Centre Hospitalier Le Gardeur c. La Reine

Centre Hospitalier Le Gardeur c. La Reine
Court (s) Database
Tax Court of Canada Judgments
Date
2007-07-20
Neutral citation
2007 TCC 425
File numbers
2004-3308(GST)G
Judges and Taxing Officers
Lucie Lamarre
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2004-3308(GST)G
BETWEEN:
CENTRE HOSPITALIER LE GARDEUR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on common evidence with the appeals of Centre Hospitalier de l’Université de Montréal, Campus Hôtel‑Dieu de Montréal (2005‑3168(GST)G), Hôtel‑Dieu de St‑Jérôme (2004‑3309(GST)G), Cité de la Santé de Laval (2004‑3310(GST)G), Complexe hospitalier de la Sagamie (2004‑3721(GST)G), Centre hospitalier affilié universitaire de Québec (2004‑3722(GST)G), Centre hospitalier régional de Rimouski (2004‑3724(GST)G), on July 11, 12, and 13, 2006,
at Montreal, Quebec.
Before: The Honourable Justice Lucie Lamarre
Appearances:
Counsel for the Appellant:
Claude Nadeau
Counsel for the Respondent:
Benoît Denis
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under Part IX of the Excise Tax Act (ETA), the notice of which is dated September 19, 2003, and numbered 032G0110145, for the period from January 12, 2001, to September 5, 2002, is allowed, with only one set of costs for the seven appellants, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the products listed in Schedule A to the Reasons for Judgment, also found in Exhibit A-3, and that were acquired by the appellant during that period, except for products 120, 127, 128, 138, 139, 360, 366, 383, 409, 586, 651, 652 and 704, which were eliminated by the appellant, are drugs included in Schedule D to the Food and Drugs Act and as a result are zero-rated supplies within the meaning of paragraph 2(a) of Part I of Schedule VI to the ETA.
Signed at Ottawa, Canada, this 20th day of July 2007.
"Lucie Lamarre"
Lamarre J.
Translation certified true
on this 30th day of November 2007.
Erich Klein, Revisor
Docket: 2004-3309(GST)G
BETWEEN:
HÔTEL DIEU DE ST-JÉRÔME,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on common evidence with the appeals of Centre hospitalier de l’Université de Montréal, Campus Hôtel‑Dieu de Montréal (2005‑3168(GST)G), Centre hospitalier Le Gardeur (2004‑3308(GST)G), Cité de la Santé de Laval (2004‑3310(GST)G), Complexe hospitalier de la Sagamie (2004‑3721(GST)G), Centre hospitalier affilié universitaire de Québec (2004‑3722(GST)G), Centre hospitalier régional de Rimouski (2004‑3724(GST)G), on July 11, 12 and 13, 2006, at Montreal, Quebec.
Before: The Honourable Justice Lucie Lamarre
Appearances:
Counsel for the Appellant:
Claude Nadeau
Counsel for the Respondent:
Benoît Denis
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under Part IX of the Excise Tax Act (ETA), the notice of which is dated September 19, 2003, and numbered 032G0110146, for the period from January 31, 2001, to March 31, 2002, is allowed, with only one set of costs for the seven appellants, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the products listed in Schedule A to the Reasons for Judgment, also found in Exhibit A-3, and that were acquired by the appellant during that period, except for products 120, 127, 128, 138, 139, 360, 366, 383, 409, 586, 651, 652 and 704, which were eliminated by the appellant, are drugs included in Schedule D to the Food and Drugs Act and as a result are zero-rated supplies within the meaning of paragraph 2(a) of Part I of Schedule VI to the ETA.
Signed at Ottawa, Canada, this 20th day of July 2007.
"Lucie Lamarre"
Lamarre J.
Translation certified true
on this 30th day of November 2007.
Erich Klein, Revisor
Docket: 2004-3310(GST)G
BETWEEN:
CITÉ DE LA SANTÉ DE LAVAL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on common evidence with the appeals of Centre hospitalier de l’Université de Montréal, Campus Hôtel‑Dieu de Montréal (2005‑3168(GST)G), Centre hospitalier Le Gardeur (2004‑3308(GST)G), Hôtel Dieu de St‑Jérôme (2004‑3309(GST)G), Complexe hospitalier de la Sagamie (2004‑3721(GST)G), Centre hospitalier affilié universitaire de Québec (2004‑3722(GST)G),
Centre hospitalier régional de Rimouski (2004‑3724(GST)G),
on July 11, 12 and 13, 2006, at Montreal, Quebec.
Before: The Honourable Justice Lucie Lamarre
Appearances:
Counsel for the Appellant:
Claude Nadeau
Counsel for the Respondent:
Benoît Denis
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under Part IX of the Excise Tax Act (ETA), the notice of which is dated September 19, 2003, and numbered 032G0110144, for the period from November 27, 2000, to August 24, 2002, is allowed, with only one set of costs for the seven appellants, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the products listed in Schedule A to the Reasons for Judgment, also found in Exhibit A-3, and that were acquired by the appellant during that period, except for products 120, 127, 128, 138, 139, 360, 366, 383, 409, 586, 651, 652 and 704, which were eliminated by the appellant, are drugs included in Schedule D to the Food and Drugs Act and as a result are zero-rated supplies within the meaning of paragraph 2(a) of Part I of Schedule VI to the ETA.
Signed at Ottawa, Canada, this 20th day of July 2007.
"Lucie Lamarre"
Lamarre J.
Translation certified true
on this 30th day of November 2007,
Erich Klein, Revisor
Docket: 2004-3721(GST)G
BETWEEN:
COMPLEXE HOSPITALIER DE LA SAGAMIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on common evidence with the appeals of Centre hospitalier de l’Université de Montréal, Campus Hôtel‑Dieu de Montréal (2005‑3168(GST)G), Centre hospitalier Le Gardeur (2004‑3308(GST)G), Hôtel Dieu de St‑Jérôme (2004‑3309(GST)G), Cité de la Santé de Laval (2004‑3310(GST)G), Centre hospitalier affilié universitaire de Québec (2004‑3722(GST)G),
Centre hospitalier régional de Rimouski (2004‑3724(GST)G),
on July 11, 12 and 13, 2006, at Montreal, Quebec.
Before: The Honourable Justice Lucie Lamarre
Appearances:
Counsel for the Appellant:
Claude Nadeau
Counsel for the Respondent:
Benoît Denis
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under Part IX of the Excise Tax Act (ETA), the notice of which is dated February 2, 2004, and numbered DGCAR‑1969, for the period from February 15, 2001, to December 15, 2002, is allowed, with only one set of costs for the seven appellants, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the products listed in Schedule A to the Reasons for Judgment, also found in Exhibit A-3, and that were acquired by the appellant during that period, except for products 120, 127, 128, 138, 139, 360, 366, 383, 409, 586, 651, 652 and 704, which were eliminated by the appellant, are drugs included in Schedule D to the Food and Drugs Act and as a result are zero-rated supplies within the meaning of paragraph 2(a) of Part I of Schedule VI to the ETA.
Signed at Ottawa, Canada, this 20th day of July 2007.
"Lucie Lamarre"
Lamarre J.
Translation certified true
on this 30th day of November 2007.
Erich Klein, Revisor
Docket: 2004-3722(GST)G
BETWEEN:
CENTRE HOSPITALIER AFFILIÉ UNIVERSITAIRE DE QUÉBEC,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on common evidence with the appeals of Centre hospitalier de l’Université de Montréal, Campus Hôtel‑Dieu de Montréal (2005‑3168(GST)G), Centre hospitalier Le Gardeur (2004‑3308(GST)G), Hôtel Dieu de St‑Jérôme (2004‑3309(GST)G), Cité de la Santé de Laval (2004‑3310(GST)G),
Complexe hospitalier de la Sagamie (2004‑3721(GST)G),
Centre hospitalier régional de Rimouski (2004‑3724(GST)G),
on July 11, 12 and 13, 2006,
at Montreal, Quebec.
Before: The Honourable Justice Lucie Lamarre
Appearances:
Counsel for the Appellant:
Claude Nadeau
Counsel for the Respondent:
Benoît Denis
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under Part IX of the Excise Tax Act (ETA), the notice of which is dated May 30, 2003, for the period from April 1, 2001, to March 31, 2002, is allowed, with only one set of costs for the seven appellants, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the products listed in Schedule A to the Reasons for Judgment, also found in Exhibit A-3, and that were acquired by the appellant during that period, except for products 120, 127, 128, 138, 139, 360, 366, 383, 409, 586, 651, 652 and 704, which were eliminated by the appellant, are drugs included in Schedule D to the Food and Drugs Act and as a result are zero-rated supplies within the meaning of paragraph 2(a) of Part I of Schedule VI to the ETA.
Signed at Ottawa, Canada, this 20th day of July 2007.
"Lucie Lamarre"
Lamarre J.
Translation certified true
on this 30th day of November 2007.
Erich Klein, Revisor
Docket: 2004-3724(GST)G
BETWEEN:
CENTRE HOSPITALIER RÉGIONAL DE RIMOUSKI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on common evidence with the appeals of Centre hospitalier de l’Université de Montréal, Campus Hôtel‑Dieu de Montréal (2005‑3168(GST)G), Centre hospitalier Le Gardeur (2004‑3308(GST)G), Hôtel Dieu de St‑Jérôme (2004‑3309(GST)G), Cité de la Santé de Laval (2004‑3310(GST)G), Complexe hospitalier de la Sagamie (2004‑3721(GST)G), Centre hospitalier affilié universitaire de Québec (2004‑3722(GST)G), on July 11, 12 and 13 2006,
at Montreal, Quebec.
Before: The Honourable Justice Lucie Lamarre
Appearances:
Counsel for the Appellant:
Claude Nadeau
Counsel for the Respondent:
Benoît Denis
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under Part IX of the Excise Tax Act (ETA), the notice of which is dated January 7, 2004, and numbered DGCAR‑1909, for the period from June 14, 2001, to March 3, 2003, is allowed, with only one set of costs for the seven appellants, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the products listed in Schedule A to the Reasons for Judgment, also found in Exhibit A-3, and that were acquired by the appellant during that period, except for products 120, 127, 128, 138, 139, 360, 366, 383, 409, 586, 651, 652 and 704, which were eliminated by the appellant, are drugs included in Schedule D to the Food and Drugs Act and as a result are zero-rated supplies within the meaning of paragraph 2(a) of Part I of Schedule VI to the ETA.
Signed at Ottawa, Canada, this 20th day of July 2007.
"Lucie Lamarre"
Lamarre J.
Translation certified true
on this 30th day of November 2007.
Erich Klein, Revisor
Docket: 2005-3168(GST)G
BETWEEN:
CENTRE HOSPITALIER DE L'UNIVERSITÉ DE MONTRÉAL,
CAMPUS HÔTEL-DIEU DE MONTRÉAL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on common evidence with the appeals of Centre hospitalier Le Gardeur (2004‑3308(GST)G), Hôtel‑Dieu de St‑Jérôme (2004‑3309(GST)G), Cité de la Santé de Laval (2004‑3310(GST)G), Complexe hospitalier de la Sagamie (2004‑3721(GST)G), Centre hospitalier affilié universitaire de Québec (2004‑3722(GST)G), Centre hospitalier régional de Rimouski (2004‑3724(GST)G), on July 11, 12 and 13, 2006, at Montreal, Quebec.
Before: The Honourable Justice Lucie Lamarre
Appearances:
Counsel for the Appellant:
Claude Nadeau
Counsel for the Respondent:
Benoît Denis
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under Part IX of the Excise Tax Act (ETA), the notice of which is dated May 13, 2005, for the period from April 1, 2003, to January 31, 2005, is allowed, with only one set of costs for the seven appellants, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the products listed in Schedule A to the Reasons for Judgment, also found in Exhibit A-3, and that were acquired by the appellant during that period, except for products 120, 127, 128, 138, 139, 360, 366, 383, 409, 586, 651, 652 and 704, which were eliminated by the appellant, are drugs included in Schedule D to the Food and Drugs Act and as a result are zero-rated supplies within the meaning of paragraph 2(a) of Part I of Schedule VI to the ETA.
Signed at Ottawa, Canada, this 20th day of July 2007.
"Lucie Lamarre"
Lamarre J.
Translation certified true
on this 30th day of November 2007.
Erich Klein, Revisor
Citation: 2007TCC425
Date: 20070720
Dockets: 2004-3308(GST)G
2004-3309(GST)G
2004-3310(GST)G
2004-3721(GST)G
2004-3722(GST)G
2004-3724(GST)G
2005-3168(GST)G
BETWEEN:
CENTRE HOSPITALIER LE GARDEUR,
HÔTEL‑DIEU DE ST‑JÉRÔME,
CITÉ DE LA SANTÉ DE LAVAL,
COMPLEXE HOSPITALIER DE LA SAGAMIE,
CENTRE HOSPITALIER AFFILIÉ UNIVERSITAIRE DE QUÉBEC,
CENTRE HOSPITALIER RÉGIONAL DE RIMOUSKI,
CENTRE HOSPITALIER DE L'UNIVERSITÉ DE MONTRÉAL,
CAMPUS HÔTEL-DIEU DE MONTRÉAL,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre J.
[1] The seven above-listed appeals, heard on common evidence, concern disputed goods and services tax amounts (hereinafter "GST") with the respect to the acquisition of in vitro diagnostic kits by the appellants.
THE FACTS
[2] The relevant facts in these appeals can be summarized as follows. They are not disputed.
[3] The appellants each operate a hospital. They are considered to be hospital authorities and therefore selected public service bodies within the meaning of section 259 of the Excise Tax Act ("ETA").
[4] Over certain periods of time specific to each of them, the appellants acquired in vitro diagnostic kits. On acquisition, they paid the suppliers of the kits the applicable GST for which they had been billed. On various occasions, the appellants also self-assessed GST on the goods in question, since they came from outside Canada.
[5] The appellants claimed and obtained with respect to the supplies of the in vitro diagnostic kits the partial GST rebate for public service bodies. This rebate is to 83% of the GST paid on those supplies, as prescribed by section 259 of the ETA and section 5 of the Public Service Body Rebate (GST/HST) Regulations.[1]
[6] Subsequently, the appellants, through their representative, Consultaxe Planification Ltée, filed with the respondent, through the Quebec Minister of Revenue (hereinafter the "Minister"), using the prescribed form (FP‑189), a general application for GST rebate with respect to certain GST amounts they claimed to have paid by mistake or to have overpaid during the relevant periods. These amounts correspond to the 17% of the GST on the supplies in question that was not refunded with the partial GST rebate. In broad terms, the appellants argue that these supplies are zero-rated for the purposes of paragraph 2(a) of Part I of Schedule VI to the ETA, since they are drugs included in Schedule D to the Food and Drugs Act ("FDA").[2]
[7] The Minister later issued with respect to the appellants, under Part IX of the ETA, assessments for their respective periods in question refusing the rebates requested.
[8] The appellants listed 862 products for which they are claiming a tax rebate.[3] They filed an expert report (Exhibit A-4) and had Dr. Raymond Lepage testify as an expert. He explained that these products were all composed of drugs included in Schedule D to the FDA, to which certain substances were added in the in vitro diagnostic kits in order to, among other things, preserve the drug in its natural state. This, combined with other substances or special material, allows the results of the test to be seen or enables the performance of automated tests (a method that is more effective and more sure to meet the growing demand for diagnoses than would have been the case when everything was done manually by laboratory technicians), or allows more complex tests to be performed, tests which require the superimposing of several Schedule D drugs (called the "sandwich" technique, used to detect allergies, as in ELISA tests, or the presence of the AIDS virus antigen, to give but two examples). Moreover, there are control and calibration tests to ensure that test results are not completely non-standard. These control and calibration tests involve only Schedule D drugs (for example, animal serum (the liquid part of the blood)).
[9] The four groups analyzed by Dr. Lepage and included in Schedule D are:
(1)
monoclonal and polyclonal antibodies;
(2)
blood and blood derivatives;
(3)
snake venom; and
(4)
micro-organisms that are not antibiotics.
[10] From the outset, Dr. Lepage said that none of these drugs could be used in their pure state. They are necessarily mixed with another product to protect them and to place them in a human cell environment. So whether the test is done "in vivo" by injecting the drug directly into the human patient or "in vitro" in a laboratory by taking a blood sample from the patient and having it react in a tube with the monoclonal antibody, for example, in order to see or highlight the test result, either radioactivity must be used (in the in vivo method) or another substance must be added to the monoclonal antibody (in the in vitro method). In both cases, the radioactive isotope or the added substance (the substrate), are not necessarily listed in Schedule D. But these substances have only a secondary role, because in any event the reaction sought occurs with the Schedule D drug that is used. Dr. Lepage considers the products referred to in Exhibit A-3 to be Schedule D products since their essential or main reactant is itself a Schedule D product. Moreover, he eliminated from the list in Exhibit A-3 certain products whose essential reactant was not composed solely of a product from Schedule D. This is referred to in paragraph 19 of these reasons.
Preliminary question
[11] At the hearing, counsel for the respondent indicated that he did not object to the appellants' witness Dr. Lepage being recognized as an expert, but he challenged the filing of his report on the ground that it was not an opinion report. He argued that the report only addressed general issues whereas section 145 of the Tax Court of Canada Rules (General Procedure) states that the report must fully set out the points at issue in the pleadings. In counsel's opinion, the notices of appeal do not specify that the diagnostic test includes a main reactant that is a drug from Schedule D to the FDA. Moreover, the report does not specifically analyze each of the 862 products at issue.
[12] I overruled the respondent's objection raised at the hearing. Indeed, according to the authors and case law cited by the respondent,[4] the purpose of an expert's report is to inform the court on a subject that is complex and specialized and that is not general knowledge. The report deals with the use of the products and places them in four categories taking in the 862 products listed in Exhibit A‑3. The report explains what the essential reactants are in each of the four categories and indicates that each of these essential reactants is associated with one or more substances, present in minimal quantities, that allow the essential reactants to be used for diagnostic or therapeutic purposes. Moreover, each of the products in Exhibit A-3 is associated with a data sheet, and these sheets were brought to the attention of counsel for the respondent at the latest when the expert report was filed. Counsel for the respondent could thus have asked the Court for leave to examine the expert, or a representative of the appellants, for discovery if he had found it appropriate to do so. This was not done. I therefore accept the expert report, which is considered read and filed as Exhibit A‑4.
ISSUE
[13] Over the period of time specific to each appellant, did the acquisition of the products in question, called in vitro diagnostic kits in everyday language, constitute for the purposes of paragraph 2(a) of Part I of Schedule VI to the ETA (hereinafter "paragraph 2(a)") an acquisition of zero-rated supplies on which no GST is payable?
LEGISLATIVE PROVISIONS
[14] The relevant legislative provisions are sections 123 and 165 of Part IX of the ETA and section 2 of Part I of Schedule VI to the ETA. Schedule D to the FDA is also significant. At the relevant time, these sections and Schedule D read as follows:
Excise Tax Act
PART IX
GOODS AND SERVICES TAX
Division II
Goods and Services Tax
Subdivision a
Imposition of tax
S. 165. Imposition of goods and services tax. − (1) Subject to this Part, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the rate of 7% on the value of the consideration for the supply.
(3) Zero-rated supply. − The tax rate in respect of a taxable supply that is a zero-rated supply is 0%.
S. 123. Definitions. − (1) In section 121, this Part and Schedules V to X,
"zero-rated supply" means a supply included in Schedule VI.
SCHEDULE VI
ZERO-RATED SUPPLIES
PART I
PRESCRIPTION DRUGS
AND BIOLOGICALS
S. 2. A supply of any of the following:
(a) a drug included in Schedule C or D to the Food and Drugs Act,
(b) a drug included in Schedule F to the Food and Drug Regulations, other than a drug or mixture of drugs that may, pursuant to the Food and Drugs Act or those Regulations, be sold to a consumer without a prescription,
(c) a drug or other substance included in the schedule to Part G of the Food and Drug Regulations,
(d) a drug that contains a substance included in the schedule to the Narcotic Control Regulations, other than a drug or mixture of drugs that may be sold to a consumer without a prescription pursuant to the Controlled Drugs and Substances Act or regulations made under that Act,
(e) any of the following drugs, namely,
(i) Digoxin,
(ii) Digitoxin,
(iii) Prenylamine,
(iv) Deslanoside,
(v) Erythrityl tetranitrate,
(vi) Isosorbide dinitrate,
(vii) Nitroglycerine,
(viii) Quinidine and its salts,
(ix) Medical oxygen,
(x) Epinephrine and its salts, and
(f) a drug the supply of which is authorized under the Food and Drug Regulations for use in an emergency treatment,
but not including a supply of a drug when it is labelled or supplied for agricultural or veterinary use only.
Food and Drugs Act
SCHEDULE D
(section 12)
. . .
Blood and blood derivatives
Sang et dérivés du sang
. . .
Drugs, other than antibiotics, prepared from micro-organisms
Drogues, sauf...
. . .
Monoclonal antibodies, their conjugates and derivatives
Anticorps monoclonaux et leurs dérivés et conjugués
. . .
Snake Venom
Venin de serpent
PARTIES' SUBMISSIONS
[15] Before presenting his submissions, counsel for the appellants reminded the Court of the various administrative interpretations adopted by the authorities over the years with regard to the treatment of in vitro diagnostic kits. In a letter dated May 1, 1995, Serge Bouchard replied to the first clear question put to the Quebec Ministry of Revenue on the taxation or non-taxation of in vitro diagnostic kits (Exhibit A‑1, Tab 3; shorthand notes (hereinafter "s.n."), Volume 3, p. 3 et seq.). Mr. Bouchard confirmed the following at that time:
[translation]
. . . the supply of in vitro diagnostic products that are drugs included in Schedule D to the FDA is a zero-rated supply under the provisions of paragraph 2(a) of Part I of Schedule VI to the federal Act [ETA]. . . .
The fact that these products are not subject to the drug regulations in Part C of the Food and Drug Regulations but rather are subject to the Medical Devices Regulations does not make the supply of these products taxable. Indeed, the criterion set out in paragraph 2(a) of Part I of Schedule VI to the federal Act whereby the supply of drugs is zero-rated relates only to the fact that the drugs are included in Schedule D to the FDA and has nothing to do with the regulations that apply to them.[5]
Some time later, on May 14, 1997, Health Canada, through Lauraine Bégin from the Health Protection Branch, essentially confirmed Mr. Bouchard's statements (Exhibit A‑1, Tab 3; s.n., Volume 3, p. 10 et seq.). Health Canada indicated that:
If a substance listed, on Schedule D of the Food and Drugs Act is included in a kit which carries a claim or is sold or advertised for the diagnostic of a disease or disorder in humans or animals, the kit is considered to be a schedule D drug. . . . These products are subject to the medical device notification. The kit in this case is still however a schedule D drug.[6]
Less than seven months later, on December 9, 1997, Karolyn Lui of Health Canada confirmed Ms. Bégin's statement (Exhibit A‑1, Tab 3, s.n., Volume 3, p. 11 et seq.). Finally, on September 8, 1999, Revenue Canada, through Susan Eastman, confirmed the preceding administrative interpretations by stating the following (Exhibit A‑1, Tab 6; s.n., Volume 3, p. 12 et seq.):
Under paragraph 2(a) of Part I of schedule VI to the Excise Tax Act, the supply of a drug included in Schedule C or D to the Food and Drugs Act is a zero-rated supply except where the drug is labelled or supplied solely for agricultural or veterinary use. The interpretation of whether a product is a “drug” and whether it is included in schedule D to the Food and Drugs Act falls within the purview of Health Canada. Revenue Canada will adopt that interpretation when determining whether a product is zero-rated pursuant to paragraph 2(a) of Part II of Schedule VI to the Excise Tax Act.
Consequently, where a diagnostic kit is considered to be a Schedule D drug by Health Canada, i.e., the kit contains a substance included in Schedule D to the Food and Drugs Act, the supply of that kit will qualify for zero-rated status under the provisions of paragraph 2(a) of Part II of Schedule VI to the Excise Tax Act.[7]
However, as of March 29, 2001, the Canada Customs and Revenue Agency ("CCRA"), once again through Susan Eastman, changed its administrative position and indicated that thenceforth the supply of in vitro diagnostic kits would no longer be considered a zero-rated supply. Indeed, this was all confirmed again in a letter dated January 20, 2003, from the same source and the same person as the letter of March 29, 2001 (Exhibit A‑1, Tabs 7 and 8; s.n., Volume 3, p. 13 et seq.).
[16] The basis for the last administrative position adopted by the Canadian tax authorities can be summarized as follows:
− An in vitro diagnostic kit must be defined by the sum of its components, not by one alone;
− The sum of the components of an in vitro diagnostic kit results in a single or unique supply, a "new" product;
− An in vitro diagnostic kit is made subject by Health Canada to the Medical Devices Regulations and not the Food and Drug Regulations ("Regulations"). This would thus exclude the possibility of an in vitro diagnostic kit being considered a drug within the meaning of paragraph 2(a). The fact that Heath Canada adopted the administrative position that an in vitro diagnostic kit could be considered a drug within the meaning of the FDA is irrelevant because the regulations governing in vitro diagnostic kits have precedence over Health Canada's administrative position, for the purposes of the ETA;
− The fact that an in vitro diagnostic kit is a composite supply and is thus not covered by Schedule C or D to the FDA prevents the product from qualifying as a drug specifically included in those Schedules, as required by the ETA;
− Finally, under section 29 of Part II of Schedule VI to the ETA, testing strips are considered to be medical instruments and not drugs. It would therefore be inappropriate to use section 29 of Part II of Schedule VI for the testing strips that the CCRA characterizes as in vitro diagnostic kits when for other in vitro diagnostic kits section 2 of Part I of Schedule VI would be used.
[17] Counsel for the appellants submits that the position Revenue Canada adopted is tantamount to adding words to paragraph 2(a), which contains no reference at all to the above-mentioned regulations. The same applies to the definition of "drug" in the FDA, which does not specify that only the in vivo diagnostic kits are drugs and that in vitro diagnostic kits are not, but such, according to counsel, is the result of the latest administrative interpretation (s.n., Volume 3, p. 14 et seq.). Counsel relies on Friesen[8] and Baird[9] to support his submission that a court should not accept an interpretation that requires the addition of words when there is another acceptable interpretation that does not require any such addition.
[18] Accordingly, counsel for the appellants asks that we use the definition of "drug" found in the FDA (s.n., Volume 3, p. 27 et seq.) in interpreting the term "drug" in paragraph 2(a). Thus, to resolve the issue of whether these are zero-rated supplies or not, it would suffice to determine whether the in vitro diagnostic kits presented by the appellants are drugs included in Schedule D to the FDA, which determination is to be made in light of the definition of "drug" in the FDA. That definition is as follows:
“drug” includes any substance or mixture of substances manufactured, sold or represented for use in
(a) the diagnosis, treatment, mitigation or prevention of a disease, disorder or abnormal physical state, or its symptoms, in human beings or animals . . .
« drogue » Sont compris parmi les drogues les substances ou mélanges de substances fabriqués, vendus ou présentés comme pouvant servir :
a) au diagnostic, au traitement, à l’atténuation ou à la prévention d’une maladie, d’un désordre, d’un état physique anormal ou de leurs symptômes, chez l’être humain ou les animaux . . .[10]
According to counsel, this definition invites use of the "usable product" concept. In this regard, one would not consider as coming within the definition a situation where snakes were obtained and transported to a laboratory where their venom was extracted directly and immediately incorporated with other products. The drug must be obtainable in containers and be mixable with other substances to maintain its stability. Moreover, there is a reason that the definition of "drug" provides for mixtures of substances; mixtures are necessary in order for one to be able to make diagnoses. On that point, Dr. Lepage confirmed that no drug, whether in vivo or in vitro, comes in a pure state. He also testified that the Schedule D drug is the main and essential element of the diagnosis; and this holds true for almost all of the products presented by the appellants in Exhibit A‑3 (s.n., Volume 3, p. 25 et seq.).
[19] With regard to the products presented by the appellants in Exhibit A‑3, counsel for the appellants suggested dividing them into three categories, which the Court understands to be the following (s.n., Volume 3, p. 30 et seq.): [11]
Category 1− Products coming exclusively in one or more containers with a Schedule D drug to which products to ensure the preservation and effective use of the drug have been added;
Category 2− Products coming in one or more containers with a Schedule D drug to which is attached another substance, or which is accompanied by another substance, and serves solely to allow one to see the diagnosis found. Of course, products ensuring the preservation and effective use of the Schedule D drug have also been added. Category 2 products may include containers as described for Category 1;
Category 3− Products coming in several containers including containers as described for Categories 1 and 2 and containers that are not Schedule D drugs. Accordingly, I accept among other things that, as specified by the appellants, mouse hemoglobins, control solutions and calibration solutions are also Schedule D drugs (s.n., Volume 3, p. 40).
[20] Counsel for the appellants submitted to this Court that, once the products are divided into three categories, using the definition of "drug" from the FDA confirms the zero-rating of the Category 1 and Category 2 products (s.n., Volume 3, p. 32 et seq.). This is because the definition of "drug" in the FDA includes "any substance or mixture of substances", which would take in the products in Categories 1 and 2. Moreover, according to counsel, even without this definition The Cookie Florist[12] decision would allow us to reach the same conclusion. In that case, although the value of the cookies was less than one third of the value of the gift bouquet (gift package), the Court held that if Parliament had wanted to place limits or conditions on the zero-rating of cookies, it should have done so explicitly (s.n., Volume 3, p. 33 et seq.). Thus, if Parliament had wanted to set restrictions on the zero-rating of Schedule D drugs, it should have specified in clear terms that a Schedule D drug combined with other substances is not zero-rated; Parliament did not do so. Accordingly, in this case, when one considers Dr. Lepage's statements that, for example, monoclonal antibodies will always represent a considerable part of the value of in vitro diagnostic kits, that these antibodies are what is used to make the diagnosis, and that the other substances are only there to show the result or ensure that the monoclonal antibodies can be used effectively, it is easy to understand why The Cookie Florist decision would apply a fortiori to the Category 1 and 2 products (s.n., Volume 3, p. 36 et seq.).
[21] With regard to the third category of products, counsel for the appellants puts forward an argument involving the interpretation of the definition of "drug" in the FDA and an argument based on a principle from the decision in O.A. Brown[13] (s.n., Volume 3, p. 45 et seq.). The argument involving the interpretation of the definition of "drug" in the FDA suggests a medical, practical and realistic approach to what is meant by Schedule D drug, that is to say, an approach like Health Canada's. Indeed, what is sought when acquiring a Category 3 product is the Schedule D drug and not the more or less important substance that serves only to show the result. That which is accessory must therefore follow its principal and insomuch as the incidental container is a substance or mixture of substances used for diagnosis, it should be included in the interpretation to be given to the definition, because drugs used for diagnoses are intended to be zero-rated; hence, substances and mixtures of substances used for this purpose should also be included (s.n., Volume 3, p. 42 et seq.). As for the principle from O.A. Brown, it would have the same effect as the preceding argument regarding interpretation. Thus, applying the principle from O.A. Brown to the Category 3 products, one would have in this case a single acquisition, namely, of a Schedule D drug, to which have been added other elements that cannot be removed, namely, incidental substances that are practical and realistic components required for a complete diagnosis, which leads to the conclusion that the Category 3 products are a single supply, that is, the supply of a Schedule D drug (s.n., Volume 3, p. 62 et seq.). This last category would therefore ipso facto be zero-rated pursuant to paragraph 2(a).
[22] Adopting a practical and realistic approach, counsel for the appellants highlighted three points concerning the Category 3 products (s.n., Volume 3, p. 49 et seq.):
(a) The Schedule D drug is at the heart of the purchase;
(b) The other substances (incidental) are essential to the diagnosis process;
(c) It is unrealistic to require that the other substances be purchased separately.
Counsel went on to further explain what he meant by stating in point (c) that it is unrealistic to require that the other substances be purchased separately. For one type of product, namely, "plastic blocks" for the hospitals' machines, it is obvious, from a logical point of view, that the "plastic blocks" should contain, in order, all the substances for which the machine is configured so that a complete diagnostic test can be conducted. Therefore, it is absolutely unrealistic to require, or even contemplate, that the other substances be purchased separately. The advent of these machines in hospitals became necessary, moreover, with the explosion of requests for diagnoses, to which laboratory people and technicians could not respond using manual methods; a machine, on the other hand, could perform several thousand diagnoses per day. With regard to another type of product, not used in a machine — namely, well strips used for ELISA tests, to diagnose allergies for example — the kit contains several other substances that serve only to complete the test. All these other substances are present in quantities calculated so that there is no residual substance whatsoever when the number of diagnoses specified for the kit have been completed. Moreover, although these incidental substances could theoretically be purchased separately, hospitals do not have the financial means, the time required, or the expertise to calibrate the various incidental substances with the Schedule D drug (main reactant). Furthermore, hospitals cannot afford to take on the responsibility involved in appropriately calibrating all these incidental substances. Therefore, it is not a realistic option to ask hospitals to purchase incidental substances separately in the case of well strips used for ELISA tests (s.n., Volume 3, p. 50 et seq.).
[23] Thus, on the basis of O.A. Brown, points (b) and (c) above raised by counsel for the appellants justify in his opinion the conclusion that we are dealing with a single supply. Finally, by means of point (a) counsel is able to "connect" the incidental substances with that which is at the heart of the purchase of the product, that is, the Schedule D drug, and thus characterize the whole as a Schedule D drug, as the courts did in O.A. Brown, Hidden Valley Golf Resort[14] and Canada Trustco Mortgage.[15] He also relies on Hidden Valley Golf Resort for the "common sense"[16] assessment of the facts and on Canada Trustco Mortgage for the "raison d’être of the transaction".[17]
[24] In the alternative, in the event that the Court were to find that one or more multiple supplies are involved in the present case, counsel for the appellants suggests that section 138 of the ETA should apply. That section reads as follows:
S. 138. Incidental supplies – For the purposes of this Part, where
(a) a particular property or service is supplied together with any other property or service for a single consideration, and
(b) it may reasonably be regarded that the provision of the other property or service is incidental to the provision of the particular property or service,
the other property or service shall be deemed to form part of the particular property or service so supplied.[18]
In his view, if there was a product more likely to give rise to the application of secti