Canada (Attorney General) v. Igloo Vikski Inc.

Canada (Attorney General) v. Igloo Vikski Inc.
Collection
Supreme Court Judgments
Date
2016-09-29
Neutral citation
2016 SCC 38
Report
[2016] 2 SCR 80
Case number
36258
Judges
McLachlin, Beverley; Abella, Rosalie Silberman; Cromwell, Thomas Albert; Moldaver, Michael J.; Karakatsanis, Andromache; Wagner, Richard; Gascon, Clément; Côté, Suzanne; Brown, Russell
On appeal from
Federal Court of Appeal
Subjects
Customs and excise
Notes
SCC Case Information: 36258
Decision Content
SUPREME COURT OF CANADA
Citation: Canada (Attorney General) v. Igloo Vikski Inc., 2016 SCC 38, [2016] 2 S.C.R. 80
Appeal Heard: March 29, 2016
Judgment Rendered: September 29, 2016
Docket: 36258
Between:
Attorney General of Canada
Appellant
and
Igloo Vikski Inc.
Respondent
Coram: McLachlin C.J. and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon, Côté and Brown JJ.
Reasons for Judgment:
(paras. 1 to 52)
Brown J. (McLachlin C.J. and Abella, Cromwell, Moldaver, Karakatsanis, Wagner and Gascon JJ. concurring)
Dissenting Reasons:
(paras. 53 to 75)
Côté J.
Canada (Attorney General) v. Igloo Vikski Inc., 2016 SCC 38, [2016] 2 S.C.R. 80
Attorney General of Canada Appellant
v.
Igloo Vikski Inc. Respondent
Indexed as: Canada (Attorney General) v. Igloo Vikski Inc.
2016 SCC 38
File No.: 36258.
2016: March 29; 2016: September 29.
Present: McLachlin C.J. and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon, Côté and Brown JJ.
on appeal from the federal court of appeal
Taxation — Customs and excise — International trade — Tariff classification of goods — Importation of hockey gloves — Whether goods should be classified as “gloves, mittens and mitts” or “other articles of plastics and articles of other materials” under Harmonized Commodity Description and Coding System — Whether Canadian International Trade Tribunal’s interpretation and application of Rules 1 and 2 of General Rules for Interpretation of Harmonized System were reasonable — Customs Tariff, S.C. 1997, c. 36, Schedule, General Rules for the Interpretation of the Harmonized System.
The importer arranged to import hockey gloves made of textiles and plastics, bound together by stitching. The Canada Border Services Agency classified five models of gloves as “gloves, mittens and mitts” under tariff item No. 6216.00.00 of the Harmonized Commodity Description and Coding System (“Harmonized System”), incorporated into the Schedule to the Customs Tariff. The remaining model was classified under tariff item No. 3926.20.92 as “other articles of plastics”.
The Canadian International Trade Tribunal (“CITT” or “Tribunal”) dismissed the importer’s appeal, concluding that the gloves were classifiable as “gloves, mittens and mitts”. The Federal Court of Appeal, however, allowed the importer’s appeal and remitted the matter back to the CITT.
Held (Côté J. dissenting): The appeal should be allowed.
Per McLachlin C.J. and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon and Brown JJ.: The tariff classification exercise begins with Rule 1 of the General Rules for the Interpretation of the Harmonized System, which directs that the classification of goods must initially be determined with reference only to the headings within a chapter, as well as any applicable Section or Chapter Notes. Where the goods are unfinished or where they are comprised of a mix of materials or substances, Rule 2 is applied in conjunction with Rule 1 to determine the prima facie classification of such goods. Rule 2(a) deems unfinished goods to be finished goods, and directs that they be classified using Rule 1 as if they were goods in a complete or finished state. Rule 2(b) applies where a good consists of a mixture of more than one substance, and states that a reference to goods of a given material or substance in a heading shall be taken to include goods consisting wholly or partly of such material or substance. If, having applied Rules 1 and 2, the good is prima facie classifiable under only one heading, then the inquiry ends and the good is classified under that heading. If, however, the good is prima facie classifiable under more than one heading, then Rule 3 applies, by operation of Rule 2(b), to resolve the classification dispute. If the application of Rules 1, 2 and 3 does not lead to the classification of a good under a single heading, Rules 4, 5 and 6 are applied to determine the classification of the good.
While the General Rules are commonly described as cascading in nature, this metaphor does not quite capture how the General Rules are to be applied. It is more helpful to understand that order as a function of a hierarchy rather than a cascade. Rule 1 does not lose all relevance where Rule 2 is applied. Where Rule 2 applies, it applies together with Rule 1 to identify the heading(s) under which an incomplete or composite good can be prima facie classified.
The CITT concluded that the gloves were not classifiable under heading 39.26 using Rule 1 because they were not made by sewing or sealing sheets of plastic together, as directed by the Explanatory Note to heading 39.26 of the Explanatory Notes to the Harmonized Commodity Description and Coding System. The CITT found that the gloves met the description of heading 62.16 using Rule 1. Since the gloves contained plastic padding that was more than mere trimming, the CITT applied Rule 2(b) of the General Rules, as directed by the Explanatory Note to heading 62.16, which led the CITT to extend the scope of the heading in order to classify the goods as “gloves, mittens and mitts”.
The Federal Court of Appeal found that the CITT had misinterpreted the General Rules by requiring that the goods must meet the description of a heading by applying Rule 1 before Rule 2(b) can be used to extend that heading to cover goods made of mixed substances. Once the CITT concluded that the goods did not meet the description of the heading in 39.26, it should have applied Rule 2(b) of the General Rules to extend that heading to cover the gloves. Then, because the goods were prima facie classifiable under both headings 39.26 and 62.16, Rule 3 should have been employed to determine the proper classification of the gloves.
In concluding that the CITT misapplied the General Rules, the Federal Court of Appeal misapprehended their structure. It did not appreciate the conjunctive nature of the application of Rules 1 and 2 to a determination of the heading(s) under which a good is prima facie classifiable. Further, the Federal Court of Appeal erred in supposing that Rule 2(b) can be applied to extend the scope of a heading to include a particular good where no part of that good falls within the heading. While Rule 2(b) deems a reference in a heading to a material to include a mixture of that material with other substances, the Section, Chapter Notes, and Explanatory Notes still apply when classifying that good as if it were made exclusively of the material referenced by the heading. Read as a whole, the CITT’s decision was reasonable. The CITT neither misapplied the General Rules, nor interpreted heading 39.26 and its Explanatory Note in an unreasonable manner.
Per Côté J. (dissenting): The Tribunal’s decision falls well outside the range of reasonable interpretations. It contradicts the cascading nature of the General Rules, it is internally contradictory, and it interprets the Explanatory Notes in a manner that is irreconcilable with their words.
While the standard of review of reasonableness is applicable here, this appeal deals with the interpretation of a statute that was enacted to implement the International Convention on the Harmonized Commodity Description and Coding System. Given the Convention parties’ intention of creating a uniform classification scheme, the range of reasonable statutory interpretations in this context is narrow.
First, the Tribunal erred by requiring as a condition to the application of Rule 2(b) that the goods must first meet the description in the heading pursuant to Rule 1. The distinction between a conjunctive or hierarchical application of the General Rules as opposed to a cascading application is, in this case, irrelevant. A good does not need to first meet the description in a heading pursuant to Rule 1 in order for Rule 2(b) to apply. Such a reading is inconsistent with the text of Rule 2(b). It is precisely because certain goods consisting of more than one material or substance cannot be classified under a heading using Rule 1 alone that Rule 2(b) applies. The function of Rule 2(b) is to extend headings referring to a material under Rule 1 to include goods that are composed only partly of the material.
Second, the Tribunal failed to apply Rules 1 and 2(b) consistently to headings No. 39.26 and No. 62.16. The Tribunal had to apply Rule 2(b) in order for heading No. 62.16 to apply to the gloves since the gloves included plastic that constituted more than mere trimming. Therefore, Rule 1 alone was not sufficient to classify the gloves in heading No. 62.16 nor in any heading, and the Tribunal had to resort to Rule 2(b). In this context, the Tribunal’s refusal to apply Rules 1 and 2(b) consistently to both headings No. 39.26 and No. 62.16 is internally contradictory and therefore unreasonable.
Third, the Tribunal’s interpretation of the Explanatory Note to heading No. 39.26 is unreasonable. While the Explanatory Note contains non‑exhaustive language, the Tribunal concluded that heading No. 39.26 only includes articles of plastics that are made by “sewing or sealing sheets of plastics”. Such a restrictive interpretation was contrary to both an ordinary and contextual reading of the Explanatory Note.
Cases Cited
By Brown J.
Referred to: Miller v. Jackson, [1977] 1 Q.B. 966; Sher‑Wood Hockey Inc. v. Canada (Border Services Agency, President) (2011), 15 T.T.R. (2d) 336; Minister of National Revenue v. Yves Ponroy Canada (2000), 259 N.R. 38; Cycles Lambert Inc. v. Canada (Border Services Agency), 2015 FCA 45, 469 N.R. 313; Canada (Border Services Agency) v. SAF‑HOLLAND Canada Ltd., 2014 FCA 3, 456 N.R. 174; Star Choice Television Network Inc. v. Canada (Customs and Revenue Agency), 2004 FCA 153; Minister of National Revenue (Customs and Excise) v. Schrader Automotive Inc. (1999), 240 N.R. 381; Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708; Canada Post Corp. v. Public Service Alliance of Canada, 2010 FCA 56, [2011] 2 F.C.R. 221, rev’d 2011 SCC 57, [2011] 3 S.C.R. 572; Helly Hansen Leisure Canada Inc. v. Canada Border Services Agency, 2009 FCA 345, 397 N.R. 323; Canada Customs and Revenue Agency v. Agri Pack, 2005 FCA 414, 345 N.R. 1; Funtastic Ltd. v. Chief Executive Officer of Customs, [2008] AATA 528; Canada Border Services Agency v. Outils Gladu Inc., 2009 FCA 215, 393 N.R. 58; Rona Corporation Inc. v. Canada (Border Services Agency) (2008), 12 T.T.R. (2d) 295; Primaplas Pty. Ltd. v. Chief Executive Officer of Customs, [2016] FCAFC 40; National Bank of Greece (Canada) v. Katsikonouris, [1990] 2 S.C.R. 1029.
By Côté J. (dissenting)
Minister of National Revenue (Customs and Excise) v. Schrader Automotive Inc. (1999), 240 N.R. 381; Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; Canada (Citizenship and Immigration) v. Khosa, 2009 SCC 12, [2009] 1 S.C.R. 339; Catalyst Paper Corp. v. North Cowichan (District), 2012 SCC 2, [2012] 1 S.C.R. 5; McLean v. British Columbia (Securities Commission), 2013 SCC 67, [2013] 3 S.C.R. 895; Sher‑Wood Hockey Inc. v. Canada (Border Services Agency, President) (2011), 15 T.T.R. (2d) 336; National Bank of Greece (Canada) v. Katsikonouris, [1990] 2 S.C.R. 1029.
Statutes and Regulations Cited
Customs Act, R.S.C. 1985, c. 1 (2nd Supp .), ss. 59(1) (a), 60(1) .
Customs Tariff, S.C. 1997, c. 36, ss. 10(1), 11, Schedule, General Rules for the Interpretation of the Harmonized System; tariff items 0302.13.40, 3926.20.92, 6216.00.00, 9506.99.90.
Treaties and Other International Instruments
International Convention on the Harmonized Commodity Description and Coding System, Can. T.S. 1988 No. 38.
Vienna Convention on the Law of Treaties, Can. T.S. 1980 No. 37, art. 31.
Authors Cited
Dryden, Ken. The Game. Toronto: Macmillan of Canada, 1983.
Phipson on Evidence, 15th ed. by Howard M. N. et al. London: Sweet & Maxwell, 2000.
Prabhu, Mohan. Canada’s Laws on Import and Export: An Overview. Toronto: Irwin Law, 2014.
Sullivan, Ruth. Sullivan on the Construction of Statutes, 6th ed. Markham, Ont.: LexisNexis, 2014.
World Customs Organization. Explanatory Notes to the Harmonized Commodity Description and Coding System, 5th ed. Brussels: Customs Co‑operation Council, 2012.
APPEAL from a judgment of the Federal Court of Appeal (Pelletier, Near and Scott JJ.A.), 2014 FCA 266, [2014] F.C.J. No. 1134 (QL), 2014 CarswellNat 4603 (WL Can.), setting aside a decision of the Canadian International Trade Tribunal, 2013 CanLII 4408, [2013] C.I.T.T. No. 4 (QL), 2013 CarswellNat 6770 (WL Can.). Appeal allowed, Côté J. dissenting.
Jan E. Brongers and Michael Taylor, for the appellant.
Michael Kaylor and Jennifer Klinck, for the respondent.
The judgment of McLachlin C.J. and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon and Brown JJ. was delivered by
Brown J. —
I. Introduction
[1] In wintertime ice hockey is the delight of everyone.[1] Across the country, countless players of all ages take to ice rinks and frozen ponds daily to shoot pucks at the net. Often the puck is stopped or turned aside by a goaltender blocking it with a blocker or catching it with a catcher. This is notoriously difficult business.[2] The goaltender’s attention must remain fixed on the play, and not on off-ice matters. His or her focus must not drift to thoughts of the crowd, missed shots or taunts from opponents. And, certainly, the goaltender should strain to avoid being distracted by the question before the Court in this appeal — being whether, for customs tariff classification purposes, he or she blocks and catches the puck with a “glove, mitten or mitt”, or with an “article of plastics”.
[2] Having considered this question, the Canadian International Trade Tribunal (“CITT”) concluded that certain blockers and catchers imported by the respondent Igloo Vikski Inc. were each classifiable as a “glove, mitten or mitt”. The Federal Court of Appeal, however, held that those blockers and catchers are also classifiable, prima facie, as “articles of plastics”. It referred the matter back to the CITT so that it could apply what the Court of Appeal considered the appropriate analysis for resolving duplicative prima facie classifications. For the reasons that follow, I am of the respectful view that, in so doing, the Federal Court of Appeal erred. I would therefore allow the appeal and restore the decision of the CITT.
II. Overview of Facts and Proceedings
A. Background
(1) Canada’s System of Tariff Classification
[3] This appeal presents the Court’s first opportunity to consider the Customs Tariff, S.C. 1997, c. 36 , which implements Canada’s obligations as a party to the International Convention on the Harmonized Commodity Description and Coding System, Can. T.S. 1988 No. 38. The Convention governs the Harmonized Commodity Description and Coding System (the “Harmonized System”) by which approximately 5,000 commodity groups of imported goods are classified.
[4] The Harmonized System was developed by the World Customs Organization, an intergovernmental body of which Canada is a member. To foster stability and predictability in classification practices internationally, it is used as a standard tariff classification system by all parties to the Convention, including Canada: see Customs Tariff, s. 10(1) and the Schedule thereto. At the same time, it permits states parties to set their own rates of duty on those goods in conformance to their individual international trade obligations: M. Prabhu, Canada’s Laws on Import and Export: An Overview (2014), at p. 79.
[5] The Harmonized System uses an eight-digit classification system for tariff classifications, which is incorporated into the Schedule to the Customs Tariff. That system proceeds, within sections of the Schedule, from general to specific classifications via chapters, headings, subheadings and tariff items. For example, within Section I (“Live Animals; Animal Products”) is found the eight-digit tariff item No. 0302.13.40, applicable to fresh or chilled sockeye salmon. The first two digits of that tariff item (03) denote the item as falling within Chapter 3 (“Fish and Crustaceans, Molluscs and Other Aquatic Invertebrates”); the first four digits (03.02) denote the heading (“Fish, fresh or chilled, excluding fish fillets . . .”); the first six digits (0302.13) denote the subheading (“Pacific Salmon”); and the full eight-digit tariff item denotes the specific good (“Sockeye”).
[6] The Schedule to the Customs Tariff also contains “General Rules for the Interpretation of the Harmonized System”. Section 10(1) of the Customs Tariff directs that “the classification of imported goods under a tariff item shall, unless otherwise provided, be determined in accordance with the General Rules”.
[7] The General Rules are comprised of six rules governing the classification of goods under the Harmonized System. According to the jurisprudence of the Federal Court of Appeal and the CITT, these rules are to be applied in a “cascading” fashion. As I explain below, however, the term “cascading” does not quite describe their application. While it is the case that the General Rules are to be applied in a set order, it is more helpful to understand that order as a function of a hierarchy rather than a cascade: Prabhu, at p. 82.
[8] In addition to the Harmonized System and the General Rules, the Explanatory Notes to the Harmonized Commodity Description and Coding System (5th ed. 2012) published and amended from time to time by the World Customs Organization also inform the classification of imported goods. Specifically, s. 11 of the Customs Tariff provides that, in interpreting the headings and subheadings employed by the Harmonized System, “regard shall be had” to the Explanatory Notes. While, therefore, the Explanatory Notes (unlike the Harmonized System and the General Rules themselves) are not binding, they must be at least considered in determining the classifications of goods imported into Canada.
(2) Facts of This Appeal
[9] Between November 2003 and December 2005, Igloo Vikski imported six models of ice hockey goaltender gloves, comprising three models of “blockers” (designed to be worn on the same hand used by the goaltender to hold his or her hockey stick) and three models of “catchers” (designed to be worn on the goaltender’s other hand). Externally, the gloves are composed of various types of textiles and plastics, bound together by stitching. While the inner padding of the blockers consists mainly of plastic, the inner padding of the catchers is composed of both plastic and textiles.
[10] The Canada Border Services Agency (“CBSA”) classified the gloves under tariff item No. 6216.00.00 as “[g]loves, mittens [or] mitts”. Igloo Vikski applied for a refund of a portion of the duties paid on these gloves, arguing they should have been classified under tariff item 9506.99.90, which applies to various types of sporting equipment. In response, the CBSA issued re-determinations under s. 59(1) (a) of the Customs Act, R.S.C. 1985, c. 1 (2nd Supp .), stating that the gloves could not be classified as proposed by Igloo Vikski. It further affirmed that four models of the gloves were properly classified under tariff item 6216.00.00, while the two other models should be classified under tariff item 3926.20.92 as mittens or non-disposable gloves.
[11] Igloo Vikski then requested a further re-determination pursuant to s. 60(1) of the Customs Act , arguing that all of the gloves should be classified under tariff item 3926.20.92, the heading of which (39.26) refers to “[o]ther articles of plastics and articles of other materials of headings 39.01 to 39.14”. The CBSA rejected this request for reclassification, determining this time that five of the gloves were properly classified under tariff item 6216.00.00, while the remaining model was classified under tariff item 3926.20.92. Igloo Vikski appealed the CBSA’s classification decisions to the CITT.
B. Decision of the CITT
[12] The CITT dismissed Igloo Vikski’s appeal: 2013 CanLII 4408. Relying upon the Explanatory Note to heading 39.26, it interpreted heading 39.26 as capturing only articles of apparel or clothing accessories made by sewing or sealing sheets of plastic together. The same tribunal member had adopted this interpretation in another case involving the customs classification of hockey gloves, and followed that reasoning in this case: see Sher-Wood Hockey Inc. v. Canada (Border Services Agency, President) (2011), 15 T.T.R. (2d) 336. Since the gloves at issue were not made by sewing or sealing sheets of plastic together, the CITT concluded they were not classifiable under heading 39.26.
[13] The CITT then considered whether the gloves were classifiable under heading 62.16. While it found that they conformed to the type of goods (“[g]loves, mittens [or] mitts”) described in that heading, it recognized that the Explanatory Note to heading 62.16 directed it to apply the General Rules if the articles contained non-textile material that constituted “more than mere trimming”. Since the hockey gloves contained plastic padding that was more than mere trimming, the CITT applied Rule 2(b) of the General Rules (which, as I will explain, applies where a good consists of a mixture of more than one substance), which led the CITT to “extend the scope” of the heading in order to classify the goods as “[g]loves, mittens [or] mitts” (paras. 74-75 and 77). It therefore affirmed the CBSA’s classification and dismissed the appeal.
C. Federal Court of Appeal
[14] The Federal Court of Appeal (Scott J.A.; Pelletier and Near JJ.A. concurring) allowed Igloo Vikski’s appeal: 2014 FCA 266. Applying the standard of review of reasonableness, it found the CITT’s decision to be unreasonable because it misapplied the General Rules and contained logical contradictions.
[15] More particularly, the Court of Appeal found that the CITT had erred by stating that the goods must meet the description of a heading by applying Rule 1 before Rule 2(b) can be used to extend that heading to cover goods made of mixed substances. It said that this contradicted the “cascading” nature of the General Rules: para. 11 (CanLII). In the Court of Appeal’s view, because the gloves were made of mixed substances, once the CITT concluded that the goods did not meet the description of the heading in 39.26, it should have applied Rule 2(b) of the General Rules to extend that heading to cover the hockey gloves. Then, because the goods were prima facie classifiable under both headings 39.26 and 62.16, Rule 3 (which, as discussed below, is employed to resolve the classification of goods which are prima facie classifiable under two or more headings) should have been employed to determine the proper classification of the gloves. The Court of Appeal therefore remitted the matter back to the CITT so that it could undertake that Rule 3 analysis.
III. Analysis
A. Standard of Review
[16] The Federal Court of Appeal has uniformly held, and neither party disputes, that the standard of review applicable to a tariff classification decision of the CITT is reasonableness: see, e.g., Minister of National Revenue v. Yves Ponroy Canada (2000), 259 N.R. 38 (F.C.A.), at para. 4; Cycles Lambert Inc. v. Canada (Border Services Agency), 2015 FCA 45, 469 N.R. 313, at paras. 18-19; Canada (Border Services Agency) v. SAF-HOLLAND Canada Ltd., 2014 FCA 3, 456 N.R. 174, at para. 5.
[17] I agree that reasonableness is the applicable standard of review here. As the Federal Court of Appeal has noted, the CITT has specific expertise in interpreting “the very complex customs tariff and the international and national rules for its interpretation”: Star Choice Television Network Inc. v. Canada (Customs and Revenue Agency), 2004 FCA 153, at para. 7 (CanLII). The questions of law at issue in this appeal are of “a very technical nature” which the CITT will often be better equipped than a reviewing court to answer: Minister of National Revenue (Customs and Excise) v. Schrader Automotive Inc. (1999), 240 N.R. 381 (F.C.A.), at para. 5.
[18] Reasonableness review is concerned with the reasonableness of the substantive outcome of the decision, and with the process of articulating that outcome. The reasoning must exhibit “justification, transparency and intelligibility within the decision-making process”: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, at para. 47. The substantive outcome and the reasons, considered together, must serve the purpose of showing whether the result falls within a range of possible outcomes: Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708, at para. 14. While the adequacy of a tribunal’s reasons is not on its own a discrete basis for judicial review, the reasons should “adequately explain the bases of [the] decision”: Newfoundland Nurses, at para. 18, quoting from Canada Post Corp. v. Public Service Alliance of Canada, 2010 FCA 56, [2011] 2 F.C.R. 221, at para. 163 (per Evans J.A., dissenting), rev’d 2011 SCC 57, [2011] 3 S.C.R. 572.
B. The Structure of the General Rules
[19] This appeal ultimately turns on the application of the General Rules when determining the classification of goods under the Harmonized System. The General Rules operate as follows.
[20] The classification exercise begins with Rule 1, which directs that the classification of goods must initially be determined with reference only to the headings within a chapter, as well as any applicable Section or Chapter Notes.[3]
[21] Classification may be determinable on an application of Rule 1 alone. For example, if one wished to import a live cow into Canada, the cow would be classified under heading 01.02 (“Live bovine animals”) based solely on Rule 1. There would be no need to consider the other Rules when determining the appropriate classification of the cow. It is, therefore, only where Rule 1 does not conclusively determine the classification of the good that the other General Rules become relevant to the classification process: see, e.g., Helly Hansen Leisure Canada Inc. v. Canada Border Services Agency, 2009 FCA 345, 397 N.R. 323, at para. 17; Canada Customs and Revenue Agency v. Agri Pack, 2005 FCA 414, 345 N.R. 1, at para. 41; Funtastic Ltd. v. Chief Executive Officer of Customs, [2008] AATA 528, at para. 48 (AustLII).
[22] In some cases, applying Rule 1 alone does not settle the classification of a good. Where the goods are unfinished or where they are comprised of a mix of materials or substances (and where no heading specifically describes the unfinished or composite good as such),[4] Rule 2 is applied in conjunction with Rule 1 to determine the prima facie classification of such goods.
[23] Rule 2 is a deeming provision. Rule 2(a) deems unfinished goods to be finished goods, and directs that they be classified using Rule 1 as if they were goods in a complete or finished state.[5] Explanatory Notes (III) and (V) to Rule 1 elaborate upon this process:
(III) The second part of [Rule 1] provides that classification shall be determined:
(a) according to the terms of the headings and any relevant Section or Chapter Notes, and
(b) where appropriate, provided the headings or Notes do not otherwise require, according to the provisions of Rules 2, 3, 4, and 5.
. . .
(V) In provision (III) (b):
(a) The expression “provided such headings or Notes do not otherwise require” is intended to make it quite clear that the terms of the headings and any relative Section or Chapter Notes are paramount, i.e., they are the first consideration in determining classification. For example, in Chapter 31, the Notes provide that certain headings relate only to particular goods. Consequently those headings cannot be extended to include goods which otherwise might fall there by reason of the operation of Rule 2 (b).
(b) The reference to Rule 2 in the expression “according to the provisions of Rules 2, 3, 4 and 5” means that:
(1) goods presented incomplete or unfinished (e.g., a bicycle without saddle and tyres), and
(2) goods presented unassembled or disassembled (e.g., a bicycle, unassembled or disassembled, all components being presented together) whose components could individually be classified in their own right (e.g., tyres, inner tubes) or as “parts” of those goods,
are to be classified as if they were those goods in a complete or finished state, provided the terms of Rule 2 (a) are satisfied and the headings or Notes do not otherwise require. [Emphasis in original.]
The effect of these Explanatory Notes is two-fold. They reiterate that Rule 1 requires that the headings and Section or Chapter Notes are the first consideration in determining classification. And, they explain that Rule 2(a) requires that incomplete goods are classified based on the headings and Section or Chapter Notes as if they were completed goods (assuming they are not classifiable under Rule 1 as falling within a heading that specifically describes unfinished goods).
[24] Rule 2(b) applies where a good consists of a mixture of more than one substance, and states that a reference to goods of a given material or substance in a heading shall be taken to include goods consisting wholly or partly of such material or substance.[6] This Rule therefore applies in conjunction with Rule 1 to determine the heading(s) under which the composite good is prima facie classifiable.
[25] Explanatory Notes (XI) to (XIII) to Rule 2(b) explain the effect of this Rule:
(XI) The effect of the Rule is to extend any heading referring to a material or substance to include mixtures or combinations of that material or substance with other materials or substances. The effect of the Rule is also to extend any heading referring to goods of a given material or substance to include goods consisting partly of that material or substance.
(XII) It does not, however, widen the heading so as to cover goods which cannot be regarded, as required under Rule 1, as answering the description in the heading; this occurs where the addition of another material or substance deprives the goods of the character of goods of the kind mentioned in the heading.
(XIII) As a consequence of this Rule, mixtures and combinations of materials or substances, and goods consisting of more than one material or substance, if prima facie classifiable under two or more headings, must therefore be classified according to the principles of Rule 3.
[26] In brief, Rule 2(b) deems the reference in a heading to a material or substance to be a reference to a combination of that material or substance with other materials or substances. This is, however, subject to the caveat in Explanatory Note (XII) that Rule 2(b) does not extend (“widen”) a heading so as to cover goods which cannot be regarded as answering the description in the heading. The mixed or composite good is therefore “described” by that heading unless the addition of the other material or substance would deprive the good of the character of goods of the kind described in the heading.
[27] Applied conjunctively, Rules 1 and 2 determine the heading(s) under which an unfinished or (as here) a composite good is prima facie classifiable. If, having applied Rules 1 and 2, the good is prima facie classifiable under only one heading, then the inquiry ends and the good is classified under that heading. If, however, the good is prima facie classifiable under more than one heading — either because it is described by more than one heading under Rule 1 or because it is prima facie classifiable under more than one heading by applying Rules 1 and 2 together — then Rule 3 applies, by operation of Rule 2(b), to resolve the classification dispute.[7] Rule 3(a) states that, where by application of Rule 2(b) or for any other reason, goods are prima facie classifiable under two or more headings, then the heading with the most specific description is to be preferred. If applying Rule 3(a) does not resolve the classification (because the headings are equally specific), Rule 3(b) provides that classification must occur according to the material or component that gives the goods their essential character. And, if that does not lead to a single classification, then Rule 3(c) states that the goods must be classified under the heading which occurs last in numerical order among those under consideration.
[28] If the application of Rules 1, 2 and 3 does not lead to the classification of a good under a single heading, Rule 4 provides a failsafe “likeness” rule, by which the good is classified under the heading that is appropriate to the good to which it is “most akin”.[8] Rule 5 deals with classification of cases and packing materials, and is not relevant to this appeal. Rule 6 applies once goods are classified under a heading, and directs the application of the General Rules when classifying goods under a subheading within that heading. Again, that concern does not arise here.
[29] The General Rules are commonly described as “cascading” in nature: see, e.g., Agri Pack, at para. 14; Canada Border Services Agency v. Outils Gladu Inc., 2009 FCA 215, 393 N.R. 58, at para. 7. But this metaphor does not quite capture how the General Rules are to be applied. A “cascade” tends to suggest that the analysis progresses in a single, sequential direction — for example, first, to Rule 1, then (where Rule 1 fails to resolve the matter) to Rule 2, without returning to Rule 1. While the General Rules are hierarchical in the sense that any classification exercise must begin with Rule 1 (since Explanatory Note (V) to Rule 1 describes its classification methodology as “paramount”), Rule 1, as I have explained, does not lose all relevance where Rule 2 is applied. Nor is it an error to consider whether a good meets the description of a heading — that is, to apply Rule 1 — when Rule 2 is also applied. Indeed, Rule 2 would have no purpose were it not applied in conjunction with Rule 1, since its function is to guide the application of Rule 1 when the good in question is incomplete or a composite of different materials. Where Rule 2 applies, it applies together with Rule 1 to identify the heading(s) under which an incomplete or composite good can be prima facie classified. The terms of the heading(s) and any relevant Section or Chapter Notes are thereby applied to the incomplete or composite good as if it were a complete or uniform good, and it is classified as such: see, e.g., Rona Corporation Inc. v. Canada (Border Services Agency) (2008), 12 T.T.R. (2d) 295, at pp. 300 et seq.; Primaplas Pty. Ltd. v. Chief Executive Officer of Customs, [2016] FCAFC 40, at para. 51 (AustLII).
C. The CITT’s Reasoning
[30] As the Federal Court of Appeal has noted, the Customs Tariff bears little resemblance to ordinary legislation and care must be taken when reviewing decisions of the CITT interpreting its unique and complex scheme:
[The Customs Tariff] is legislation of such a specialized nature and expressed in terms that have so little to do with traditional legislation that for all practical purposes the court is being asked to give legal meaning to technical words that are well beyond its customary mandate. Furthermore, there are unique Canadian and international rules of interpretation applicable to the Customs Tariff that bear little resemblance to the traditional canons of statutory construction. Therefore, considerable deference should be accorded to the Tribunal’s decisions and litigants who appeal tariff decisions to this court should be aware that they have a tough hill to climb. [Schrader Automotive, at para. 5]
Considerable prudence must therefore be exercised when reviewing the CITT’s interpretation and application of the Customs Tariff.
[31] The CITT considered whether the gloves could be classified under heading 62.16 (as determined by the CBSA) or heading 39.26 (as submitted by Igloo Vikski). Igloo Vikski had argued that the classification must be resolved using Rule 3(b) which, as the preceding discussion shows, would necessarily require that the hockey gloves were prima facie classifiable under both headings 62.16 and 39.26 — that is, as gloves, mittens or mitts, and as articles of plastics.
[32] The CITT found that the hockey gloves met the description of heading 62.16 as “[g]loves, mittens and mitts”. It went on to consider whether the Explanatory Note to heading 62.16 should direct it to consider any other Rule when classifying the goods (paras. 49-50). Before doing so, however, it first addressed Igloo Vikski’s arguments relating to heading 39.26.
[33] Igloo Vikski had conceded before the CITT that the gloves were not prima facie classifiable under heading 39.26 using Rule 1 alone (para. 54). Instead, it argued that the gloves were prima facie classifiable under heading 39.26 using a combination of Rules 1 and 2(b). To be clear, I do not view this concession as binding Igloo Vikski in any legal sense, but rather as an acknowledgement of the obvious fact that the gloves — which are composed of a mixture of plastics and textiles — are not composed solely of plastics and are therefore not classifiable under heading 39.26 using Rule 1 alone.
[34] The CITT rejected Igloo Vikski’s argument, stating that the Explanatory Note to heading 39.26 precluded the gloves from being prima facie classifiable under that heading. The relevant portion of the Explanatory Note to heading 39.26 states:
This heading covers articles, not elsewhere specified or included, of plastics (as defined in Note 1 to the Chapter) or of other materials of headings 39.01 to 39.14.
They include:
(1) Articles of apparel and clothing accessories (other than toys) made by sewing or sealing sheets of plastics, e.g., aprons, belts, babies’ bibs, raincoats, dress-shields, etc. Detachable plastic hoods remain classified in this heading if presented with the plastic raincoats to which they belong. [Emphasis in original.]
The Explanatory Note goes on to list 11 more examples of what is included in heading 39.26, none of which is relevant to this appeal.
[35] The CITT interpreted this Explanatory Note to mean that an article of apparel and clothing accessories may only be classified in this heading if it is made by sewing or sealing sheets of plastic together (para. 55). The gloves at issue were not made by sewing or sealing sheets of plastic together (para. 56). Therefore, despite the presence of plastics in the gloves, Rule 2(b) could not be used to extend heading 39.26 to cover the gloves because the Explanatory Note precluded their classification under this heading (paras. 61 and 66-67).
[36] The CITT then returned to heading 62.16. As I have already noted, the Explanatory Note to heading 62.16 states that the presence of additional materials in the goods does not affect their classification in this heading so long as the additional materials do not constitute “more than mere trimming”. Where additional materials constitute more than mere trimming, the Explanatory Note directs that classification proceed according to the General Rules.[9]
[37] Having already found that the hockey gloves met the description of heading 62.16, the CITT recognized that the Explanatory Note directed it to apply Rule 2(b) to assess whether that heading could be extended to cover the gloves notwithstanding the inclusion of plastic materials, since they constituted more than mere trimming (para. 71). It considered Explanatory Note (XII) to Rule 2(b), observing that “Rule 2 (b) does