THORSON, P.:—In this action the Crown claims the sum of $30,616.33 from the defendant as special or dumping duty on the importation by it of certain goods from the United States during the period from September 1, 1948, to June 1, 1951.
The claim is made under Section 6(1) of the Customs Tariff, R.S.C. 1927, c. 44, which provides as follows:
4 *6. (1) In the case of goods exported to Canada of a class or kind made or produced in Canada, if the export or actual selling price to an importer in Canada is less than the fair market value or the value for duty of the goods as determined under the provisions of the Customs Act, there shall, in addition to the duties already established, be levied, collected and paid on such goods, on their importation into Canada, a special or dumping duty, equal to the difference between the said selling price of the goods for export and the said value for duty thereof; and such special or dumping duty shall be levied, collected and paid on such goods although not otherwise dutiable.”
The circumstances under which the claim arises may be stated briefly. The defendant carries on business in Canada and has its head office at Montreal. During the period in question it imported goods known as ‘‘Smith Brothers Cough Drops’’ from Smith Brothers Inc. at Poughkeepsie in the State of New York. For each importation the defendant’s customs brokers made out an entry form, known as ‘‘B.1—Entry for Home Consumption” and a member of the customs brokers’ firm, as attorney for the defendant, made the declaration set out on the back of the form. For each importation Smith Brothers Inc. sent the defendant an invoice covering the shipment to it. This invoice was filed with the 44 B.l—Entry for Home Consumption’’ form on the entry of the goods into Canada. Each invoice showed the fair market value of the goods at the time and place of shipment and also their selling price to the purchaser in Canada. To each invoice there was attached what is called 4 Form M-A”, containing a certificate signed by Smith Brothers Inc. by one of its officers. The total amount of the fair market value of the goods exported by Smith Brothers Inc. to the defendant during the period in question, as shown by the invoices, came to $622,111, calculated in Canadian funds, and in each case, except for the last three shipments where the selling price to the purchaser in Canada was shown as slightly more than the fair market value, the selling price to the purchaser in Canada was shown at the same amount as that of their fair market value. The defendant paid an ad valorem customs duty of 20 per cent under Tariff Item 220 of the Customs Tariff on this valuation of $622,111, or a total duty: of $124,422.
An investigation of the importations thus made by the defendant was conducted by Mr. H. E. Ball, an investigator of customs and excise of the Department of National Revenue. He began his investigation in March, 1951. He gathered together all the “B.l—Entry for Home Consumption’’ forms filed on the entry of the goods into Canada from all the customs ports at which they had been entered together with the invoices filed with them and ascertained that the total amount of the fair market value of the goods imported during the period in question came to $621,632 and that the total amount of their selling price to the purchaser in Canada, namely the defendant, was $622,111.
He also investigated the defendant’s books at its premises and ascertained that during the period from October, 1949, until June, 1951, the defendant had received from Smith Brothers Ine. a commission, or rebate as he called it, of 5 per cent of the amount of the selling price of the goods as set out in the invoices. He found, for example, in the defendant’s cash receipt book under the date of December 7, 1950, an entry of $3,650.22. This was 5% of the selling price of goods imported at six dates previously, four at Niagara Falls and two at Montreal. The entry in the cash receipt book was then posted to the defendant’s general ledger under the heading “Receipts-Commissions”. I need not set out the details of the investigation made by Mr. Ball. It is sufficient to refer to a letter from the defendant to him, dated September 24, 1951, signed by Mr. A. J. Taylor, the defendant’s comptroller, reading as follows:
“We wish to advise that it would appear from information obtained by ourselves from Smith Brothers Inc., Poughkeepsie, N.Y., that they paid the sum of 5% on all purchases made by ourselves during the period September 2nd, 1948, to March 12, 1951. The total paid during the period amounted to $29,250.32 in U.S. Funds, or as stated by you, $30,616.33 in Canadian Funds. ’ ’
Subsequently, it transpired that of the amount of $29,250.32 referred to in Mr. Taylor’s letter only the sum of $21,449.32 had been received by the defendant itself, the balance of $7,801 having been received by John Stuart, the defendant’s president.
After discovering these 5 per cent payments by Smith Brothers Inc. Mr. Ball made a verbal demand on Mr. Taylor for payment by the defendant of $30,616.33 as special or dumping duty. He reported the results of his investigation to the Department of National Revenue. No formal demand for payment of the special or dumping duty was made but the Department sent the defendant a notice of seizure, dated October 3, 1951, in which it was informed that certain charges for infraction of the customs laws had been made against it, namely :
1 ‘That the said goods were entered at Customs on invoices which did not show an allowance of 5% commission and payment was thereby avoided of special or dumping duty properly payable in the sum of $30,616.33.”
There was no actual seizure of any goods. The charges against the defendant of infraction of the customs laws were made under Section 203(b) of the Customs Act, R.S.C. 1927, c. 42. The defendant refused to pay any additional duty and this action to recover a special or dumping duty in the amount specified was then brought.
It is conceded that the imported goods were of a class or kind made or produced in Canada so that the only issue in the case is whether the actual selling price of the goods to the defendant was less than their fair market value in the country of export. If it was then the goods, under Section 6(1) of the Customs Tariff, were subject to a special or dumping duty equal to the difference between the said selling price of the goods and their fair market value, that is to say, the sum of $30,616.33, and such amount would be recoverable by the Crown as a debt under Section 112 of the Customs Act. If it was not then the action must be dismissed.
I now come to the evidence adduced for the defendant of how the 5 per cent payments came to be made and why they were made. Prior to the incorporation of the defendant in 1947, the business carried on by it was carried on by John Stuart under the name of John Stuart Sales and the first 5 per cent payments were made to him. Mr. L. M. Shaw, one of the directors of Smith Brothers Inc. and the manager of its advertising activities during the period in question and prior thereto, said that during the said period the defendant and prior thereto John Stuart was the only person in Canada to whom Smith Brothers Ine. sold its cough drops. He explained that Mr. Stuart and subsequently the defendant represented ten manufacturers of whom Smith Brothers Ine. was one, and thus it was competing with all the other manufacturers for Mr. Stuart’s time in selling its products, that it was his selfish desire to gain priority for its products and, as he put it, to pre-empt competition by gaining priority for Mr. Stuart’s time in the sale of such products and that this was the reason for the payments. They were made for services rendered. Smith Brothers Inc. had gained certain advantages as the result of making them. Its name was first on the order form used by John Stuart and the defendant and on the first page of his and its catalogue. Thus Smith Brothers Inc. had the first place among the manufacturers represented by John Stuart and the defendant. Mr. Shaw stated that from the time when Smith Brothers Inc. first dealt with John Stuart in 1937 the dollar value of its sales to him and then to the defendant had increased approximately 20 times. He emphasized that there was no obligation by Smith Brothers Inc. to make the payments and no contract or agreement to make them and that they were voluntary on its part. They were made out of his allotment for advertising which he could use at his discretion and were charged to expense. Mr. Shaw then stated that the payments were at first made to John Stuart and that his instructions to his accounts payable department were to make them to him since he was the dominant person who could exert the influence that he was desirous of having. He could not tell how it came about that Smith Brothers Inc. made the payments to the defendant. He said that Mr. Stuart might have given him instructions to make the change but he could not recall how it came about. The payments were made at variable intervals. Mr. Stuart and later the defendant did not pay Smith Brothers Inc. for any shipment of goods until after they had been sold and delivered to his or its customers. Then Smith Brothers Inc. was paid for the shipment in United States funds and it was sometime after the receipt of such payment that Smith Brothers Inc. made its payment of 5 per cent calculated on the selling price of the shipment the payment for which had been received. The details of how this practice was carried out appear on Exhibits C and D, filed on behalf of the defendant. Exhibit C shows the amounts of commissions paid to John Stuart Sales totalling $7,801, and Exhibit D the amounts paid to the defendant totalling $21,449.32, each amount being in United States funds. Each exhibit shows the date of the invoice for the goods, the invoice number, the amount of sales, the amount of commission and the date of payment by Smith Brothers Inc. Mr. Shaw stated that Smith Brothers Inc. made similar payments of commissions to a firm in New York which purchased goods from it for export. Mr. Shaw also stated that he had mentioned the matter of these payments to customs officers at Ottawa sometime in February, 1951, when he went there to discuss a number of questions. When he disclosed the making of the payments one of the officers seemed to think that Smith Brothers Inc. were at fault and took the position that the payments were part of its price structure and should have been disclosed in the ‘‘M-A Form” forming part of the invoice. Mr. Shaw took a different position and asked for a decision on the matter before he returned to the United States but nothing was done about it. It is inter- esting to note that it was soon after the date of this visit to Ottawa that Mr. Ball commenced his investigation. There was no change in Mr. Shaw’s evidence on his cross-examination. He emphasized that while the payments were calculated on the selling price they had nothing to do with it but were compensation payments for services rendered.
Mr. John Stuart, the defendant’s president, described the manner in which he and then the defendant had done business with Smith Brothers Inc. He was not an agent for the sale of its goods but a purchaser of them. He did not pay for them on their receipt but waited until after he had sold and delivered them to his customers. Then he paid for them in full in United States funds. After the incorporation of the defendant its relationship to Smith Brothers Inc. was exactly the same as his had been. Mr. Stuart received his first payment of 5 per cent from Smith Brothers Ine. in the spring of 1937. It came as a complete surprise to him. Later that year he saw Mr. Bates, who was then the advertising manager of Smith Brothers Inc., and received a further cheque from him with the intimation that Mr. Bates wanted him to work hard and that further cheques would be forthcoming but he emphasized that he never had any agreement with Smith Brothers Inc. by which he had any right to receive any payments. The payments continued to be made to him until October, 1949, even after the defendant had been incorporated and was the purchaser of the goods. Mr. Stuart then got into income tax and Foreign Exchange Control Board difficulties. He had a meeting with the defendant’s board of directors in the course of which he maintained that the payments were his since he was getting them as personal payments for the job that he was doing but it was pointed out to him that it would be better for him from an income tax standpoint to turn the moneys over to the defendant and he did so. He then notified Smith Brothers Inc. not to send any further cheques to him but to send them to the defendant. Mr. Stuart said that he always paid Smith Brothers Inc. in full for the goods received from it before he received any payments from it. Smith Brothers Inc. was always urging him to increase his sales. Mr. Shaw attended meetings with him and his salesmen and gave them hard selling talks. Mr. Stuart always made Smith Brothers Inc. his number 1 item. It was number 1 in his price books, in his report form and in his catalogue. He was getting something extra for making Smith Brothers Inc. his number 1 item in his business. This was over and above his income from the profit on the sale of the goods. There was never any agreement that it should be paid.
This case is not free from difficulty. It was contended for the Crown that the payment of $30,616.33 by Smith Brothers Inc., partly to Mr. Stuart for the period from September, 1948, to October, 1949, and the remainder to the defendant for the period from October, 1949, to June 1, 1951, amounting to 5 per cent of the selling price of the goods had the effect of reducing the selling price to the defendant by the amount of the payment and thus brought the case within the ambit of Section 6(1) of the Customs Tariff, that the payments were a rebate of the selling price of the goods and had the effect of reducing it and thus attracting special or dumping duty and that if effect were to be given to the submission of the defendant there would be nothing to prevent exporters from dumping goods into Canada by indirect methods similar to the one used by Smith Brothers Ine. The reality of the transaction was said to be that Smith Brothers Inc. actually sold the goods to the defendant at 5 per cent below their fair market value and so brought the transactions within the ambit of Section 6(1) of the Customs Tariff.
It was also submitted for the Crown that although $7,801 out of the total commissions paid by Smith Brothers Inc. had been paid to Mr. Stuart personally this amount really belonged to the defendant and the decisions in Boston Deep Sea Fishing and Ice Company v. Ansell (1888), 39 Ch. D. 339, and Reading v. Attorney-General, [1951] A.C. 507, were cited in support of this submission.
If the only evidence in this case had been that adduced on behalf of the plaintiff I would have been inclined to give effect to the Crown’s claim. It was not unreasonable on Mr. Ball’s part after he had made his investigation to assume that the payment of the 5 per cent commission based on the selling price of the goods constituted a rebate of selling price so that the actual selling price was 5 per cent less than the fair market value of the goods.
But after careful consideration of the matter I have come to the conclusion that on the evidence as a whole it would not be proper to charge the defendant with a special or dumping duty. In coming to this conclusion I am not unmindful of Section 2(2) of the Customs Act which provides:
“2. (2) All the expressions and provisions of this Act, or of any law relating to the Customs, shall receive such fair and liberal construction and interpretation as will best ensure the protection of the revenue and the attainment of the purpose for which this Act or such law was made, according to its true intent, meaning and spirit.”
But while the mandate of this section must be kept in mind it is essential to determine the reality of the transactions in question to see whether they were really such as to bring them within the ambit of Section 6(1) of the Customs Tariff and make the defendant liable to special or dumping duty.
As I see it, the question to be determined is not whether the 5 per cent payments had the effect of reducing the selling price of the goods to the defendant but rather what their true nature was. In the first place, it is plain that, although they were called commissions, they were not commissions for that term connotes that the relationship between John Stuart and then the defendant on the one hand and Smith Brothers Inc. on the other was that of agent and principal. But that was not the relationship. Neither John Stuart nor the defendant was an agent of Smith Brothers Inc. Thus, whatever the nature of the payments were they were not commissions in the ordinary sense of the term.
Nor were they rebates of the selling price to the defendant. The term rebate is defined in the New English Dictionary, Volume VIII, as follows :
il A deduction from a sum of money to be paid, a discount; also, a repayment, drawback.”
The evidence of Mr. Shaw makes it clear, in my opinion, that the 5 per cent payments made by Smith Brothers Inc. were not rebates of selling price to the defendant within any of the meanings mentioned. I was favourably impressed with the manner in which he gave his evidence and I am satisfied that his explanation of why the payments were made was true. In my judgment, his explanation should be accepted. There was no intention on the part of Smith Brothers Inc. to give John Stuart or the defendant a rebate of the selling price of the goods and so make Smith Brothers Inc. a party to dumping the goods into Canada. If Mr. Shaw had any thought in his mind that the payments constituted rebates of selling price and that Smith Brothers Incorporated were guilty of dumping the goods into Canada he would never have told the customs officers in Ottawa what his company had been doing.
I, therefore, accept Mr. Shaw’s statement that the payments were made to Mr. Stuart for his special efforts in pushing the sale of Smith Brothers Inc. cough drops and keeping its name in the forefront of Mr. Stuart’s activities. They were made for valuable performance on Mr. Stuart’s part. That was the reality of the transactions. The fact that the payments were calculated on the amount of the selling price of the goods does not mean that they were rebates of it. Since they were based on Mr. Stuart’s performance there was no reason why the value of his performance should not be measured by the quantum of the sales made. Moreover, the payments were voluntary and entirely at Mr. Shaw’s discretion. And it is quite clear that they were intended to be for Mr. Stuart because of his performance and not for the defendant and that the only reason that they were made to it was that Mr. Stuart for income tax incidence reasons so instructed.
I should also add that while the receipt of the payments was kept secret by Mr. Stuart and he did not show them in his income tax returns, as appears from Exhibit 10, it does not follow from such secrecy and failure to disclose that the payments were rebates of selling price.
Nor was there any evidence to support the allegation in the statement of claim that the defendant had filed false invoices or violated any of the provisions of Section 203(b) of the Customs Act.
In my opinion, the payments made by Smith Brothers Ine. to Mr. Stuart and the defendant were not rebates of the selling price of the goods imported by the defendant during the period in question and the selling price of the goods to the defendant was not rendered less than their fair market value. Consequently, the case does not fall under the ambit of Section 6(1) of the Customs Tariff and the plaintiff’s action for special or dumping duty must be dismissed with costs.
Judgment accordingly.