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Docket: 2003-1182(GST)I |
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BETWEEN: |
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ALIMENTS KOYO INC., |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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Appeal heard on December 10, 2003 at Montréal, Québec
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Before: The Honourable Justice Louise Lamarre Proulx |
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Appearances: |
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Counsel for the Appellant: |
Michael Kaylor |
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Counsel for the Respondent: |
Benoît Denis |
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JUDGMENT
The appeal from an assessment, notice of which bears number T02-DS2-RO-0015 and is dated May 17, 2002, made pursuant to the Excise Tax Act, for the period from August 1, 1998, to February 28, 2002, is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 8th day of April, 2004.
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"Louise Lamarre Proulx" |
Lamarre Proulx, J.
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Citation: 2004TCC286 |
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Date: 20040408 |
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Docket: 2003-1182(GST)I |
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BETWEEN: |
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ALIMENTS KOYO INC., |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Lamarre Proulx, J.
[1] This is an appeal of an assessment made pursuant to the Excise Tax Act (the "Act"). The Notice of Assessment bears number T02-DS2-RO-0015 and is dated May 17, 2002. The period involved is from August 1, 1998, to February 28, 2002.
[2] The question at issue is whether the supply of strawberry-flavoured soy beverages is a zero-rated supply.
[3] At the beginning of the hearing, a statement of Admissions of Fact was filed as Exhibit R-3. These admissions are as follows:
1. Appellant was registered for the purposes of Part IX of the Excise Tax Act, R.S.C. 1985, c. E-15 (hereinafter referred to as the "ETA"), for the assessed period;
2. Appellant is a wholesaler of varied basic groceries;
3. Among other things, Appellant made the supply of strawberry flavoured soy beverages, which beverages were sold in 946 millilitre containers or in one (1) litre containers, to its clients during the assessed period for an amount of $54,737.12;
4. The strawberry flavoured soy beverage in question does not contain dairy milk or any kind of milk secreted by the mammary glands of female mammals;
5. The strawberry flavoured soy beverage supplied by Appellant is a non-carbonated fruit flavoured soy beverage that contains less than 25% by volume of a natural fruit juice;
6. Appellant did not collect the GST with respect to the supplies that it made of such beverage;
7. The amount of GST payable in dispute is $3,831.60 (i.e. 7% of $54,737.12);
8. The following documents are admitted and filed on consent:
(a) Exhibit R-1: Documents of commissioner (subsection 308(2) of the E.T.A.) dated May 29, 2003;
(b) Exhibit R-2: Packaging of the strawberry flavoured soy beverage.
[4] Mr. Nick Feldman, president of the Appellant and also of Aliments Nutrisoya Inc., testified. The relationship between Aliments Nutrisoya and the appellant company is that Aliments Nutrisoya sells to the appellant soy milk for distribution in Quebec and Ontario.
[5] Mr. Feldman explained that soy milk is a healthy highly nutritious vegetable alternative to dairy milk. It is made from whole soy beans and is lactose-free. It is for consumers who are lactose intolerant or vegetarians and is an excellent source of calcium, vitamins and minerals.
[6] Mr. Feldman stated that ninety-five percent of the product in question is composed of soy milk. There are other ingredients, such as sunflower oil, vitamins and minerals, natural colour, natural organic sweetener and natural flavouring. The flavouring is less than 1% of the product.
Argument
[7] The appellant's position is that, in accordance with the rules of statutory interpretation, the goods in issue are beverages for human consumption as described in the general part of section 1 of Part III of Schedule VI, and not "fruit flavoured beverages" within the meaning of that phrase in paragraph 1(d) of the said Part III of Schedule VI.
[8] As alternative arguments, it was submitted (1) that the goods are "milk-based beverages" within the meaning of that expression in paragraph 1(d), and (2) that under subparagraph 1(n)(iii), in view of the size of the packaging in which they are sold, that is, in containers holding a quantity which exceeds a single serving, the goods in issue comes within the exception with respect to goods so packaged.
[9] Counsel for the appellant submitted that it appears clearly from a reading of Part III of Schedule VI that Parliament, in enacting Part III, which is entitled "Basic Groceries", intended that basic food and beverages, namely those which are needed for a healthful human consumption, would be zero-rated. The foods that are excluded from zero-rated status would generally be described as food without good nutritional value and as snack food.
[10] In this regard, counsel for the appellant referred to the decision of Judge Miller of this Court in 1146491 Ontario Ltd. et al. v. The Queen, 2002 GTC 297. Counsel quoted paragraph 12 of that decision:
[12] The Government made it clear from the very early days of the Goods and Services Tax that basic groceries were not to be included in the tax base. Rather than attempting to define what is included in basic groceries, subsection 1(o.1) of Part III of Schedule VI sets out a list of exceptions from basic groceries. In reviewing the list, two themes become evident as to what type of foods are not to be considered basic groceries: snacks or junk food, including anything that most people would find not particularly healthy; and foods intended to be eaten immediately after opening or removing the packaging. . . .
[11] Regarding the matter of statutory interpretation, counsel also referred to the decision of the Supreme Court of Canada in Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, and quoted paragraphs 21 and 22 thereof:
21 Although much has been written about the interpretation of legislation (see, e.g., Ruth Sullivan, Statutory Interpretation (1997); Ruth Sullivan, Driedger on the Construction of Statutes (3rd ed. 1994) (hereinafter "Construction of Statutes"); Pierre-André Côté, The Interpretation of Legislation in Canada (2nd ed. 1991)), Elmer Driedger in Construction of Statutes (2nd ed. 1983) best encapsulates the approach upon which I prefer to rely. He recognizes that statutory interpretation cannot be founded on the wording of the legislation alone. At p. 87 he states:
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
Recent cases which have cited the above passage with approval include: R. v. Hydro-Québec, [1997] 3 S.C.R. 213; Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411; Verdun v. Toronto-Dominion Bank, [1996] 3 S.C.R. 550; Friesen v. Canada, [1995] 3 S.C.R. 103.
22 I also rely upon s. 10 of the Interpretation Act, R.S.O. 1980, c. 219, which provides that every Act "shall be deemed to be remedial" and directs that every Act shall "receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Act according to its true intent, meaning and spirit".
[12] Counsel argued that under the scheme of Part III, food that is useful for one's health is zero-rated. The only reason the Minister has assessed the goods at issue is the presence of a very small amount, less than 1%, of strawberry flavouring. However, the exceptions mentioned in paragraph 1(d) concern fruit-flavoured beverages that contain less than 25% by volume of a natural fruit juice or combination of natural fruit juices. Those exceptions, argued counsel, have more to do with beverages of the Kool-Aid type than with a healthful beverage composed mainly of soy milk.
[13] Counsel for the appellant also referred to the GST/HST Memoranda Series, 4.3 Basic Groceries, November 1997 (revised May 13, 1998), at paragraph 38, which reads as follows:
38. Supplies of powdered fruit-flavoured mixes that require mixing with water and that contain little or no actual fruit (other than ice tea mixes), are taxable at 7% or 15%. However, ice tea mixes, including fruit-flavoured ice tea mixes, are zero-rated.
[14] Counsel submitted that this acceptance of ice tea mixes, including fruit-flavoured ice tea mixes, as zero-rated supplies, confirms that the fruit-flavoured beverage must be a beverage in which the only taste is derived from natural fruit juices or from artificial fruit flavouring. He concluded by saying that it is the basic nature of the product that is determinative.
[15] Counsel for the appellant submitted in the alternative that had Parliament wished to restrict the meaning of milk to dairy milk, it would have used the term dairy. Counsel advanced as a second alternative argument subparagraph 1(n)(iii) of Part III of Schedule VI of the Act and submitted that the product was not sold in single-serving packaging.
[16] Counsel for the respondent began by referring to the admission that the strawberry-flavoured soy beverage in question does not contain dairy milk or any kind of milk secreted by the mammary glands of female mammals. Also referred to was the admission that the said strawberry-flavoured soy beverage is a non-carbonated fruit-flavoured soy beverage that contains less than 25% by volume of a natural fruit juice.
[17] Counsel concluded by saying that this product is included in the exceptions to zero-rating described in paragraph 1(d) of Part III of Schedule VI.
[18] He referred to various decisions regarding the interpretation of statutes, namely: Hubka v. Canada, [1995] T.C.J. No. 1090 (Q.L.), Canada v. Paccar of Canada Ltd., [1998] F.C.J. No. 684 (Q.L.), Suntech Optics Inc. v. Canada, [1999] F.C.J. No. 67 (Q.L.) and Canadian Occidental U.S. Petroleum Corp. v. Canada, [2001] T.C.J. No. 112 (Q.L.). In all of these decisions it was held that when the words of a statute are not ambiguous, a court is to interpret them according to their ordinary meaning. A court should be careful not to legislate.
[19] Counsel admitted that the product in issue, is not sold in single-serving packaging. However, with regard to the meaning of paragraph 1(n), he referred to the GST/HST Memoranda Series, 4.3 Basic Groceries, but to paragraph 39 thereof, which reads as follows:
39. Consumer packages containing multiples of single servings of beverages described in paragraph 1(d) of Part III of Schedule VI are taxable at 7% or 15%. These supplies are not zero-rated under paragraph 1(n) of Part III of Schedule VI.
Conclusion
[20] The definition of zero-rated supply in section 123, and paragraphs 165(1) and (3) of the Act read as follows:
"zero-rated supply" means a supply included in Schedule VI.
165(1) Imposition of goods and services tax - 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.
165(3) Zero-rated supply - The tax rate in respect of a taxable supply that is a zero-rated supply is 0%.
[21] Paragraphs 1(d) and (n) of Part III of Schedule VI read as follows:
1.[Food] - Supplies of food or beverages for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), other than supplies of
. . .
(d) non-carbonated fruit juice beverages or fruit flavoured beverages, other than milk-based beverages, that contain less than 25% by volume of
(i) a natural fruit juice or combination of natural fruit juices, or
(ii) a natural fruit juice or combination of natural fruit juices that have been reconstituted into the original state,
. . .
(n) beverages (other than unflavoured milk) or pudding, including flavoured gelatine, mousse, flavoured whipped dessert product or any other products similar to pudding, except
(i) when prepared and pre-packaged specially for consumption by babies,
(ii) when sold in multiples, pre-packaged by the manufacturer or producer, of single servings, or
(iii) when the cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving;
. . .
[22] I do not read Part III of Schedule VI as requiring that a criterion of wholesomeness be met as a condition for obtaining the zero-rating of a supply, and I have neither the discretion nor the power to read such a criterion into Part III. Although a soy beverage may be a healthful food product, if it comes within one of the exceptions, it will not be a zero-rated supply.
[23] One may infer that if Parliament has seen fit in paragraph 1(d) to exclude milk-based beverages from the notion of fruit-flavoured beverages, such beverages would otherwise have been included in the meaning of that term. I am therefore not convinced that Parliament was referring only to fruit-flavoured beverages of the Kool-Aid type. I cannot go in the direction suggested by counsel for the appellant and find that paragraph 1(d) was not intended to cover beverages composed mainly of healthful ingredients.
[24] According to the rules of statutory interpretation, a word must be taken in its ordinary meaning unless that word is given a specific meaning in the statute.
[25] Paragraph 1(d) excludes from zero-rated status the supply of a fruit-flavoured beverage other than a milk-based beverage. The beverage in question in this appeal is a fruit-flavoured beverage. Therefore, it comes under the exception to zero-rating unless it can be considered a milk-based beverage. Is it a milk-based beverage? The dictionary meaning of the word "milk" and of the French equivalent, "lait" is that it is a white liquid produced by the mammary glands of mature female mammals. It can also mean a liquid similar to milk in appearance, such as coconut milk, milkweed sap, or plant latex.
[26] I therefore find that the common understanding is that soy milk is not milk although it may have the appearance of milk.
[27] Under subparagraph 1(n)(iii) of Part III of Schedule VI, supplies of beverages, other than unflavoured milk, sold in a quantity exceeding a single serving, are zero-rated supplies. In the present case, it is admitted that the appellant produced strawberry-flavoured soy beverages. It is also admitted that the packaging was of a size that held a quantity exceeding a single serving. It may thus appear that supplies of the beverages produced by the appellant should be considered zero-rated supplies by virtue of subparagraph 1(n)(iii). However, section 1 of Part III of Schedule VI provides that supplies of food or beverages for human consumption are zero-rated supplies unless the food or beverages fall within the exceptions described in paragraphs (a) to (r) of that section. Since the beverages produced by the appellant have been found to come within the meaning of paragraph (d) of that section, the supply of those beverages is not zero-rated.
[28] It is Parliament's prerogative to amend Part III of Schedule VI should it see fit. However, in light of that Part as it is currently worded, I have come to the conclusion that the supply of the beverage in question is not a zero-rated supply for the reasons set out above.
[29] The appeal shall be dismissed.
Signed at Ottawa, Canada, this 8th day of April, 2004.
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"Louise Lamarre Proulx" |
Lamarre Proulx, J.
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CITATION: |
2004TCC286 |
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COURT FILE NO.: |
2003-1182(GST)I |
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STYLE OF CAUSE: |
Aliments Koyo Inc. and Her Majesty The Queen |
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PLACE OF HEARING: |
Montréal, Québec |
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DATE OF HEARING: |
December 10, 2003 |
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REASONS FOR JUDGMENT BY: |
The Hon. Justice Louise Lamarre Proulx |
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DATE OF JUDGMENT: |
April 8, 2004 |
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APPEARANCES: |
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Counsel for the Appellant: |
Michael Kaylor |
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Counsel for the Respondent: |
Benoît Denis |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
Michael Kaylor |
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Firm: |
Lapointe Rosenstein Barristers and Solicitors Montréal, Québec |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |