Minister of National Revenue v. Samuel M. Ogulnik & Co. Ltd., [1928-34] CTC 274

TELLIER, C.J.—The following is the provision of the Special War Revenue Act, R.S.C. 1927, c. 179, sec. 86 on which the plaintiff relies :—

" 1 86. In addition to any duty or tax that may be payable under this Act or any other Statute or law, there shall be imposed, levied, and collected a consumption or sales tax of four per cent on the sale price of all goods,—

"" (a) produced or manufactured in Canada, payable by the producer or manufacturer at the time of their sale by him.’’

Has the plaintiff ""produced or manufactured’’ the merchandise upon the sale price of which the plaintiff claims the said tax of four per cent? The evidence as well as certain allegations of the defence would seem to indicate the affirmative.

The following is the case for the defendant company ;

It carries on a business in Montreal in which as a rule and in the ordinary course of business makes or manufactures, upon order or in execution of bulk contracts, clothes, costumes or uniforms, furnishing the material for them and adjusting them to the measurement of those who wear them and delivering them finally to those who have ordered them. The orders or contracts come to him either from individuals who need clothes, costumes or uniforms for their own personal use or that of their dependents, or from large employers such as the Minister of National Revenue, Chamber of Commerce, Railway Companies or Hotels, the Liquor Commission, the Provincial Police, or others who need them for their employees.

It is evident that, under these conditions, the defendant must be considered as producing and manufacturing of clothes, costumes or uniforms leaving his establishment.

This would be sufficient to dispose of the case, if the Minister of National Revenue had not, in the exercise of the power conferred upon him by sec. 95 of the said Special War Revenue Act, enacted a regulation which the defendant invoked, the text of which is as follows :—

"‘(11) Merchant tailors, dressmakers, milliners and florists selling exclusively by retail to the consumer or user are classified as retailers and are not required to take out a Sales Tax License.

‘ " The terms ‘merchant tailor ‘ and ‘ dressmaker ‘ in this regulation means the ordinary merchant and the ordinary dressmaker who fits, makes and sells his goods to the order of the individual customer on the same premises upon which they are made and not through agents or chain of stores.’’

The defendant alleges that because of this provision he is exempted from the tax which the plaintiff claims from him.

The following is the text by virtue of which the Minister of National Revenue has enacted the said regulations :—

"‘The Minister may nevertheless direct that any class of small manufacturer or producer selling his product exclusively by retail, shall be exempt from payment of consumption or Sales Tax on goods manufactured or produced by him and persons so exempted shall not be given a License.’’

Is the defendant right in alleging that he is a merchant tailor as defined by the above Regulation?

As has been said above he makes or manufactures upon order clothes, costumes or uniforms for individuals to whom he sells retail for their own personal use or that of their dependents as well as for large or small organizations such as governments, Ministers, Municipal Corporations, Railway Companies, Hotels, etc., who order them wholesale or singly for their employees and officers.

In the first instance, he makes what the ordinary merchant tailor does in the case defined by the Regulations, in the second instance, his product is no longer that of the ordinary merchant tailor. It is true that these uniforms, which he delivers by virtue of a bulk order are always made to measure and adjusted to the figure of the various employees who must wear them; but that does not make his bulk sale a retail sale, since the employees are not parties to the contract and are used merely as models, so to speak.

Besides, the one who places the order in bulk is not necessarily the consumer. It is not a gift which he makes to his employees and officers when he turns over to them the uniforms which he has purchased for them. His contract with them is not gratuitous, but for value. He receives something, money or services, in return for each uniform. The contrary would be absurd.

The defendant has kept a separate account for his orders by retail and those in bulk. The arrears of tax claimed from his are calculated according to his own books as he admits. They concern only the uniforms sold in bulk, not those sold by retail. The following is the state of the total sales in bulk, and by retail for each one of the five years in question :—

As may be seen, the wholesale business exceeded that by retail considerably.

The defendant has no right to claim exemption from the tax which the plaintiff demands from him. Nor is he right when he alleges in his defence since this tax was not claimed from him at the time he was prevented from collecting it from his customers. The evidence shows the contrary. He himself understood that he was subject to the tax for since according to his books, his accounts and correspondence he seemed to have claimed it from his purchasers, and in certain cases at least to have received and kept it.

Under these conditions the plaintiff has a right to his claim. I would allow the appeal, and reverse the judgment below with costs. I would grant judgment to the plaintiff for $14,914.77 with interest to run from the date of the action and with costs; the interest to be calculated as fixed by the Special War Revenue Act and at the legal rate upon the surplus.

BERNIER, J.:—The question to decide is whether the appellant company comes under the exception provided by the Federal Statute, R.S.C. 1927 e. 179. Whoever purchases material with a view to making clothes and selling them is a merchant or manufacturer; it matters little whether he is a wholesale or retail merchant.

By virtue of sec. 95 of the Act, the Minister of National Revenue is authorized to exempt from payment of the Tax small manufacturers or producers who sell their goods exclusively by retail (Regulation 1 and 2).

Another Regulation states that the goods manufactured must be sold ‘‘to the order of the individual customer on the same premises upon which they are made, and not through agents or chain of stores.”

It seems that this regulation cannot have two interpretations : it means that the small manufacturer or whoever amounts to the same, the artisan or small producer must make the clothes and sell them to the client who gives his measurements for them ; in other words he must sell to the client himself who gives the order for his own personal use.

Does the appellant company come within the exception of the Act? I do not believe so, at least in regard to that part of his business which consists of receiving orders for the manufacture and sale in series of very considerable quantities of elothes manufactured by him, but with a view to being dis- tributed to the employees of large industries such as railways, hotels or large public institutions; in regard to this part of his business which is the only part for which he is taxed, the appellant company does not fall within the exception; it is subject to the Tax.

I would allow the appeal with costs.

RIVARD, J.:—The Special War Revenue Act, R.S.C. 1927, c. 178, sec. 86, places a consumption or sales tax upon "‘the sale price of all goods produced or manufactured in Canada.’’ That is the general rule. From these words themselves as well as from all that can be said as to the meaning of the terms "‘pro- duced or manufactured,’’ I have no hesitation in coming to the conclusion that the production of uniforms is included within that description. In order to exclude the business of a merchanttailor from this section, it would be necessary to place certain restrictions which cannot be admitted upon the text or to suppose that the Legislature wished to belie its words. What can a merchant-tailor do in his shop unless he manufactures or produces ?

If then, there were no exceptions to the general rule of sec. 86, the case would be determined.

But there are two exceptions which we must examine, in particular that provided by sec. 95(2) which authorizes the Minister of National Revenue to exempt from payment of the sales tax through regulations issued under the authority of sec. 99 "‘any class of small manufacturer or producer selling his product exclusively by retail.”

As to which it must be noted that the exemption must not exceed the limits of the provision authorizing the Minister to grant it. The Minister may exempt from the obligation of obtaining a licence and paying the sales tax only those who would be justly qualified as "‘small manufacturers or producers’’ and who sell only by retail. The exemption therefore may be granted only to retailers who produce only in small quantities; if its scope were increased still more, the exemption would be ultra vires.

Furthermore, that is what the Minister seems to have had in view when he enacted regulations for certain exemptions.

Regulation 11 exempts merchant-tailors ‘‘selling exclusively by retail to the consumer or user.’’ This addition of the words ""to the consumer or user’’ makes it plain that it relates rather to the small producer, or merchant-tailor whose business is rela- tively restricted. It is difficult indeed to conceive that a large manufacturer of clothes sells each one of his products to the individual who wears it ; he could occasionally sell to a consumer or manufacture certain clothes specially for him ; if he should do so regularly that would be a special enterprise, a distinct business, aside from the other which would require special entries in his books (as was done by the defendant). But it cannot be said that such large manufacturer sells his goods "‘exclusively to the consumer or user’’ as the principal and most important part of his business.

The Minister has however taken care to indicate more clearly that he intended to exempt from the payment of tax only the small merchant-tailor. In the said Regulation 11 he says:— "The term merchant tailor . . . means the ordinary merchant tailor who fits, makes and sells his goods to the order of the individual customer on the same premises upon which they are made, and not through agents or chain of stores.’’

Thus he very clearly extends the exemption to the small manufacturer who is an ordinary merchant-tailor; who in his shop receives the order of the customer, manufactures according to his instructions, and sells a suit or an overcoat. Is the suit made to the measure of the customer or of his employee? Would the overcoat be worn by him or by his chauffeur? It does not matter ; it is the work of an ordinary merchant-tailor, of a small producer, and under Regulation 11 he escapes the obligation to pay the tax. To him the client whose order he executed is deemed to be the customer just like the person who purchases groceries which members of his family help to consume. How could one liken to this small producer, the manufacturer equipped to make clothes on a large scale, who calls himself "‘contractor of uniforms and liveries,’’ who in a single year sells $169,328.83 worth of uniforms and in five years has sold $601,528.03 worth? These uniforms and liveries were made by requisition upon orders according to the instructions and orders from different corporations such as the C.P.R., the C.N.R., Mount-Royal Hotel, Ritz-Carlton Hotel, Chamber of Commerce, Minister of Public Works, Bank of Montreal, Provincial Police, etc., who wished large quantities for their employees. The fact that it was necessary to fit the uniforms to the measurement of each one, does not alter the transaction. The defendant none the less carried on his business upon a large scale; he produced liveries made to measure and when necessary sent his agents out to take the measurements wherever the employees happened to be; he made them in large quantities and upon orders not of those who were to wear them, but of the employers who pur- chased them to clothe their numerous servants and who paid for them all under contracts with each company.

That is not carrying on the business of a small manufacturer or ordinary merchant-tailor, or selling products exclusively by retail, nor selling them exclusively to consumer or user.

For that part of his business—the only part for which he is taxed—the defendant does not come within the exception; the general rule applies.

I would allow the appeal with costs, and condemn the defendant to pay $14,914.77, of which $11,78.12 is for taxes and $3,129.65 for interest accrued from the date of the action, with interest to run from December 1, 1930, at the rate of two-thirds of 1% per month (sec. 106(3) upon $11,785.12 and at the legal rate upon $3,129.65 plus costs.

LETOURNEAU, J.:—It seems to me that a merchant tailor is in fact and in principle a "‘producer’’ or a "‘manufacturer’’ (sec. 86(a)) ; however, the Minister is authorized to declare an exception in favour of every class of small producer or manufacturer carrying on business by retail (sec. 95(2)) ; and, in fact a regulation was enacted (Reg. 11) in favour of whoever is a merchant tailor within the meaning given to these words by the Act, that is, when whoever claims this quality receives and serves his client on his own premises without the use of agents or a chain of stores. As a result, I have come to the conclusion that the appellant is, by reason of these circumstances and of the evidence, within the limits of this definition given by the Act to the words ‘‘merchant tailor;’’ and upon the sole condition of coming within the provisions of the above mentioned regulation, I am of the opinion that the appellant could still benefit from the exception which he claims.

But is the appellant truly—at least in regard to the uniforms ordered from it by certain companies for their employees— within the condition provided by this regulation: "Selling exclusively by retail to the consumer or user?’’ I do not believe so, for if it is still possible to say that these companies which gave him orders in this way are really ‘‘the consumer and user’’ in the sense that these words could have in regard to each individual who might order for his wife, his children, his chauffeur, it remans that the sales arising out of these orders cease to be "exclusively by retail” when, as in the present case, they are for one or more classes of employees. Not only for these cases can it be said that the sales are wholesale because capable of being followed by sales by retail, as is generally the case, but rather because of not being "‘individual,’’ since this seems to have been the real criterion of the Legislature in making the law and of the Minister in enacting the above mentioned regulation. That is what in the last analysis seems to result from all the words "‘exclusively by retail to the consumer or user,’’ especially if one includes the words "‘individual customer’’ which are in the definition given to the word ‘‘merchant tailor” in the Act.

It is to be noted that the ‘‘individualization’’ which might be seen in the fact that each man had to furnish his measurements or have them taken, is independent of the contract, and does not have any bearing when it is the question of the validity of the contract, but has true relation only to its execution.

From which it follows in my opinion that these sales of the appellant to the companies from whom it had the orders were not ‘‘exclusively by retail.’’ As a result, the exception not being shown, the action is well founded. I would allow the appeal.

BOND, J.:—I would maintain the appeal for the reasons stated by Rivard, J.

Appeal allowed.