Boland, J:—This is an appeal pursuant to subsection 20(1) of The Retail Sales Tax Act, RRO 1970, chapter 415, to vary an assessment of retail sales tax confirmed by the Minister of Revenue. The facts are agreed upon. The appellant Syroco Canada, a division of Dart Products National Limited, carries on business in Ontario principally as a manufacturer and wholesaler of goods. Coppercraft Guild of Canada, another division of Dart Products, whose offices abut those of Syroco, carries on business as a retailer of consumer copper and plastic giftware. It was agreed by Dart Products and the Minister that the appellant Syroco would be responsible for remitting to the Treasurer of Ontario, the retail sales tax due under The Retail Sales Tax Act from the operation of its division, Coppercraft, as Syroco holds the Ontario retail sales tax vendor’s permit.
Coppercraft products are sold through a “party plan”. A counsellor representing Coppercraft, arranges for a hostess to invite friends to her home and the counsellor demonstrates and sells products to the assembled group. The hostess and her guests select the items they wish to purchase from the Coppercraft catalogue and list them on an order form called a guest selection slip. This form contains a description of the products ordered, the price of each product as indicated in the sales catalogue and the total purchase price. Ontario retail sales tax is calculated on the catalogue price and en- tered as a charge on the order form. In addition to these charges, a handling charge is shown as a separate charge on the order form with no provision for tax. At the time in question, the handling charge was 75¢ per customer order and was arrived at by aggregating the postal shipping charges over a certain period and dividing those charges by the number of order forms covered by those charges and rounding the result to the nearest 5$. As a result, the charge closely approximates the postal shipping charges. Total charges are then aggregated on the order form and the balance due is then entered in the column marked “balance to pay hostess’’. Printed on the order form are the words “Shipment Arrives COD’’.
The guests deliver their completed forms, together with the purchase price or deposit, to the counsellor who forwards them with a summary information sheet to Coppercraft. Arrangements are made by Coppercraft for the post office to send the orders from the warehouse in Kitchener, to the home of the hostess. Most shipments are sent COD.
The catalogue has a uniform retail price for all parts of Canada and does not refer to handling charges. It also contains a guarantee that if an item is damaged it will be replaced for one-half of the current retail price. However in practice, Coppercraft waives the half price payment for damage incurred during transportation and applies it in all other cases to promote good relations with consumers in the direct sales market. In the event merchandise is damaged, no claim is made for a refund of sales tax. Coppercraft calculates its Ontario corporations tax by calculating its income on the basis that a sale is made at the time merchandise is delivered to a post office truck at its warehouse and its inventory is reduced by the cost of the merchandise delivered at that time.
The price of the product purchased, upon which Coppercraft calculated the amount of retail tax due on each retail sale, did not include the amount of the handling charge paid by the guest. Consequently, no retail sales taxes were charged, collected or remitted to the Treasurer of Ontario by the appellant.
On September 2, 1975, the Minister of Revenue, after an audit of the appellant’s records, made an assessment under subsection 15(3) of The Retail Sales Tax Act for the period running from October 1, 1972 to May 31,1975.
By notice dated November 28, 1975, Dart Products objected to the assessment for retail sales tax in the amount of $27,296.46 as “tax on handling charges on Ontario retail sales by Coppercraft Guild of Canada erroneously not collected’’. The Minister of Revenue confirmed the assessment issued against the appellant by letter dated June 8, 1976 and this appeal was launched.
The issues raised on this appeal are whether the handling charge set at /5€ per customer was taxable under The Retail Sales Tax Act and if so, whether the appellant as vendor is responsible for paying the assessment of $27,296.46. In determining liability for tax, one must look at the legislation, the nature of the transaction and the surrounding circumstances.
Pursuant to subsection 2(1) of the Act, guests purchasing items from the hostess according to the catalogue price are liable to pay tax “computed at the rate of 7 per cent of the fair value thereof” (italics added). Fair value as defined in subsection 1(4) of the Act, includes the price for which the goods were purchased and the cost of or charges for transportation whether or not such are shown separately on an invoice.
It is agreed that the handling charges paid by the guests as purchasers, were to recover the postal expenses incurred in moving the goods from the appellant’s warehouse to the homes of the various hostesses where the purchasers received possession of the goods. Thus the 75€ handling charge covered transportation from the warehouse to the home of the hostess.
Pursuant to subsection 2(5) of the Act, “a purchaser shall pay the tax imposed by this Act at the time of the sale”. Section 1 (13) stipulates that sale means any transfer of title or possession. Section 8 dictates that every vendor as agent of the Minister, must levy and collect the taxes imposed by the Act upon the purchaser or consumer.
The appellant contends that the handling charges were not included in fair value and are therefore not taxable as they occurred subsequent to title passing. The appellant further contends that title passed either at the time the contract was made and the order form was signed by the purchaser or when the goods left the warehouse in the post office truck. To support this argument, the appellant pointed out that it is common ground that Copper- craft calculates its Ontario corporations tax by calculating its income on the basis sales are made when the merchandise is picked up by a post office truck at the warehouse and its inventory is reduced by the cost of the merchandise at that time. It was also argued that it is the policy of the Ministry that transportation expenses incurred in an FOB supply point contract do not form part of the fair value of the goods. On the other hand, the respondent argues that title passed when the goods were delivered COD to the home of the hostess subject to inspection by the guest.
In an FOB contract, it is stipulated at what point the vendor’s liability ceases and the property and risk in the goods passes to the purchaser and the purchaser thereupon becomes responsible for the transportation charges. The determination of the FOB supply point or delivery point by the vendor is irrelevant in these circumstances as this was neither discussed nor agreed upon by the parties to the contract. The intent of the parties is clearly set out in their contract for the purchase of goods as the order form specifically states that the goods are to be sent to the home of the hostess COD. Furthermore, the contract with the post office for COD services, indicates the post office is the agent of the appellant to collect the purchase price before completing delivery. In these circumstances, I am satisfied that title passed when the purchase price was paid and the guest had inspected the goods.
On the facts of this case, fair value was catalogue price plus transportation costs. It follows that a guest purchasing items at the Coppercraft party was responsible for paying retail tax on the 75¢ handling charge, which in fact covered postal shipping charges, as this was included in the fair value of the goods. It also follows that the appellant as vendor and agent of the Minister, was responsible for levying and collecting these transportation costs imposed by the Act upon the purchaser.
Having determined that the handling charges of 75$ per customer are taxable under the Act as transportation costs, the next issue to be determined is whether the appellant, standing in the shoes of the vendor, is responsible as agent for paying the assessment arising under subsection 15(3) of the Act, by way of damages.
Section 8 clearly instructs every vendor as agent of the Minister, to levy and collect taxes imposed by the Act upon the purchaser or consumer. According to our law, an agent who fails to carry out the terms of his instructions, is liable for the resulting damages to his principal.
The vendor as agent of the Ministry was responsible for collecting tax on the fair value which includes transportation costs. It is common ground that no such tax was either collected by the vendor or paid by the purchaser on the 75¢ transportation cost as the vendor neglected to position the handling charge above the sales tax on the Guest Selection Slip in order to arrive at fair value. The individual purchasers are still liable to pay the tax on the handling charges as prescribed by the Act at the rate of 7 per cent of 75€. However, it is impossible as well as totally impractical for the Minister to assess each purchaser and collect the 5¢ tax directly at this point in time. It is also impossible for the appellant to collect these taxes totalling $27,296.46. Thus the failure of Coppercraft to carry out its statutory instruction to collect the appropriate tax from its purchaser, resulted in damages to the Minister in the sum of $27,296.46. Surely the intent of the legislature when making the appellant an agent to collect the tax, was to avoid this very type of situation.
section 15 of the Act provides enforcement machinery to cover situations where the vendor has not kept records and accounts, remitted tax collected or collected tax in compliance with the Act. On September 2, 1975, the Minister under subsection 15(3) of the Act, assessed the appellant $27,296.46 for transportation costs erroneously not collected from October 1, 1972 to May 31, 1975. The assessment was made within the three years required by the Act and is the subject of this appeal.
Pursuant to subsection 15(3) of The Retail Sales Tax Act as amended in 1975, the Minister may assess any tax collectable by a vendor under the Act. Subsection 15(3) as amended, provides:
The Minister may assess or reassess any tax collectable by a vendor or any tax payable by a purchaser under this Act within three years from the day such tax became collectable or payable, as the case may be, except that, where the Minister establishes that any vendor or purchaser has made any misrepresentation that is attributable to neglect, carelessness or wilful default, or has committed any fraud, in making a return or in supplying any information under this Act or in omitting to disclose any information, then the Minister may assess or reassess tax imposed by this Act at any time he considers reasonable.
The Minister and the Attorney General for Ontario argue, that the charge imposed upon the appellant under the assessment, is not a tax but rather a penalty. On the other hand, the appellant strongly contends that the only statutory authority for such a penalty is contained in section 38 of the Act and the assessment is in fact an indirect tax contrary to subsection 92(2) of the British North America Act, which enables the provinces of Canada to levy and collect direct taxes only.
Subsection 15(3) is analogous to the right of a principal to sue an agent for damages for breach of the agent’s duty to the principal. “Tax collectable”, according to the Oxford Shorter English Dictionary, means “tax that may be gathered in’. The use of the word “collectable” provides the vehicle for the Minister to make an assessment against a vendor-agent for damages arising out of the agent’s breach of duty to collect retail tax payable at the time the fair value is received by the vendor-agent.
On the other hand, section 38 of the Act provides for criminal procedures and is not applicable to the facts before me. I can discern no conflict between subsection 15(3) and section 38 and find no merit in the argument that they cannot co-exist.
In my view, the assessment of uncollected tax from a vendor is in the nature of a penalty for failure to collect tax prescribed by the Act. It is not a tax. The authority of the Province to impose penalties to enforce its legislation is found in section 92:15 of the British North America Act which authorizes legislation to be enacted in relation to:
The Imposition of Punishment by Fine, Penalty, or Imprisonment for enforcing any Law of the Province . . .
The purpose of subsection 15(3) is to put teeth into the statutory requirement that the vendor collect tax from the purchaser, to penalize a vendor who is in breach of his duty to collect tax under the statute by making him personally liable for that amount of money and to impose a deterrent on the business community.
Counsel for the appellant has pointed out that section 15 of the Act has undergone substantial change subsequent to this assessment; however it is my view that subsection 15(3) as amended in 1975, was a clear and unambiguous authority for the Minister to assess a vendor for taxes collectable but not collected.
I have reviewed at great length the authorities presented by counsel, including F W Woolworth Ltd v The Queen (1957), 10 DWR (2d) 225; W H Violette Ltd v Provincial Secretary of New Brunswick (1978), 23 NBR (2d) 384 and The Becker Milk Company Limited v Minister of Revenue, an unreported decision of Estey, CJHC, October 8, 1977. However, I found none of them directly related to the issues before me.
Accordingly the appeal is dismissed. As the point is novel, there will be no costs.