Docket UT92101
Order UT93-1IN THE MATTER of an appeal by Duron Atlantic Limited against a decision of the Provincial Tax Commissioner dated June 18, 1992.
BEFORE THE COMMISSION
on Tuesday, the 9th day of February, 1993.
Linda Webber, Chairman
John L. Blakney, Vice-Chairman
Michael Ryan, Commissioner
Order
Contents
Appearances & Witnesses
Reasons for Order
- Introduction
- Facts
- Argument
- Findings
Order
Appearances & Witnesses
1. For Duron Atlantic Limited
Counsel:
Ronald J. Keefe2. For the Provincial Tax Commissioner
Counsel:
Roger B. LangilleWitness:
Fred Weatherby, Assistant Director (Audit)
Revenue Division
Department of Finance3. For the Island Regulatory and Appeals Commission
Counsel:
Thomas A. MathesonStaff:
Donald G. Sutherland
Director, Utilities DivisionGeorge W. Mason,
Senior Analyst, Utilities DivisionGloria Dalziel
Recording Secretary
Reasons for Order
1. Introduction
This is an appeal under Section 10 of the Revenue Administration Act, R.S.P.E.I. 1988, Cap. R-13.2, by Duron Atlantic Limited ("Duron" or the "Appellant"), a body corporate with its head office in Dartmouth, Nova Scotia. The Appellant appeals a decision of the Provincial Tax Commissioner ("Tax Commissioner" or "Respondent") dated June 18, 1992. The appeal centers on the authority of the Lieutenant Governor in Council to make certain regulations under the Revenue Tax Act, R.S.P.E.I. 1988, Cap. R-14, relating to tax liability for the consumption of goods which the Appellant alleges are exempt under the latter statute.
The appeal was heard in Charlottetown on October 1, 1992.
2. Facts
On April 10, 1992, the Department of Finance issued a Notice of Assessment (No. 0031) to the Appellant. The Notice assessed tax liability in an amount totaling $19,293.39. By Notice of Objection dated May 11, 1992, Duron objected to a number of elements of the assessment to the Tax Commissioner. By letter decision dated June 18, 1992, the Tax Commissioner reversed certain portions of assessment 0031 and affirmed others. The assessment affirmed by the Respondent for blasting sand is at issue in this appeal.
In response to this decision of the Provincial Tax Commissioner, the Appellant filed a Notice of Appeal with this Commission on July 17, 1992. In this Notice of Appeal the Appellant admitted to the purchase of sand for a total purchase price of $69,693.30 but submitted that sand is exempt from the payment of tax.
Both parties agreed to allow the Respondent to present evidence describing blasting sand, which was done through the presentation of a letter from W. S. Langley and Associates Limited (Ex. R-2).
Excerpts from that Exhibit follow:
The purpose for which the sand is to be used determines the particular physical and chemical (sometimes) characteristics of the sand ...
Blasting sands are uniformly graded, hard individual grains. Sand obtained from glacial deposits or manufactured are unsuitable for blasting until further processed to improve the gradation and cleanliness. Sands such as quartz are suitable for blasting sand. These sands may either be screened from a glacial deposit as in Nova Scotia or manufactured from larger rock as is typical in New Brunswick.
(p. 2)Fred Weatherby, Assistant Director (Audit) of the Revenue Division of the Department of Finance, gave evidence at the hearing. He stated that the intended use of the product was not in issue but the origin of the sand was. During an audit he would determine whether or not the sand was natural or manufactured. According the the witness, Natural is exempt, manufactured is not. He also stated that he equated blasting sand with manufactured sand.
When shown Ex. R-2-which indicated that blasting sand could be either natural or manufactured-Mr. Weatherby indicated he would have to give the matter more thought.
3. Argument
The Appellant's position is that the Revenue Tax Act exempts sand in s.12(1)(g) and any attempt to limit this exemption by regulation is invalid/ultra vires. The relevant statutes are as follows:
Revenue Tax Act
s.12(1) A consumer is not liable to pay the tax in respect of the consumption of the following goods:
...
s.12(g) clay, sand, gravel and unfinished stone.
:Revenue Tax Act Regulations
1. In the Act or these regulations
...
(r.2) "sand" does not include blasting sand.
The Respondent's position is that the section authorizing the making of regulations allows the Lieutenant Governor in Council to define any expressions used in the Act and s.1(r.2) of the Regulations is a definition within the scope of that authority.
Revenue Tax Act
s.57(1) For the purpose of giving effect to the provisions of this Act according to their true intent and of supplying any deficiency therein, the Lieutenant Governor in Council may make such regulations as are considered necessary or advisable.
(2) Without limiting the generality of subsection (1), the Lieutenant Governor in Council may make regulations
...
(f) defining any expression used in the Act and not herein defined;
4. Findings
The Commission is of the view that s.1(r.2) of the Revenue Tax Act Regulations is ultra vires the Lieutenant Governor in Council.
Clearly the Legislature has the power to delegate to the Lieutenant Governor in Council the power to make regulations. That has been well established in Re Gray, (1918), 42 D.L.R.1 (S.C.C.)
The question in each instance is the extent of the delegation. Having reviewed all of the authorities referred to by the Appellant and the Respondent, the Commission found two particularly helpful: Re Michelin Tires Manufacturing (Canada) Limited (1976), 15 N.S.R. (2d) 150 (N.S.S.C., A.D.) and Irving Pulp and Paper Limited v. New Brunswick (1985), 64 N.B.R. (2d) 42 (N.B.Q.B.); (1987), 79 N.B.R. (2d) 247 (N.B.C.A.).
In both of those cases the statute identified certain items as being exempt from tax. In exercising his powers under the Act the Minister was found to have exceeded those powers when he added a requirement to what the statute had established were the terms of the exemption. Because the Minister's new rule exceeded those powers, the new rule was invalid as a matter of law.
Of even more assistance are the comments of MacKeigan, C.J.N.S. on the subject of what it means to "define" something:
This section does not authorize the Minister to exempt machinery and equipment, but merely to "define" the items which the section itself declares generally to be exempt, viz. "which in the opinion of the Minister are to be used directly in the process of manufacture or production". The generic nature of the goods that are exempt is prescribed by the section and cannot in my opinion be narrowed by the Minister. The Minister's power of definition is thus a power to spell out, specify, and make particular, i.e. to define, what things fall within the general definition.
...
I, respectfully cannot accept this as a "definition". It defines nothing and purports to cut down the generic exemption by restricting the things directly used in manufacture to those "exclusively" so used. This narrowing of the kind of things to be exempted could, in my opinion, be done only by the Legislature. The Minister has no power to amend the section and such attempted amendment cannot be disguised as a pretended defining measure.
(pp. 174-175)
The same comments could be made of the attempt by the Lieutenant Governor in Council to "define" sand as "not including blasting sand". This, too, appears to be an attempted amendment disguised as a pretended defining measure.
As was stated by the Nova Scotia Court of Appeal in Re Michelin about the situation there, this is not to suggest that what was done was not administratively well-intended. Nevertheless, it is invalid.
Less elaborate but similar comments are made by the Trial Judge in the Irving case:
In this case, what the Minister has purported to do by creating the above noted exceptions to the exemption is to narrow down the generic nature of the otherwise exempted goods.
...
I accept the appellant's argument that the power conferred to the Minister to define machinery and apparatus does not enable him exclude machinery and apparatus which is otherwise exempted. Thus, the exceptions as noted above are, in my opinion, ultra vires of the Minister's power.
(pp. 52-53)
While the Court of Appeal decided the case on another issue, nothing said in its decision invalidates any of these comments.
Other comments worth noting from the cases are:
His Majesty The King v. National Fish Company Ltd. (1931), Ex. C.R. 75 at p. 82:The Regulations must not conflict with the specific enactments of the Statute and cannot operate as an amendment to the same.
R. v. Dowell (1986), 72 N.S.R. (2d) 416, (N.S.S.C., A.D.) at p. 418.The effect of this Regulation is to limit the specific exemption provided by the Legislature under s.157 A(7)(h) of the Act. One must assume that the Legislature carefully considered the matter and did not intend to place a restriction on the exemption. In setting out a specific exemption under the section, the Legislature could not have intended that the Governor-in-Council could deal with the same provisions under the power to make regulations.
The Commission also notes that Mr. Weatherby's determination of exemptions on the basis of "manufactured" v. "natural" sand is both unsupported in law and discriminatory: the statute does not state that such a distinction is relevant; and the witness admitted that no such distinction for tax purposes is made about gravel, even though some gravel has been "processed", i.e. crushed, while other is "natural".
As a result, the Commission finds that s.1(r.2) of the Revenue Tax Act Regulations is ultra vires the Lieutenant Governor in Council.
Accordingly,
1. the appeal is allowed.
2. the Provincial Tax Commissioner shall issue a credit adjustment to the Appellant in the appropriate amount.
The Commission notes that the parties to the appeal agreed that the amount owing was not in issue. If, for some reason, this matter becomes an issue, it can be brought back to the Commission for determination.
An order allowing the appeal will therefore issue.
IN THE MATTER of an appeal by Duron Atlantic Limited against a decision of the Provincial Tax Commissioner dated June 18, 1992.
Order
UPON the appeal of Duron Atlantic Limited of a decision of the Provincial Tax Commissioner herein dated June 18, 1992;
AND UPON hearing the evidence adduced as well as what was alleged by counsel at the hearing of this matter held on October 1, 1992 in Charlottetown;
NOW THEREFORE, for the reasons given in the annexed Reasons for Order;
IT IS ORDERED THAT
1. the appeal is allowed; and
2. the Provincial Tax Commissioner shall issue a credit adjustment to the Appellant in the appropriate amount.
DATED at Charlottetown, Prince Edward Island, this 9th day of February, 1993.
BY THE COMMISSION:
Linda Webber, Chairman
John L. Blakney, Vice-Chairman
Michael Ryan, Commissioner