Montecristo Jewellers Inc. v. The Queen

Montecristo Jewellers Inc. v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2019-01-31
Neutral citation
2019 TCC 31
File numbers
2016-3319(GST)G
Judges and Taxing Officers
Kathleen T. Lyons
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2016-3319(GST)G
BETWEEN:
MONTECRISTO JEWELLERS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on May 8 and 9, 2018, at Toronto, Ontario
Before: The Honourable Justice K. Lyons
Appearances:
Counsel for the Appellant:
Neil E. Bass and Angelo Gentile
Counsel for the Respondent:
Frédéric Morand and
Cédric Renaud-Lafrance
JUDGMENT
The appeal from reassessments made under Part IX of the Excise Tax Act, for the reporting periods from April 1, 2010 to March 31, 2013, is allowed, in part, and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment to the extent only of the concession made by the respondent that the amount totalling $19,020 pertain to goods that were delivered outside of Canada and are not subject to GST/HST. In all other respects, the appeal is dismissed.
Costs are awarded to the respondent. The respondent has 30 days from the date of the Judgment to either secure the appellant’s agreement on costs or to make written submissions.
Signed at Ottawa, Canada, this 31st day of January 2019.
“K. Lyons”
Lyons J.
Citation: 2019 TCC 31
Date: 20190131
Docket: 2016-3319(GST)G
BETWEEN:
MONTECRISTO JEWELLERS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lyons J.
[1] Montecristo Jewellers Inc., the appellant (“the appellant”), appeals from reassessments made by the Minister of National Revenue (“the Minister”) under the Excise Tax Act (“ETA”) for the monthly reporting periods from April 1, 2010 to March 31, 2013 (collectively the “Relevant Period”). [1]
[2] The appellant sold luxury jewellery and watches at its three retail locations in Vancouver, British Columbia to Canadian and non-resident retail customers. Some customers purchased and paid for jewellery and/or watches (collectively the “Jewellery”) at one of the locations and the appellant retained physical possession of the Jewellery until the day the customer was to depart from Canada by air (“Customer”). Once the Customer obtained a boarding pass, a senior sales employee of the appellant (“Staff”) went to the Vancouver International Airport with a partially completed customs form and the Jewellery to meet the Customer before they proceeded to the customs office. A customs officer then reviewed the form to ensure the description on it matched the Jewellery. If acceptable, the officer completed the form and then signed and stamped it and provided a copy to the appellant. After that, the Customer obtained the Jewellery either before or after the security gate.
[3] The Minister determined that the Jewellery sold by the appellant to its Customers were “delivered or made available in Canada” pursuant to paragraph 142(1)(a) of the ETA, nor were these zero-rated supplies pursuant to section 12 of Part V of Schedule VI of the ETA. Consequently, the Minister reassessed Goods and Services Tax and Harmonized Sales Tax (collectively “GST”) in the amount of $2,298,898.13 allocable to the Jewellery sold in the Relevant Period. [2]
[4] During the hearing, the respondent conceded the amount of GST totalling $19,020 involved goods that were delivered outside Canada and are not subject to GST. [3]
[5] The appellant asserts that using such procedure, supplies of Jewellery sold were either shipped to destinations outside Canada specified in the contracts for carriage, thus zero-rated exports within the meaning of paragraph 12(a) of Part V of Schedule VI. Alternatively, the supplies were “delivered or made available outside Canada” within the meaning of paragraph 142(2)(a) of the ETA. Consequently, the appellant was not required to collect and remit GST.
[6] All references to provisions that follow are to the ETA unless otherwise stated.
I. Facts
[7] Pasquale Cusano and Huan (Jean) Chen, senior Staff since 2005, testified on behalf of the appellant. Tracy Thornton, Ronald Baldasso and Joda Green Barlow testified on behalf of the respondent. All witnesses were credible and were called for additional context and clarification.
[8] In 1967, Mr. Cusano immigrated to Canada. Later he worked with a watchmaker and also learned how to make jewellery. In 1978, he established the appellant. Initially, it sold items such as baptismal medals and some watches to the European community. Subsequently, a niche market developed in high-end luxury brands of jewellery and a dozen high-end watch brands; it became the exclusive distributor of such watches in and around Vancouver. [4] An important feature of its business is to provide its clientele with the full scope of quality service as one of the top jewellery companies in North America.
[9] Most of its loyal clientele are members of the Chinese community who live in and around Vancouver and have extensive businesses and/or family ties in China and visit four times annually. It is customary in its clients’ culture to bring gifts to China. Over the last five to ten years, the larger purchases made by its clientele mostly consist of watches (with 1,000 to 1,500 sold annually ranging from $30,000 to $1 million each) as the “big ticket” items and Japanese Mikimoto pearls sold to savvy clientele. When the Customer purchased a watch from the appellant, the Customer knew it and its parts were authentic. Clientele not only asked for a discount but questioned the tax treatment having travelled in jurisdictions where value added tax does not apply to exports. [5]
[10] Because of possible tampering, Customers did not want to send the Jewellery by a third party carrier or courier. The appellant’s customs broker’s solution was to obtain the stamped form, as part of a procedure, to serve as proof of export that the goods left Canada tax free. The procedure was only engaged at the Customer’s request and if the Customer was also flying from Canada. Where a customer insisted taking possession of goods after purchasing in-store, GST was charged even if they were departing from Canada.
[11] In the Partial Agreed Statement of Facts (“PASF”), the parties agreed as follows:
Background: The Appellant and the Business
1. The Appellant is a corporation resident in Canada and is registered for goods and services tax/harmonized sales tax (“GST/HST”) under Part IX of the Excise Tax Act, R.S.C. 1985, c. E-15 (the “ETA”).
2. The Appellant’s head office address is 3055 Kingsway, Vancouver, British Columbia, V5R 5J8.
3. The Appellant has a monthly GST/HST reporting period.
4. At all material times, Mr. Pasquale Cusano controlled the Appellant.
5. Throughout the period April 1, 2010 through March 31, 2013 (the “Relevant Period”), the Appellant sold high-end, brand name, luxury jewellery and watches and other custom-designed jewellery (the “Jewellery”) from three retail locations in British Columbia to both Canadian and non-resident retail customers (the “Business”).
Sales to Departing Customers
6. In carrying on the Business throughout the Relevant Period, the Appellant charged GST/HST on the sale of Jewellery to both Canadian and non-resident retail customers that acquired physical possession of the Jewellery at one of its retail locations in Canada.
7. In circumstances where a customer notified the Appellant at the time of purchase that he or she would be departing Canada by air and wished to have the Jewellery delivered or made available outside Canada (such customers will be referred to as “Departing Customers”), the Appellant followed the following procedures (such sales will be referred to as the “Export Sales”, and the following procedure will be referred to as the “Export Sales Procedure”):
(a) The Appellant generated a hand-written invoice for the sale and took note of the Departing Customer’s flight departure information on the sales invoice for the Jewellery;
(b) The Appellant charged the Departing Customer the applicable purchase price for the Jewellery, but did not charge GST/HST;
(c) The Appellant did not hand over possession of the Jewellery to the Departing Customer at the retail location;
(d) Rather, the Appellant retained physical possession of the Jewellery after the Departing Customer paid for the Jewellery and agreed to meet the Departing Customer at the Canada Border Services Agency (“CBSA”) front office at Vancouver International Airport (“VIA”) prior to the Departing Customer’s scheduled flight time;
(e) Prior to attending the CBSA front office at VIA with the Jewellery, an employee of the Appellant prepared fields 1 through 12 of CBSA Form E15, Certificate of Destruction/Exportation in respect of the Jewellery (the “Form E15”);
(f) The Appellant was listed as the “Applicant” on each Form E15, and the Appellant’s name and business number was entered in Field 1 of each Form E15;
(g) An employee of the Appellant physically attended at the CBSA front office at VIA with the Jewellery, the invoice and the partially-completed Form E15 and met the Departing Customer at that location;
(h) Both the employee of the Appellant (who still retained the Jewellery) and the Departing Customer attended at the CBSA front office at VIA and presented themselves before a CBSA Officer for examination;
(i) The employee of the Appellant provided the Jewellery and the partially-completed Form E15 to the CBSA Officer for inspection;
(j) The CBSA Officer reviewed the Departing Customer’s passport and boarding pass and asked questions (if any) in respect of the request for certification of export of the Jewellery;
(k) If satisfied with the inspection of the Jewellery and the responses to any questions, the CBSA Officer completed the balance of Form E15, stamped the Form E15 and provided a copy of the Form E15 to the employee of the Appellant;
(l) The Appellant maintained the copy of Form E15 as certification of export of the Jewellery from Canada;
(m) In some instances, the CBSA Officer handed over the Jewellery to the Departing Customer after he or she cleared airport security (e.g., at the boarding gate);
(n) In other instances, when the CBSA lacked the staff to walk over the Jewellery to the Departing Customer past airport security, the CBSA Officer handed over the Jewellery at the CBSA front office before the Departing Customer cleared airport security;
(o) In all cases, prior to the CBSA Officer handing over the Jewellery, the Departing Customer had checked in for his/her flight, had a boarding pass and passport and was scheduled to imminently depart from Canada by air.
8. Copies of representative sample invoices and Forms E15 (and, where available, redacted copies of passports and boarding passes) are included at Tabs 1 through 21 of the Agreed Book of Documents.
9. For GST/HST purposes, the Appellant treated sales of Jewellery made to Departing Customers using the Export Sales Procedure as sales made outside of Canada or, in the alternative, as zero-rated exports pursuant to section 12 of Part V of Schedule VI of the ETA.
10. Throughout the Relevant Period, the Appellant did not charge or collect GST/HST in respect of the Export Sales, and the Appellant kept the sales invoices and the Forms E15 in respect of all such sales.
11. All of the Jewellery sold to Departing Customers using the Export Sales Procedure left Canada on the flight indicated on the Departing Customer’s boarding pass.
The Audit and Assessments
12. The Minister of National Revenue (the “Minister”) conducted an audit of the Appellant for the Relevant Period.
13. By Notices of Assessment dated December 4, 2013 (the “Original Assessments”), the Minister reassessed the Appellant on the basis that the Export Sales throughout the Relevant Period were subject to GST/HST totaling $2,298,891.13.
14. The Appellant objected to the Minister’s Original Assessments.
15. By letter dated May 18, 2016 (the “Confirmation”) and Notices of Reassessment dated May 18, 2016 (the “Revised Assessments”), copies of which are included at Tabs 22 through 25 of the Agreed Book of Documents, the Minister confirmed its assessment of GST/HST in respect of the Export Sales, which is broken down as follows:
(a) For the period 2010-04-01 through 2011-03-31: $217,831.76;
(b) For the period 2011-04-01 through 2012-03-31: $799,302.71; and
(c) For the period 2012-04-01 through 2013-03-31: $1,281,756.46.
[12] In these reasons, I will refer to the Export Sales Procedure as the “Procedure”, the Export Sales as the “Jewellery sales” or “Jewellery sold”, Form E15 as the “Form”, the Departing Customers as the “Customers” and the CBSA front office located on the ground level of the VIA as the “CBSAO”.
[13] Mr. Cusano confirmed the Procedure, set out at paragraph 7 of the PASF, was implemented, followed and he had explained it to all senior Staff. Typically, the Staff whom sold the Jewellery made the arrangements to meet the Customer at VIA a few hours before their flight departed and attended at the CBSAO and used the Procedure. There were 200 to 300 sales annually using the Procedure; Staff were not paid commissions. Ms. Chen alone met in excess of 100 customers at the CBSAO over her career and said the Jewellery sold are permanent exports. Ms. Chen viewed the Procedure as an inconvenience as it required her to attend VIA.
Invoicing
[14] Information was obtained from the Customer at the appellant’s store as to the departure date, time and number of the flight. Mr. Cusano also said the handwritten sales invoice (“invoice”) is dated, shows the Customer’s contact information, serial number of the item, the price and how the merchandise is to be sent. The Jewellery remained at the store. This was largely corroborated by Ms. Chen. She elaborated that when a sale was consummated, payment was made before exportation and the cheque, invoice and boarding pass were placed in the Customer’s file.
Form E15
[15] The Form and the parts of it that were completed by Staff were identified by Mr. Cusano as well as the actual Forms used as part of the Procedure. [6] In re‑examination, he confirmed that box 4(b) of the Forms at Tabs 1, 2, 3, 5 and 6 to 9 inclusive, involving the duty deferral program, were not checked off but were in other tabs; he was unfamiliar as to the purpose of that box. Ms. Chen only filled out boxes 8, 9, 11 and 12 of the Form and she said the CBSA Officer checked box 4; her testimony contradicts paragraph 7(e) of the PASF.
CBSAO
[16] After the Customer had checked in and obtained a boarding pass, Staff met the Customer at VIA and took a copy of the boarding pass. Mr. Cusano said the Form, invoice and travel documentation were presented to the CBSA Officer who inspected the Jewellery, signed and stamped the Form, retained the original Form and provided a copy of it to Staff. The Officer then either handed the Jewellery to the Customer at the CBSAO or provided it after security clearance. At no time, did the CBSAO inform him or Ms. Chen that utilizing the Form was inappropriate or told them to stop. Unless a customs officer stamped the Form, Mr. Cusano said the sale would not be concluded. The appellant stopped using the Procedure in 2017.
[17] The CBSA Officer never gave the Jewellery back to Ms. Chen after the Form was stamped. Sometimes the Officer , such as Ronald Baldasso, would take the Jewellery and escort the Customers inside the security gate, in other instances the Jewellery was given to the Customer at the CBSAO and the Officer said “ready to go”. Occasionally, when the Officer refused to stamp the Form, Customers became upset and Staff angry as Staff had to return to the store with the goods. There may have been three instances involving Ms. Chen where the Officer refused to stamp the Form.
[18] When Ronald Baldasso, an experienced CBSA Officer, was presented with Jewellery, Staff accompanied the Customer travelling. [7] He said left the Jewellery on the counter, compared it to the description in the documentation, looked at the Customer’s identification and completed the remaining boxes before signing and stamping the Form then photocopied documentation. [8] The stamped Form was given back to Staff and the invoice and identification were returned to the Customer. Staff sometimes took the Jewellery and exited the CBSAO with the Customer and they walked with him to security where the Customer would go through security with the Jewellery or he sometimes took Jewellery past security and handed it to the Customer. There were no instances where he was concerned as to whether goods did not leave Canada and the Form was not stamped. If a Customer returned through security, he confirmed the customer was required to return through Canadian customs, declare the jewellery and pay the applicable duties and taxes.
Export regime
[19] Joda Green Barlow, a CBSA criminal investigator and a liaison officer in 2012 to 2014, is primarily responsible for examining cases involving potential fraud under the Customs Act, RSC 1985, c.1 (2nd supp.) and testified about her involvement and certain features of the export regime. The Customs Act is not a taxing statute but authorizes the CBSA to administer and enforce the collection of duties under tariffs and taxes imposed under separate taxing legislation but is not authorized with respect to taxes imposed under Part IX of the ETA. [9]
[20] She became aware of Staff and Customers bringing in the Forms for verification at the CBSAO. Her concerns were: Customers who initially identified themselves as non-residents, were “permanent residents” and were taking goods out when travelling with the Form, invoice and boarding pass (she later checked to see if the tax-free goods re-entered Canada upon the Customers’ return); whether goods were actually being exported by the Customers; and as the applicant on the Form, the appellant could apply for refunds/drawbacks of duties already paid. [10] For enforcement of Customs Act purposes, she obtained information to see if duty refunds were sought by the appellant on imported goods and ultimately concluded there was no contravention of the Customs Act. [11]
[21] Under the Customs Act, all goods being exported are required to be reported to the CBSA by submitting an “Export Declaration” unless these are “Restricted Goods”, “Special Goods” or fall within the “Exceptions to Reporting by the Exporter” category. [12] Ms. Green Barlow identified CBSA’s Memorandum D20-1-1 –Exporter Reporting (“Memorandum D20-1-1”) which outlines export procedures plus goods that do not need to be reported on an Export Declaration. [13] She explained if the traveller is not bringing the goods back to Canada, these are exported and the Form could be completed. A temporary export was described by her as a plan to bring the goods back into Canada and is usually covered by Form Y38.
[22] Some doubt and debate surfaced during the hearing as to whether the appellant should have completed the Form as the exporter. Ms. Green Barlow was unaware if the term “Exporter” is defined in the Customs Act and said the applicant is usually the exporter or could be the owner of the goods; she then noted that the instructions for the completion of the Form in Appendix B of Memorandum D20-1-4, states the “importer/exporter or his agent” (sometimes a broker) is responsible for completion of the Form. In this instance, she said the Customer would be the applicant/exporter. An “Exporter” of goods exported is defined under the Reporting of Exported Goods Regulations, SOR/2005-23, as the holder of a business number for the purposes of the Customs Act who exports/causes commercial goods to be exported but is not the person involved in the transportation arrangements (such as carriers or customs service providers).
Proof of Export
[23] CBSA’S Memorandum D20-1-4 Proof of Export, Canadian Ownership, and Destruction of Commercial Goods (“Memorandum D20-1-4”) explains options to businesses required to prove for customs purposes either that goods entering Canada are of Canadian origin, or that temporarily imported goods have been exported or destroyed. [14] A claim for relief of duty and/or excise taxes or drawbacks of duty already paid (“relief”) on goods that originated from Canada, were exported or destroyed is to be substantiated by “Acceptable Documentation” allocable to each type of relief particularized in Appendix A. [15] Appendix A notes the Form might serve as proof depending on the type of relief sought or could be accepted as an alternative where specified documentation is unavailable. [16] Documentation must enable CBSA Officers to verify that goods exported or destroyed were the same as goods temporarily imported or that goods returning to Canada are of Canadian origin. [17] Ms. Green Barlow described applications for such relief as one of three key concepts under the customs regime and testified the Form is mainly used for such duty relief or drawback purposes. [18]
[24] CBSA witnesses described a stamped Form as an identification document used to describe goods for commercial exportation from Canada or for destruction under CBSA supervision and certified by a CBSA Officer who might ask questions. If the Form was not used for duty relief, it was used merely as proof of export which Mr. Baldasso confirmed was one of the reasons and agreed that Memorandum D20-1-4 states “When no documentation exists to prove export or destruction, the CBSA will examine a shipment prior to its export or destruction and certify the Form.” The portion below the black line is completed by the CBSA Officer, whereas the portion above is completed by the applicant/exporter.
[25] After discussion with CBSA colleagues, Mr. Baldasso said it was determined that the Form should have the exporter’s name (i.e., the traveller who is taking the goods outside Canada) as the applicant. In cross-examination, he agreed that Appendix B of Memorandum D20-1-4 indicates, with respect to the applicant, that could be “for example, importer of record, owner, exporter or consigner.” He was unaware if the determination that the appellant was not the exporter was communicated to the appellant.
[26] Other than knowing that the CBSA collects GST on duties owed, Ms. Green Barlow was unfamiliar with the tax aspect. However, since no tax was charged by the appellant and handwritten invoices were unusual, she referred the matter to her director who in turn notified the Canada Revenue Agency (“CRA”).
Reassessments
[27] In 2013, the CRA notified the appellant that there would be a GST audit. The audit report described a procedure that the appellant was using to zero-rate part of its sales. The auditor had never asked Mr. Cusano about the Procedure; the auditor was unsure if the Jewellery had left Canada and said the Jewellery sales may or may not be zero-rated.
[28] Tracy Thornton, the GST CRA appeals officer assigned to work on the appellant’s objection initially involving 13 issues, agreed she had reviewed the audit report, had initially relied on facts assumed by the auditor and said the issue was unclear as to when goods were given to the Customer and by whom. The Form, she said, was the only document produced, was not acceptable to the CRA for zero-rating purposes under section 12 as the Jewellery must be traced from the port of exit to the destinations and a carrier was absent from the Procedure. She concluded supplies of Jewellery were made in Canada as these were given to Customers at VIA and were not zero-rated supplies under sections 1 nor 12 of Part V of Schedule VI because the appellant did not “ship” the Jewellery.
[29] As it relates to section 1, the CRA’s GST/HST Memorandum 4.5.2: Exports – Tangible Personal Property (“GST Memorandum”) and its Appendix: Evidence of exportation lists the Form as acceptable, if accepted by the CRA, as proof of exportation by the recipient for section 1 purposes. Acceptable evidence depends on whether “the shipment of the tangible personal property can be traced from its origin in Canada to the point where it leaves Canada on its way to a foreign destination.” Appendix I to these reasons is an excerpt of the Appendix of the GST Memorandum which provides additional information as to evidence satisfactory to the CRA, if accepted, and lists the Form. Satisfactory documentation varies depending on the mode of transportation to export the property and the nature of the property and documentation may include:
a) sales invoice or purchase contract that identifies the property and the recipient, matched with the respective shipping or delivery instructions on the purchase order;
b) transportation document that describes the delivery service, such as a bill of lading issued by or on behalf of a carrier, which is evidence of a contract of carriage as well as proof of delivery of the property on board a vessel;
c) customs brokers’ or freight forwarders’ invoice that relates to the exported property;
d) import documentation required by the country to which the property is exported;
e) in the case of motor vehicles, boats, ships, and aircraft, registration from the foreign regulatory authority where the property has been licensed; or
f) any other evidence (that is not generated internally by the recipient) satisfactory to the Canada Revenue Agency that the property has been exported;
g) Form E15, Certificate of Destruction/Exportation is listed as a document that the Canada Revenue Agency will accept as satisfactory evidence of the exportation of tangible personal property if validated by an authorized officer of the Canada Border Services Agency (CBSA).
[30] As to section 12, in cross-examination Ms. Thornton agreed that even though the GST Memorandum states that “Suppliers must maintain satisfactory evidence that the tangible personal property has been sent outside Canada. Satisfactory evidence parallels the evidence required under Section 1 of Part V of Schedule VI (see paragraphs 15 to 17 of this memorandum),” she reaffirmed the Form was not acceptable to the CRA as satisfactory evidence for section 12 purposes as other conditions needed to be satisfied with more information. [19]
[31] Whilst she agreed all the Jewellery sold to Customers using the Procedure left Canada on the flight indicated on the Customer’s boarding pass, in re‑examination she said the Customer received the Jewellery, before or after security, and then took the Jewellery out of Canada.
[32] Ultimately, the facts were not materially in dispute.
II. Issues
[33] At issue is whether the appellant was required to collect and remit GST on the Jewellery sold to Customers using the Procedure. To determine that, it is necessary to decide whether the supplies:
(a) were shipped to a destination outside Canada specified in the contract for carriage of the Jewellery pursuant to paragraph 12(a) of Part V of Schedule VI?
(b) were delivered or made available in or outside Canada pursuant to paragraphs 142(1)(a) or 142(2)(a)?
III. Legislative scheme
[34] Subsection 221(1) imposes an obligation on a supplier to collect GST when making a taxable supply. Subsection 228(2) requires a supplier to remit the net tax, determined under section 225, to the Receiver General.
[35] Subsection 165(1) provides that every recipient of a taxable supply made in Canada shall pay GST, in respect of the supply, calculated at the statutory rate on the value of the consideration for the supply.
[36] Section 142 sets out separate place of supply rules that may apply, depending on the nature of the supply, and deem supplies made in Canada and others made outside Canada.
[37] Paragraphs 142(1)(a) and 142(2)(a) deem supplies of tangible personal property by way of sale to be made in or outside Canada, respectively, if the property is, or is to be, delivered or made available in or outside Canada to the recipient of the supply, respectively. If the latter, the recipient is not liable to pay GST, therefore the supplier is not obliged to collect it. [20] If the former (deemed made in Canada), GST is exigible unless the supply is exempt or zero-rated.
[38] Zero-rated supplies are set out in Schedule VI. Section 12 of Part V of Schedule VI zero rates from taxation a supply of tangible personal property where the supplier either ships such property specified in the contract for carriage, or sends it by mail or courier, to a destination outside Canada, or transfers possession of it to a common carrier or consignee retained, by either the supplier on behalf of the recipient or by the recipient’s employer, to ship it outside Canada. If these conditions are met, under subsection 165(3) the tax rate of a “zero-rated supply, a taxable supply, is 0%. [21]
IV. Analysis
(a) Zero-rated supply
[39] Turning first to whether Jewellery sold to Customers under the Procedure were zero-rated supplies shipped to destinations outside Canada specified in the contracts for carriage pursuant to paragraph 12(a) of Part V of Schedule VI.
[40] Section 12 reads:
12 A supply of tangible personal property (other than a continuous transmission commodity that is being transported by means of a wire, pipeline or other conduit) if the supplier
(a) ships the property to a destination outside Canada that is specified in the contract for carriage of the property;
(b) transfers possession of the property to a common carrier or consignee that has been retained, to ship the property to a destination outside Canada, by
(i) the supplier on behalf of the recipient, or
(ii) the recipient’s employer; or
(c) sends the property by mail or courier to an address outside Canada.
[41] The appellant argued that the term “ships” in paragraph 12(a) can be given a broad interpretation to mean to send or cause to be sent goods by any means. Pursuant to its Procedure, the appellant caused the Jewellery to be sent to destinations outside Canada, shipped by air, transported with the Customer and their personal baggage and effects to their destinations. Each contract for carriage between it and its Customer - as certified by the CBSA on the stamped Form ‑ consisted of an agreement to take the Jewellery to a destination outside Canada shown on the airline ticket and boarding pass (collectively “ticket”) which matched the destination on the invoice; such contract constitutes an extension of the Customer’s ticket. Since the Jewellery left on the flight with the Customer, it was shipped to a destination outside Canada.
[42] The respondent disputes that the appellant satisfied the conditions in paragraph 12(a).
Principles of statutory interpretation
[43] In tax legislation, if the text of a statute is clear it must be applied. Where, however, the text admits of more than one reasonable interpretation, greater emphasis on and recourse to context, purpose and the scheme of the legislation may be necessary and may reveal or resolve latent ambiguities which may not have initially been apparent. [22] If latent or explicit ambiguities exist, courts must also look at the context and the purpose of the provision to determine the most plausible interpretation. In rare instances, where a textual, contextual and purposive approach to statutory interpretation does not resolve the interpretative issue, there is a residual presumption, to be applied exceptionally, in favour of the taxpayer.
Text
[44] The language of paragraph 12(a) zero-rates a supply of tangible personal property made by a supplier to a recipient if the supplier ships the property to a destination outside Canada specified in the contract for carriage of the property.
Ships
[45] Since the term “ships” is not defined in the ETA, the Court must resort to the ordinary meaning to discern its meaning. Similar dictionary definitions can illustrate the language bears a given meaning. [23]
[46] Dictionary definitions define the verb to “ship” as:
a) “1 transitive transport, deliver, or convey (goods, passengers, sailors, etc.) by or on a ship. 2 transitive (also foll. by off, out) esp. N Amer. a transport (goods) by truck, rail or other means. b informal send (a person) away; dispatch (we shipped the kids off to school).”
b) “Send or transport by ship; (chiefly N. Amer.) transport by rail or other means.”
c) “1 a: to place or receive on board a ship for transportation by water b: to cause to be transported.”
d) “To send (goods, documents, etc.) from one place to another, esp. by delivery to a carrier for transportation.”
Canadian Oxford Dictionary, 2nd ed.; Shorter Oxford English Dictionary, 6th ed.; Merriam Webster’s Collegiate Dictionary, 11th ed.; Black’s Law Dictionary, 10th ed. sub verbo “ship”. [24]
[47] The appellant argued that the common thread in the definitions to “ship” merely means, at minimum, to send goods, or cause goods to be sent, somewhere by some means and the definitions do not mandate the use of a third party common carrier or courier based on the ordinary meaning.
[48] Admittedly the dictionary definitions of “ship” or “shipped” do not mandate such a third party, nevertheless I note the definition in Black’s Law Dictionary refers to sending goods from one place to another especially by delivery to a carrier for transportation. A third party seems to be implicit from the other definitions.
[49] Further, says the appellant, had Parliament intended the term “ship” to be interpreted as requiring the use of “common carrier” or sending by “courier”, it would have drafted the text of paragraph 12(a) to include these third parties similar to paragraphs 12(b) and 12(c). Instead, Parliament chose to omit these.
[50] The suggestion as to the omission of “carrier” and “courier” from paragraph 12(a) as indicative of Parliament’s intent, seems to disregard the inclusion of contract for “carriage” in that paragraph.
Contract for carriage of the property
[51] The appellant submitted that the noun “carriage” in the phrase “contract for carriage”, is defined as the “[t]ransport of freight or passengers”; as “the conveying of goods”; as “[t]he action of carrying” and “[c]onveying, transport, esp. of merchandise”; and as “the act of carrying.” [25]
[52] It said the CBSA stamped Form proved, amongst other things, exportation of the Jewellery from Canada and certification the supplies were shipped outside Canada. The Form, the invoice and the ticket evidenced the contract for carriage of the Jewellery and it only sold Jewellery using the Procedure where the Customer was scheduled to depart Canada by air and it retained the Jewellery until the departure date at which point Staff met the Customer at the VIA to complete the Procedure.
[53] Taken together, the appellant contends that this means that a contract for carriage is a contract to transport property from one place to another, and nothing in paragraph 12(a) or these definitions limits who must be a party nor requires a carrier, simple or otherwise. It does not, therefore, preclude the Customer, as here, from being a party to such contract with the appellant to take Jewellery outside Canada which can be inferred from the parties conduct and documentation (the Form, the invoice and the ticket).
Context
[54] A contextual analysis examines other provisions of the ETA related to the one at issue to aid in understanding the context of the provision at issue.
[55] The appellant submitted that since paragraphs 12(b) and 12(c) encompass situations where a supplier has contracted with a common carrier to deliver the goods and where the supplier sends goods by mail or courier, respectively, paragraph 12(a) must be given an independent meaning otherwise paragraph 12(a) would be redundant and would run counter to Parliament’s intent. [26] The inclusion of paragraph 12(a), the appellant suggested, indicates that the legislation contemplates a supplier's ability to ship goods by means other than common carrier or mail/courier.
[56] According to the appellant, context for section 12 arises when read in light of section 1 of Part V of Schedule VI which also zero-rates a supply of tangible personal property made by a person to a recipient who is not a consumer whom intends to export property in certain circumstances. Although not relying on section 1, the appellant noted that the breadth of section 1 does not narrow the scope of section 12 beyond what otherwise falls within the wording of section 12.
[57] Common carrier is not defined in the ETA. The GST Memorandum, at paragraph 19, defines the term “common carrier” as a person engaged in the business of transporting property from place to place and who offers services to the public for compensation. Other than the reference to business and offering services to the public for compensation, this descriptor seems to align with the appellant’s position.
Purpose
[58] This part of the analysis seeks to ascertain what Parliament intended a provision to achieve.
[59] In paragraph 89 of its written submissions, the appellant explains that one of the guiding principles when the ETA was enacted is that GST was not meant to apply on exported goods as noted in the Goods and Services Tax Technical Paper (Department of Finance, August 1989). In referring to the treatment of exports of tangible personal property it states at page 72 that:
Since the GST is meant to apply only to consumption of goods and services in Canada, supplies made in Canada that are exports will be categorized as zero‑rated supplies, and will not be subject to the tax.
…
(a) Goods
Tax will not apply to any commercial export of goods. Where goods are delivered in Canada for direct shipment to a place outside Canada, they will be zero-rated. The transaction will have to meet prescribed rules to ensure that the goods are in fact exported to qualify as a zero-rated supply.
[60] Initially, section 12 zero-rated goods supplied to the recipient if the supplier delivers the property to a common carrier, or mails the property, for export and delivery to the recipient at a place outside Canada.
[61] The May 1990 Financial Technical Notes produced by the Department of Finance provides further insight with respect to section 12 in noting:
Goods delivered or made available to an individual in Canada generally are subject to GST, even if the individual intends to export the goods. However, this provision zero-rates goods supplied to an individual if the supplier mails the goods or has a common carrier deliver the goods to an address outside Canada.
[62] In 1997, section 12 was amended to read:
[a] supply of tangible personal property where the supplier delivers the property to a common carrier, or mails the property, for export.
[63] This amendment broadened the scope of section 12 by eliminating the requirement that the goods be delivered to the recipient, as opposed to any other person, at a place outside Canada. As amended, it allowed for zero-rating of goods where the supplier delivers the property to a common carrier, or mails the property, either to the recipient of the supply or another, such as a non-resident relative of the recipient. [27]
[64] Section 12 was further amended to zero-rate a supply of tangible personal property where the supplier either ships such property specified in the contract for carriage, or sends it by mail or courier, to a destination outside Canada or transfers possession of it to a common carrier or consignee retained, by either the supplier on behalf of the recipient or by the recipient’s employer, to ship it outside Canada.
[65] The December 1999 Financial Technical Notes state:
Section 12 is further amended, with respect to supplies made after April 1999, to provide that, in order to qualify for the zero-rating under that section, one of two circumstances must be met. One is that the supplier ships the property, or sends it by mail or courier, to a destination outside Canada. The alternative circumstance is that the supplier transfers the property to a common carrier that has been retained, by either the sup