock”
Bocock J.
Citation: 2016 TCC 293
Date: 20161223
Docket: 2014-4563(GST)G
BETWEEN:
TRIPLE M METAL LP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bocock J.
I. Introduction, Background and Issues a) Harmonization of Provincial Retail Sales Tax and Federal goods and service tax [1] In July of 2010, the Province of Ontario (“Ontario”) integrated its provincial retail sales tax (“RST”) with the federal goods and services tax (“GST”). The two systems were not symmetrical. This required coordination and compromise within the two merging regimes. This coordination was effected through a comprehensive integrated tax coordination agreement between Canada and Ontario (the “Agreement”). The compromises included forbearance of certain RST revenues by Ontario. Recoverable input tax credits (“ITCs”) within the GST regime, per se a consumption tax ultimately exigible upon the final consumption of goods and services, meant certain RST previously collected by Ontario disappeared within the chain of production. This occurred because within the chain of production, a registrant GST taxpayer could deduct from GST owing on goods and services sold during a reporting period, the GST paid by it on goods and services acquired. Such GST paid by a supplier on goods and services it acquires is aggregated into a total ITCs for the reporting period. The RST regime knew no such tax credit. Integration and compromise were required when the two tax systems met to form the harmonized sales tax regime (“HST”).
b) Preserving Short-term Provincial RST Revenue through Recapture [2] To the extent Ontario wanted to preserve its revenue from RST on certain sales within the new HST (and its component newly renamed provincial value added tax (“PVAT”)), Ontario denied ITCs to certain large businesses (“prescribed persons”) on a certain basis (“prescribed manner”) for certain properties or services (“specified property or service”). Instead, it required those prescribed persons to recapture (or add back) a calculated amount (“specified provincial input tax credit or “SPITC”) for a certain time (“ITC Repayment Period”). This complicated process was the compromise which ultimately allowed ITCs on HST in respect of all goods and services acquired, but only after Ontario preserved a portion of its former RST revenue for 5 years.
[3] Some of these defined terms were further specifically refined: (i) Annex C of the Agreement defined “specified property or services” as energy if not purchased by farms or used to produce goods for sale; (ii) “prescribed persons” were businesses with annual taxable sale in excess of $10 million; and, (iii) “specified production energy”, was not subject to SPITCs and the related recapture.
[4] It is within this last exemption that certain “selected persons” were not required to recapture the ITCs on energy used in production (the “production exemption”), thereby reducing the mandated inclusion of the SPITC (the “SPITC Reduction”) and thereby increasing the total ITCs which could be claimed for such users. This production exemption forms a primary topic in this appeal because, although selected persons must consume or use the energy in production, there is a further exception which states that selected persons means, among others, a person “that is not a scrap metal dealer” (the “scrap metal dealer exception”).
[5] A further constraint on the scope of the denial of the production exemption was enacted. The Agreement incorporated by reference a “cap” on the specified persons, specified property and specified services. Annex C of the Agreement limited this scope of persons, property and services, to those denied input tax refunds (“ITRs”) in the Province of Quebec as at a certain date.
c) Issues [6] The Appellant (“Triple M”) asserts that certain of its operations are not that of a scrap metal dealer. The Respondent says it is a scrap metal dealer, period. The general issue within this appeal is whether Triple M is subject to the temporary recapture of the full provincial portion (8/13) of the HST in respect of all its energy costs used in the processing of scrap metal for the reporting periods from August 1, 2010 to September 30, 2010 (the “reporting periods”). In short, does the scrap metal dealer exception apply to Triple M to deny the “production exemption” it utilized in respect of certain electricity purchased in its business?
II. The Appellant’s Business a) Generally [7] Triple M’s undertaking primarily relates to the collection, sorting, compacting and rendering of scrap metal for use in the production of steel. Within the rendering process, after sorting, shearing and compacting (the “aggregating activities”) Triple M undertakes various baling and shredding processes which very effectively further separate, re-form, pulverize and collate ferrous and non-ferrous components of scrap metal (the “processing activities”). The ferrous, iron bales or “fill” are then sent to steel mills who use the compacted, pulverized and sorted iron in production. The non-ferrous or non-iron residue is sold to Triple M’s other non‑steel producing customers for various purposes. Triple M’s primary undertaking remains the rendering of discarded automobiles, white goods and other machinery into ferrous and non-ferrous units for sale to distinct groups of subsequent producers who use the goods in two distinctly sorted ferrous and non-ferrous states for further production. As a complete business, this requires both aggregating activities and processing activities.
b) Specific Recycling Activities [8] Triple M asserts that it is not required to recapture the SPITCs in respect of the energy costs solely for its baling and shredding operations because these processing activities make it a recycler. Such processing activities fall within the production exemption. Consistently, it has recaptured the SPITCs with respect to the balance of its other activities which include the mere aggregating activities. There is no dispute with respect to the quantum of the allocation between the processing activities comprising the baling and the shredding operations and the other activities in respect of which the SPITCs have been recaptured. The dispute is whether the ITCs related solely to the processing activities are or are not subject to recapture as SPITCs.
III. Legislative Background and Regime [9] The legislative regime requires examination among legislation, regulations and agreements spanning three jurisdictions: Canada, Ontario and Quebec. Any decision in this appeal requires an incorporation of these source references, highlighted by underscoring below for emphasis.
a) ETA and the Regulations [10] A main provision at issue in this case is subsection 236.01(2) of the ETA. It provides that:
(2) If a sales tax harmonization agreement with the government of a participating province relating to the new harmonized value-added tax system allows for the recapture of input tax credits, in determining the net tax for the reporting period of a large business that includes a prescribed time, the large business shall add all or part, as determined in a prescribed manner, of a specified provincial input tax credit of the large business.
[11] In turn, the key terms (and specifically the SPITC) are further defined in subsection 236.01(1) of the ETA and relevant provisions in the Regulations as follows:
236.01 (1) The following definitions apply in this section.
large business means a prescribed person or a person of a prescribed class. (grande entreprise)
specified property or service means a prescribed property or service, or property or a service of a prescribed class. (bien ou service déterminé)
specified provincial input tax credit means
(a) the portion of an input tax credit of a large business in respect of a specified property or service that is attributable to tax under subsection 165(2) [provincial portion of the HST], section 212.1 or 218.1 or Division IV.1 in respect of the acquisition, importation or bringing into a participating province of the specified property or service; and
(b) a prescribed amount in respect of an input tax credit of a large business that is attributable to tax under subsection 165(2), section 212.1 or 218.1 or Division IV.1 or in respect of an amount that would be such an input tax credit if prescribed conditions were satisfied in prescribed circumstances. (crédit de taxe sur les intrants provincial déterminé).
[12] A “prescribed person” for the purpose of the definition of a “large business” in subsection 236.01(1) of the ETA relevant to this appeal, in general, is “a registrant whose recapture input tax credit threshold amount in respect of the recapture period exceeds $10,000,000” pursuant to subsection 27(1) of the Regulations[1].
[13] The term “specified property or service” is further defined in paragraph 28(1)(e) of the Regulations:
28(1) For the purposes of the definition of specified property or service in subsection 236.01(1) of the Act, the following property and services are prescribed:
…
(e) specified energy that is acquired in, or brought into, a specified province other than qualifying heating oil, as defined in section 1 of the Deduction for Provincial Rebate (GST/HST) Regulations;
…
[14] The amount of the “specified provincial input tax credit” (the “SPITC”) subject to recapture refers to, in this case, the amount of the provincial portion of the HST, i.e. the 8/13 Ontario portion of the HST (tax under subsection 165(2) of the ETA) pursuant to subsection 29(1) of the Regulations, which states that:
29 (1) For the purposes of paragraph (b) of the definition specified provincial input tax credit in subsection 236.01(1) of the Act, a prescribed amount in respect of an amount that would be an input tax credit of a person in respect of a specified property or service attributable to tax under subsection 165(2) or section 212.1 or 218.1 of the Act or Division IV.1 of Part IX of the Act is all of the amount that would be such an input tax credit if
(a) in the case where the specified property or service is acquired, or brought into a specified province, by the person for consumption, use or supply exclusively in the course of commercial activities and, as a result of the consumption, use or supply exclusively in the course of commercial activities, no tax under section 218.1 of the Act or Division IV.1 of Part IX of the Act is payable in respect of the acquisition or bringing in, tax under that section or that Division had been payable in respect of the acquisition or bringing in;
…
[15] Subsection 31(3) of the Regulations sets out the “prescribed manner” pursuant to which a person who is a large business must add or recapture the SPITC under subsection 236.01(2) of the ETA in respect of “specified energy” consumed by the person in the course of commercial activities. The relevant portions of subsection 31(3) of the Regulations are as follows:
(3) If, at any time during a reporting period of a person, the person is a large business, the particular time prescribed by section 30 in respect of a specified provincial input tax credit of the person in respect of specified energy is in the reporting period and the person is a large business at the particular time, for the purposes of subsection 236.01(2) of the Act, the amount to be added to the net tax of the person for the reporting period in respect of the specified provincial input tax credit is determined by the formula
A × B
where A is
…
(d) in any other case, the amount that would be the specified provincial input tax credit in respect of the specified energy if the specified energy did not include specified production energy and specified research energy; and
B is the recapture rate applicable at the specified time in respect of the specified provincial input tax credit.[2]
[16] In turn, the term “specified energy” is defined pursuant to section 26 of the Regulations: specified energy means (a) electricity, gas and steam; and (b) anything (other than fuel for use in a propulsion engine) that can be used to generate energy (i) by way of combustion or oxidization, or (ii) by undergoing a nuclear reaction in a reactor for the generation of energy. (forme d’énergie déterminée).
[17] Subsection 31(1) of the Regulations sets out the following definitions in respect of the application of the above-mentioned formula which the Minister argues excludes Triple M:
selected person means a person that is not
(a) a financial institution;
(b) a hotel, bar, coffee shop or restaurant;
(c) an auto repair shop; or
(d) a scrap metal dealer. (personne désignée)
specified production energy means the part of specified energy acquired in, or brought into, a specified province by a selected person for consumption or use by the selected person in the production of tangible personal property intended for sale or in the production of production equipment used to produce such tangible personal property, but does not include the part of the specified energy acquired in, or brought into, the specified province for consumption or use by the selected person in equipment for the air conditioning, lighting, heating or ventilating of the production premises or in other equipment if that consumption or use is not integral to that production. (énergie déterminée pour la production)
[18] The term “production” is defined in section 26 of the Regulations:
production means an activity (other than the assembling, processing or manufacturing of tangible personal property in a retail establishment or the storage of finished products) that is
(a) the assembling, processing or manufacturing of particular tangible personal property to create other tangible personal property that is different in nature or character from the particular tangible personal property;
...
b) Comprehensive Integrated Tax Coordination Agreement (the “Agreement”) [19] The Agreement is an example of a “sales tax harmonization agreement” contemplated under subsection 123(1) of the ETA and subsection 2(1) of the Federal-Provincial Fiscal Arrangements Act, RSC 1985, c F-8.
[20] The relevant provisions of the Agreement are as follows:
PART I Interpretation 1. In this Agreement,
…
“PVAT”, in respect of a participating province, means the provincial component of tax payable under Part IX of the Excise Tax Act that is imposed, in addition to the CVAT, in respect of the participating province;
…
3. The following are the Annexes that are attached to, and that form an integral part of, this Agreement:
Annex “A” - Revenue Allocation
Annex “B” - Provincial Flexibility in respect of Rebates
Annex “C” - Transitional Measures in respect of the Province
PART II Implementation
4. Subject to the requisite legislative approvals, the Parties agree:
(a) to work collaboratively and in a timely manner towards the imposition of the PVAT in respect of the Province[3];
(b) that Canada will make best efforts to introduce, on or before March 31, 2010, the necessary legislative amendments to give effect to the Agreement;
(c) that the PVAT in respect of the Province will be implemented on July 1, 2010;
…
PART XVII Province-Specific & Transitional Measures
55. The agreement of the Parties in respect of transitional assistance is set out in Annex “C”.
56. The agreement of the Parties in respect of input tax credit recapture for PVAT in respect of the Province, including transitional revenues from such recapture, and in respect of other transitional measures, is set out in Annex “C”.
…
ANNEX “C” TRANSITIONAL MEASURES IN RESPECT OF THE PROVINCE …
Input Tax Credit Recapture for PVAT in respect of the Province 17. Where the Province provides Canada, prior to the date this Agreement is entered into, with a defined class of specified persons in respect of whom, and a select list of specified property and specified services in respect of which, the Province desires a payment by each of those specified persons of an amount equivalent to input tax credits of the specified person, at a specified percentage, relating to PVAT in respect of the Province on the specified property and specified services, the Parties agree that, for a period of five years commencing on the Implementation Date (referred to as the “ITC Repayment Period”), an amount equivalent to those input tax credits will be paid at the specified percentage of 100% by those specified persons in respect of that specified property and those specified services if, with all the necessary changes that the circumstances may require, the scope of those specified persons, that specified property and those specified services, captured during the ITC Repayment Period, does not exceed the scope of the persons, property and services that are denied input tax refunds in respect of the Quebec Sales Tax, pursuant to An Act Respecting the Quebec Sales Tax, R.S.Q c. T-0.1, as it read on March 10, 2009.
…
22. On and from the Implementation Date, subject to the definitions mutually agreed upon between the Parties and unless otherwise amended in accordance with the Agreement, the Parties agree that in general terms the items on the select list of specified property and specified services will be:
(a) energy, except where purchased by farms or used to produce goods for sale;
(b) telecommunication services other than internet access or tollfree numbers;
(c) road vehicles weighing less than 3,000 kg (and parts and certain services) and fuel to power those vehicles; and
(d) food, beverages and entertainment.
23. On and from the Implementation Date, subject to the definitions mutually agreed upon between the Parties and unless otherwise amended in accordance with the Agreement, the Parties agree that in general terms the defined class of specified persons will be businesses with annual taxable sales in excess of $10 million and financial institutions.
c) Quebec ITR Restriction Regime [21] The relevant provisions relating to the restriction of ITRs, as stated in section 17 of Annex “C” to the Agreement, supra, are set out in Part V, An Act Respecting the Quebec Sales Tax, RSQ, T-0.1 (“QSTA”) as it read on March 10, 2009. In particular, section 206.1 of the QSTA[4] sets out the relevant ITR restriction:
206.1. In determining an input tax refund of a registrant, no amount shall be included in respect of the tax payable by the registrant in respect of the supply or bringing into Québec of the following property or services:
…
(3) electricity, gas, combustibles or steam;
…
[22] However, section 206.3 of the QSTA provides for certain exemptions to the restriction stipulated under the above-mentioned paragraph 3 of section 206.1:
206.3 Paragraph 3 of section 206.1 does not apply to the portion of electricity, gas, combustibles or steam that is, without reference to sections 43 and 44, used for a purpose such that the exemption provided for in paragraph aa of section 17 of the Retail Sales Tax Act (chapter I-1) would apply in respect thereof but for section 49 of that Act.
For the purposes of the first paragraph, the expressions “sales of electricity, gas or fuel” and “other than meals and services including telephone service” in paragraph aa of section 17 of the Retail Sales Tax Act (RSQ, chapter I-1) shall read as “sales of electricity, gas, combustibles or steam” and “other than property intended to be incorporated in an immovable by that person, meals, mobile homes and services including telephone service”, respectively.
[23] Paragraph (aa) of section 17 of the Quebec Retail Sales Tax Act, c I‑1 (“QRSTA”)[5] provides a retail sales tax exemption in respect of the acquisition of certain energy used in the production of movable goods intended for sale (the “RST Exemption”):
17. The tax provided for by this chapter does not apply to the following:
…
(aa) … sales of electricity, gas or fuel which a person of a category other than those determined by the Minister under section 20 uses to produce movable property other than meals and services including telephone service, intended for sale or for the design or production of production equipment or conditioning materials used for the production of such movable property, either as an agent of production or to operate production equipment; this exemption does not apply to sales of electricity, gas or fuel used in equipment for the air conditioning, lighting, heating or ventilation of the production site;
...
[24] Section 20 of the QRSTA further provides that:
20. For the purposes of paragraphs z and aa of section 17, the categories of persons which the Minister may determine are those whose activities consist mainly of:
(a) rendering personal or professional services, or
(b) selling movable property they have not produced but to which they may have made certain changes before delivery to the consumer.
The determination provided for in the first paragraph shall be effected by publication of a notice in the Gazette officielle du Québec and shall have effect from the day of such publication.
[25] “Scrap metal dealers” were determined by the Minister of Revenue as an entity that falls within the confines of paragraph (b) of section 20 of the QRSTA pursuant to a notice published in the Gazette officielle du Québec in 1983 (the “1983 Notice”):[6]
Notice
Categories of persons whose principal activity is furnishing services or selling movable property
Retail Sales Tax Act (RSQ, c I-1, s. 20)
Under section 20 of the Retail Sales Tax Act, the Minister of Revenue has decided that:
(1) The categories of persons whose activities consist principally of supplying personal or professional services are the following:
…
financial institutions;
…
(2) That the categories of persons whose activities consist principally of selling movable property that they have not produced, but to which they may have made changes before delivery to the consumer are the following:
Operators of establishments within the meaning of the Meals and Hotels Tax Act (RSQ, c T-3);
…
Garage operators;
…
Scrap metal dealers;
…
A person who is in any of the categories mentioned may not enjoy the exemption prescribed by paragraphs z and aa of section 17 of the Retail Sales Tax Act.
[26] Pursuant to paragraph 23 of section 2 of the QRSTA, the term “consumer” under the QRSTA has the same meaning as that assigned by section 123 of the ETA, which states that:
“consumer” of property or a service means a particular individual who acquires or imports the property or service for the particular individual's personal consumption, use or enjoyment or the personal consumption, use or enjoyment of any other individual at the particular individual's expense, but does not include an individual who acquires or imports the property or service for consumption, use or supply in the course of commercial activities of the individual or other activities in the course of which the individual makes exempt supplies.
IV. Parties’ Positions a) Respondent [27] The Respondent takes the position that Triple M was obligated, pursuant to subsection 236.01(2) of the ETA to recapture or repay the full provincial portion of the ITCs, i.e. 8/13 of the HST paid in respect of its electricity costs incurred in the course of its scrap metal processing activities because of the following:
a. The Agreement between Canada and Ontario, a participating HST province, is a “sales harmonization agreement … [which] allows for the recapture of input tax credits”[7] pursuant to section 56 of the Agreement as well as Annex “C” to the Agreement.
b. Triple M is a “large business” within the meaning of subsections 236.01(1) and (2) of the ETA since the “total of all consideration that was paid or became due to Triple M in the fiscal year ending before the periods at issue for the sale of scrap metal is over $10 million” and therefore Triple M met the required recapture input tax credit threshold amount for the purposes of the definition of “large business” in the Regulations.
c. The electricity acquired and used by Triple M in Ontario falls within the definition of “specified property or service” under subsection 236.01(1) of the ETA[8].
d. The provincial portion of the ITCs claimed by Triple M in respect of the electricity acquired in or attributable to Ontario is a SPITC within the parameters of subsection 236.01(1) of the ETA and subsection 29(1) of the Regulations.
[28] Therefore, pursuant to subsection 236.01(2) of the ETA, the SPITC in respect of the Triple M’s ITCs claimed in relation to its electricity costs in Ontario “shall” be added, or recaptured by the Triple M in determining its net tax for the reporting periods.
[29] Section 31 of the Regulations prescribed that Triple M must add the full amount of the SPITC in respect of its electricity costs in its net tax as follows:
a. … the amount of SPITC in respect of the Triple M’s use of electricity shall be added is determined by the formula set out in paragraph 31(3)(d) of the Regulations. The formula is A x B, where A is the amount of SPITC in respect of specified energy that does not include “specified production energy” and B is the recapture rate applicable at the specified time in respect of the SPITC, i.e. 100%, as set out in section 26 of the Regulations.
b. Pursuant to subsection 31(1) of the Regulations, “specified production energy”, which reduces A in the above-mentioned formula, is “the part of specified energy acquired … by a selected person for consumption or use by the selected person in the production of tangible personal property intended for sale …” (the “SPITC Reduction”).
c. By its very definition, only a “selected person” can make use of the benefits of the SPITC Reduction in respect of “specified production energy”. Pursuant to subsection 31(1) of the Regulations, a “selected person means a person that is not (a) a financial institution; (b) a hotel, bar, coffee shop or restaurant; (c) an auto repair shop; or (d) a scrap metal dealer.”
d. Since Triple M is a scrap metal dealer, it is not a “selected person” under subsection 31(1) of the Regulations, and therefore it could not avail itself to the SPITC Reduction in respect of “specified production energy”. In other words, Triple M must include or recapture the full amount of the SPITC in respect of its electricity costs.
[30] The term “scrap metal dealer” is not defined under the ETA or the Regulations. In alleging that Triple M is a “scrap metal dealer”, and therefore not a “selected person”, the Respondent relies on the ordinary definition of the term and makes the following factual assumptions regarding the Triple M’s business activities as a “scrap metal dealer”:
(d) Triple M operates many scrap metal yards in Ontario;
(e) As part of its operations, Triple M acquires scrap metal;
(f) The scrap metal is usually processed (shredded, baled or shorn) before it is sold as scrap metal;
(g) The processing of shredding, baling and torching are part of the normal operations of a scrap metal dealer.
[31] Lastly, in response to Triple M’s argument, described below, that the Agreement incorporating the QSTA regime is applicable in this context, the Respondent takes the position that the terms of the Agreement were “subject to legislative approval” which is found in the dispositions of the Ontario Act and the Regulations”, and the Agreement itself cannot supersede the language of the ETA and the Regulations to the extent that these particular terms of the Agreement were not enacted.
b) Appellant [32] It should be noted that Triple M takes no issue with the way the provisions of the ETA and the Regulations operate to require the temporary recapture of ITCs for a large business. The central issue in dispute is the Minister’s factual characterization of Triple M as a “scrap metal dealer” to the extent of its processing activities and, consequently, not a “selected person” under subsection 31(1) of the Regulations who can avail itself of the SPITC Reduction in respect of the cost of “specified production energy”.
[33] Triple M relies on the interpretation limitation contained within the Agreement, which incorporates by reference the regime set out in the QSTA. Triple M submits that pursuant to section 17 of Annex “C” to the Agreement, the scope of “specified person”, “specified property” and “specified services” that are subject to the temporary full ITC recapture for the Ontario portion of the HST “cannot exceed the scope of the persons, property and services that are denied input tax refunds (“ITRs”) in respect of the QSTA as it read on March 10, 2009.” Therefore, the Appellant would only be subject to the full recapture treatment under subsection 236.01(2) of the ETA if it would be similarly denied ITRs in respect of its electricity costs under the QSTA as it read on March 10, 2009.
[34] Pursuant to paragraph 3 of section 206.1 of the QSTA, a registrant that is a large business would normally be denied ITRs in respect of the supply of electricity, gas, combustibles or steam.
[35] However, pursuant to section 206.3 of the QSTA, the above-mentioned restriction of the ITRs for a large business in respect of its electricity costs does not apply if that same registrant can claim an exemption from the Quebec retail sales tax (the “QRST Exemption”) as provided in paragraph aa of section 17 of the QRSTA.
The QRST Exemption under paragraph aa of section 17 of the QRSTA applies to:
(aa) … sales of electricity, gas or fuel which a person of a category other than those determined by the Minister under section 20 uses to produce movable property other than meals and services including telephone service, intended for sale or for the design or production of production equipment or conditioning materials used for the production of such movable property, either as an agent of production or to operate production equipment…[underlining added]
[36] In other words, the QRST Exemption in respect of the electricity or energy usage in a production process is available to persons who (i) produce movable property intended for sale; and (ii) do not fall within the scope of section 20 of the QRSTA as determined by the Quebec Minister of Revenue.
[37] In this case, Triple M submits that pursuant to a ministerial order issued by the Minister of Revenue, a “scrap metal dealer” was determined by the Minister to fall within paragraph (b) of section 20 of the QRSTA, as a person “whose activities consist mainly of … (b) selling movable property they have not produced but to which they may have made certain changes before delivery to the consumer” (“Aggregators”).
[38] Therefore, a “scrap metal dealer” or mere Aggregator cannot avail itself of the QRST Exemption under section 17 of the QRSTA, and would be denied ITRs under paragraph 3 of subsection 206.1 of the QSTA, and, consequently, be subject to full SPITC recapture pursuant to section 17 of Annex “C” to the Agreement and section 236.01 of the ETA.
[39] However, Triple M argues that it, as a recycler (“Recycler”), does not fall within the class of Aggregators because:
a. Triple M is a Recycler to the extent of baling and shredding (“proceesing” activities). Through baling and shredding, Triple M produces recycled metal, a product that is substantially changed in form and character as compared to the metal it has acquired. The precise submissions made by Triple M are stated as follows:
i) to be subject to the restrictions, Triple M must be selling movable property that it has not produced, and must be delivering same to consumers (i.e. an Aggregator);
ii) the recycled metal products which Triple M sells to the steel mills and foundries are movable property produced as opposed to simply altered;
iii) the movable property is not sent to the steel mills in a form purchased by the Triple M. Through the shredding and baling process, substantively different movable property is created, one which is then, but which was not previously useable by the steel mills;
iv) the activities undertaken by the Triple M are substantial and alter the character of the commingled scrap, producing substantially different products sold to two distinct groups of customers.
b. Triple M does not deliver its products to a “consumer” as defined under section 123 of the ETA. It only sells to steels mills and foundries along the supply chain or its discarded material to other manufacturing.
[40] Triple M submits that, as a Recycler, it would otherwise be entitled to the RST Exemption under section 17 of the QRSTA. Consequently it would not have been denied the ITRs in respect of electricity costs related to its processing activities under the QSTA regime. By incorporating this limitation of scope language through reference, within section 17 of Annex “C” to the Agreement, Triple M is removed from the scope of the persons required to recapture 100% of the SPITCs. As a result, Triple M is therefore a “selected person” under subsection 31(1) of the Regulations, not required to recapture 100% of the SPITCs under section 236.01 of the ETA because it is entitled to the SPITC Reduction in respect of “specified production energy” in the manner prescribed under section 31 of the Regulations.
V. Analysis and Decision Is Triple M a scrap metal dealer? [41] The words scrap metal dealer are embedded with ambiguity from the outset; neither the ETA nor the Regulations define the term “scrap metal dealer”. To assist, the modern general interpretation of statutes is embodied within Canada Trustco Mortgage v. R.[9]. Specifically at paragraph 10, the Court stated:
It has been long established as a matter of statutory interpretation that “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”: see 65302 British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804, at para. 50. The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays a lesser role. The relative effects of ordinary meaning, context and purpose on the interpretive process may vary, but in all cases the court must seek to read the provisions of an Act as a harmonious whole.
[42] For taxing statutes, Canada Trustco was adopted by virtue of Placer Dome Canada Ltd. v. Ontario (Minister of Finance),[10] when the Court wrote:
23 The interpretive approach is thus informed by the level of precision and clarity with which a taxing provision is drafted. Where such a provision admits of no ambiguity in its meaning or in its application to the facts, it must simply be applied. Reference to the purpose of the provision “cannot be used to create an unexpressed exception to clear language”: see P. W. Hogg, J. E. Magee and J. Li, Principles of Canadian Income Tax Law (5th ed. 2005), at p. 569; Shell Canada Ltd. v. R., [1999] 3 S.C.R. 622 (S.C.C.). Where, as in this case, the provision admits of more than one reasonable interpretation, greater emphasis must be placed on the context, scheme and purpose of the Act. Thus, legislative purpose may not be used to supplant clear statutory language, but to arrive at the most plausible interpretation of an ambiguous statutory provision. [underlining added]
[43] The Court further noted the mandatory examination of statutory provisions from this perspective when it stated:
Any doubt about the meaning of a taxation statute must be reasonable, and no recourse to the presumption lies unless the usual rules of interpretation have been applied, to no avail, in an attempt to discern the meaning of the provision at issue.[11]
(i) Textual meaning of “scrap metal dealer” [44] The most favourable definition is Webster’s Third New International Dictionary, in which a “dealer” is defined as:
… one who divides, distributes, or delivers; Negotiator, agent, go-between; One that acts or conducts himself in some specified way toward others; One that does business : TRADER, TRAFFICER, MIDDLEMAN: a person who makes a business of buying and selling goods esp. without altering their condition. [emphasis added]
In conjunction with definitions found in other dictionaries, the common theme within these sources is that a dealer must be engaged in the buying and selling of goods, but not in changing their condition. A scrap metal dealer therefore must be engaged in the buying and selling of scrap metal without materially changing the condition of the scrap metal it acquires.
[45] As such, these dictionary authorities do not necessarily resolve the ambiguity inherent in the term. First, within the very Webster definition cited above, a “dealer” may be interpreted narrowly or it may be interpreted quite broadly as someone who either “divides, distributes, or delivers”, or someone that simply “does business”. The question remains as to which definition ought to be used in the context of the SPITC recapture regime. Second, by focusing only on the term “dealer”, there exist substantial differences between the activities of a dealer in one industry as compared to another. Every industry is different. A scrap metal dealer may be required to do much more than just the buy and sell scrap metal in order to be competitive in that particular industry. There is no clear answer based merely on these dictionary definitions, which contain both broad and narrow interpretations.
[46] Several authorities referenced by the parties dealt with different industries and activities than those of scrap metal dealers or recyclers. In Canbra Foods Ltd v Westersund (1977),[12] the Alberta Supreme Court Appellate Division considered, inter alia, the meaning of a “grain dealer” in the context of the licensing requirements pursuant to the Canadian Grain Act (“CGA”).[13] Under the CGA, a “grain dealer” was required to be licenced before it made any contract in respect of the purchase and sale of grain. The Court used a narrow definition similar to the Webster definition to find that the ordinary meaning of a “dealer” applied in that situation. A grain dealer was simply an entity that engaged in the buying and selling of goods, but not the alteration of their condition. As such, the Court would find that taxpayer, which used a process elevator, a crusher, and other industrial machinery to turn grapeseed into vegetable oil, margarine and other derivativ