Jack Herdman Ltd. v. MNR, 83 DTC 5274, [1983] CTC 272 (FCA)

Thurlow, C J:—This is the first of two applications under section 28 of the Federal Court Act to review and set aside refusals by the Minister of National Revenue of the applicant’s applications for refunds of amounts paid by the applicant as tax on sales of oil. The oil was useful as heating oil or as fuel for diesel engines. At the material times oil for heating was exempt from sales tax, that for use as diesel fuel was subject to tax.

The amounts in respect of which refunds were applied for had been paid by the applicant in respect of sales of oil which to the applicant’s knowledge would be used by the purchasers as diesel fuel. The earlier of the applications for refund was made on May 5, 1981, and claimed amounts totalling $16,582.53 paid by the applicant for the period from May to October, 1977. Its refusal on August 5, 1981, is the subject matter of this application.

The other application for refund was made on January 27, 1982, and claimed amounts totalling $107,196.77 paid in respect of sales made during the period from November, 1977, to April, 1980. Its refusal on February 24, 1982, is the subject matter of the second of the section 28 applications.

With one exception, the material facts are the same with respect to both applications. Throughout the material times the applicant was an oil distributor. It simply bought oil from suppliers and sold it to customers. The exception was that in the months of December, 1977, and January and February, 1978, and in the months of December, 1979, and January and February, 1980, the applicant blended stove oil with the heating oil sold as diesel fuel to prevent jelling and maintain its usefulness as diesel fuel in cold weather. Amounts paid as taxes on sales of oil in those periods totalled $10,537.81 and were included in the second of the applications for refund.

The applicant’s suppliers were manufacturers or producers of oil. They were probably aware that some of the oil sold by the applicant would be sold by it for heating and some for diesel fuel. But they did not charge the applicant with federal sales taxes on any of the oil sold to the applicant and it is unlikely that they paid the sales tax on any of the oil. Nor did the applicant charge its diesel fuel customers with federal sales tax. Nothing in the evidence indicates that the applicant ever promised or represented to the supplier that the oil would be sold only for heating purposes or that tax would be paid by the applicant on behalf of the supplier on any of the oil sold for use as diesel fuel. Indeed, there is evidence that no such agreement or representation was ever made.

In 1974, on becoming an independent distributor (it had formerly been a distributor of Texaco products), the applicant had inquired of the Department as to its responsibility for the sales tax, and in November of that year, on the insistence of the Department, had applied for and received a sales tax licence under the Excise Tax Act. The respondent’s memorandum of argument asserts that the licence was issued after the applicant advised the Department of the blending. Thereafter, for some months, the applicant filed nil returns. What happened afterwards is described as follows in evidence giving by F M Herdman, the secretary-treasurer of the applicant, on discovery in another proceeding, which evidence, on consent, was used as part of the record on these applications.

Q All right, what happened after two or three months when you started sending in nil returns?

A Well, I got a frantic call one night about — I remember it was just before we went home so I figured it was about five o’clock at night — from the Department, and in the first place I was surprised because I didn’t know they worked that late. I’m sorry.

Mr Finlay: No, Mrs Herdman, that’s a valid observation, in my experience.

The Witness: No, it seemed it was a very frantic call because they said they decided after a lot of talking and this and that they decided yes, we did have to pay the tax, and not only that, they were going to make it retroactive to the date of licencing.

Q Mr James: And what did you do in response to that?

A I did what they told me. They said I had to pay the tax, so I paid it.

Q And did you pay under protest of any nature?

Mr Finlay: Just a second. You’re asking for a factual basis of this?

Mr James: Yes.

Mr Finlay: Do you understand the question? Did you pay under protest? Do you understand that question, Mrs Herdman?

The Witness: Well, yes, of course, I didn’t want to pay it.

Q Mr James: But did you send any correspondence protesting that you shouldn't have to pay the tax?

A Well, I don’t really understand the question. I didn’t know what I had to pay, you see. I asked them.

Q Did you seek any advice from anyone other than the Department?

A Our accountant, and he didn’t know any more.

Q All right, anyone else?

A No, there was nobody else we could go to.

The applicant subsequently made payments in respect of all the oil sold for diesel fuel. Its accounts were audited early in 1977 and it was asessed by the Department both for additional taxes and for penalties. The particular amounts assessed are not involved in these proceedings.

On these facts I think it is apparent that, with the possible exception of sales of fuel oil that had been blended by the applicant with stove oil,

(1) the applicant was not the producer or manufacturer of the oil it sold,

(2) the sales made by the applicant were not the sales upon which liability for sales tax arises under subparagraph 27(1 )(a)(i) of the Excise Tax Act‘, [1]

(3) the applicant was not a person required by the Excise Tax Act to account for or pay sales tax,

(4) the applicant was not a person who was required by the Excise Tax Act to apply for or obtain a sales tax licence or to file returns with respect to its sales of

Oil,

(5) the payments made by the applicant were induced by and resulted from the representations made by the department officials that the applicant was liable for tax on its sales of fuel oil and their demands for returns and payment of taxes.

The reasons given for the refusal of the first application for a refund were stated as follows in the Department’s letter of August 5th, 1981:

DETAILS OF ADJUSTMENTS

Section 1(d) of Schedule IV of the Excise Tax Act levies tax on diesel fuel at 4.618 cents per gallon. There is no provision for a refund of the tax remitted on fuel oil purchased unconditionally exempt and diverted for resale as diesel fuel.

I should note at this point that the applicant’s case is not one of a claim for money paid under duress such as was before the Court in The Queen v Premier Mouton Products Inc. [2] and Mouton Processors (Canada) Ltd v The Queen. [3] It is founded on the provision for refunds contained in subsection 44(1) of the Excise Tax Act.

At the material times subsection 44(1) provided:

44 (1) A deduction from, or refund of, any of the taxes imposed by this Act may be granted

(a) where an overpayment has been made by the taxpayer;

(b) where a refund or adjustment has been made to the taxpayer by a licensed air Carrier under Part Il for the taxes collected or paid on any transportation of a person by air that has not been provided or only partially provided by the air carrier or that has been collected in error by the air carrier;

(c) where the tax was paid in error;

(d) where the original sale or importation was subject to tax, but exemption is provided on subsequent sale by this Act;

(e) where goods are exported, under regulations prescribed by the Minister;

(f) where, due to changes in statutory rates of tax or for other reasons, stamps are returned for exchange; or

(g) where the original receipt of marketable pipeline gas or natural gas liquids was subject to tax under Part IV.1, but exemption is provided on subsequent use by that Part.

Prior to July 8, 1981, subsection 44(7) applicable at the time of the first application read:

44 (7) If any person, whether by mistake of fact or law, has paid or overpaid to Her Majesty any monies that have been taken to account as taxes imposed by this Act, such monies shall not be refunded unless application has been made in writing within four years after the monies have been paid or overpaid.

This provision was repealed on July 8, 1981, and substituted by a provision reading:

44 (7.1) Subject to subsection (7), no refund of moneys paid or overpaid in error, whether by reason of mistake of fact or law or otherwise, and taken into account as taxes imposed by this Act shall be granted under this section unless application in writing therefor is made to the Minister by the person entitled to the refund within four years after the time the moneys were paid or overpaid.

Further provisions of the amending Act were:

44 (7.2) An application under subsection (6), (7) or (7.1) shall be made in such form and in such manner as the Minister may prescribe.

(7.3) Where the Minister rejects in whole or in part an application under subsection (6), (7) or (7.1) for a refund, deduction or amount, the application ceases to have effect, for the purposes of determining whether the refund, or deduction may be granted or the amount may be paid, ninety days after notice of the rejection is sent to the applicant, unless, within that ninety day period, an application in respect of the refund, deduction or amount is made to the Tariff Board under section 59 or to the Federal Court under section 28 of the Federal Court Act.

The applicant’s case is that the amounts were paid as tax in error within the meaning of paragraph 44(1 )(c), that under that subsection when a payment of tax in error has been made, the payer is entitled to a refund which the Minister has no authority to refuse and that even if the authority of the subsection to make a refund is permissive, the refusal of the applicant’s applications was based on extraneous considerations, including the fact that the tax should have been paid on sale of the oil to the applicant, even though the applicant was not responsible for the payment of such tax and the alleged arrangement with “the petroleum industry”, of which the applicant was not aware, to forego collection of the tax from the oil producers as required by the statute in favour of collecting it from distributors.

The respondent’s answer, in summary, was that the refusals are not proper subjects for attack under section 28 of the Federal Court Act, that the Minister has a discretion under subsection 44(1) of the Excise Tax Act to refuse applications for refund and that the discretion to do so was properly exercised in respect of the applicant’s applications.

With respect to the respondent’s first point, it appears to me that there is in subsection 44(7.3) statutory recognition of the refusals, or rejections as the subsection calls them, as decisions that are reviewable under section 28. Accordingly, I am of the opinion that the court has jurisdiction to entertain the application.

With respect to the second point, sections 28 and 3 of the Interpretation Act provide:

28 In every enactment

“may” is to be construed as permissive;

“shall” is to be construed as imperative;

3 (1) Every provision of this Act extends and applies, unless a contrary intention appears, to every enactment, whether enacted before or after the commencement of this Act.

(2) The provisions of this Act apply to the interpretation of this Act.

(3) Nothing in this Act excludes the application to an enactment of a rule of construction applicable thereto and not inconsistent with this Act.

In view of these provisions and the decisions of the Privy Council in McHugh v Union Bank [5] , of the Supreme Court in Smith & Rhuland Ltd v The Queen Ex Rel Brice Andrews et al [6] , and of this Court in The Queen v Stevenson Construction Co Ltd [7] , I am of the opinion that the authority of subsection 44(1) to make refunds is permissive and leaves the authority charged with its administration with a discretion whether or not to grant the refund.

But that is far from saying that the authority can be exercised arbitrarily or capriciously. The statute authorizes a refund in particular situations. It does not authorize refusal for anything but sound reasons, for example, reasons grounded on the conduct of the applicant in relation to its proper liability for tax or its claim for a refund. Where it is apparent that the applicant is entitled to the money, whether because he has made errors in his calculations or because he has been unlawfully required to pay taxes that he did not owe or for which he was not liable to the Crown it would take reasons of equal or greater weight to justify keeping his money and depriving him of it.

Here the reasons given in the letters refusing refunds are in my view untenable. They miss the point that the amounts claimed were paid in error by a person who was not responsible for them and who was induced to pay them by the representations of the Department that that person was liable to the Crown for them. The reasons given in the letter to Price Waterhouse are also untenable. An arrangement by the Department with the “petroleum industry”, of which the applicant is not shown to have been aware, under which the Department would disregard the provisions of the statute and collect tax from distributors who were not liable under the Act for the tax, could scarcely be a reason for keeping the applicant’s money.

Nor can the Department, which demanded and exacted the tax from the applicant, be heard to say that the fact of payment by one not legally liable for the tax does not affect the situation from the Department’s point of view.

It was never brought home to the applicant that it was being required to pay tax on behalf of its supplier or anyone but the applicant itself. Further, what might result between the supplier and the applicant if the supplier were now assessed for the taxes besides being speculative is not a matter between the Department and the applicant. Moreover, in my view, save with respect to oil which the applicant blended, there is in the whole situation nothing that could serve to justify either the unlawful exaction by the Department from the applicant of tax of the amounts in question or the refusal to refund to the applicant what had been thus unlawfully exacted.

With respect to the oil which the applicant blended with stove oil before selling it, on such material as appears in the record, I am of the view that the applicant was liable to tax as a producer or manufacturer and that in the absence of facts indicating otherwise the refusal of a refund of the tax paid on sales of such oil has not been shown to be unjustified. That, as previously indicated, amount to $10,537.81 of the $107,196.77 claimed by the applicant’s second application.

I would set aside the refusals of refund and refer the matters back to the Minister for disposition on the basis that the applicant is entitled to the refund of $16,582.53 asked by its application of May 5, 1981, and to $96,658.96 of the refund asked by its application of January 27, 1982.

Le Dain, J:— This is a section 28 application to review and set aside the decision of the Minister of National Revenue on August 5,1981 rejecting an application for refund of sales tax under section 44 of the Excise Tax Act, RSC 1978, c E-13.

The rejected application is for refund of sales tax in the amount of $16,582.53 which the applicant claims to have paid in error on sales of fuel oil for use as diesel fuel during the period May to October 1977. The rejection on February 24, 1982 of a further application for refund of sales tax in the amount of $107,196.77, which the applicant claims to have paid in error on sales of fuel oil for use as diesel fuel during the period October 1, 1977 to April 23, 1980, is the subject of a second section 28 application in Court File A-297-82. The two applications were heard together. Although there is an additional issue raised by the other section 28 application it is convenient to state the common background of the two claims for refund in these reasons.

During the relevant periods the applicant was a distributor of furnace oil and stove oil which it bought from refiners and sold to retailers and consumers. It sold a certain quantity of the furnace oil for use as diesel fuel. During the severe weather in the winter months it blended the furnace oil with stove oil to prevent jelling, but that is relevant only to the period covered by the second claim for refund. During these periods the sale of furnace oil and stove oil was exempt from federal sales tax, except when sold for use as diesel fuel. This resulted from subsection 29(1) of the Excise Tax Act and item 5 of Part VI of Schedule III of the Act, which are as follows:

29 (1) The tax imposed by section 27 does not apply to the sale or importation of the articles mentioned in Schedule III.

5 Fuel for lighting or heating, but not including fuel when for use in internal combustion engines; crude oil to be used in the production of fuel.

Tax payable in respect of the sale of goods produced or manufactured in Canada, as was the case here, is payable by the producer or manufacturer, according to paragraph 27(1 )(a) of the Act, which reads in part as follows:

27 (1) There shall be imposed, levied and collected a consumption or sales tax of nine per cent on the sale price of all goods

(a) produced or manufactured in Canada

(i) payable, in any case other than a case mentioned in subparagraph (ii) or (iii), by the producer or manufacturer at the time when the goods are delivered to the purchaser or at the time when the property in the goods passes, whichever is the earlier.

Although the applicant’s suppliers knew that it was selling some of the furnace oil for use as diesel fuel, they did not require payment of sales tax. The furnace oil and stove oil was sold to the applicant as exempt from federal sales tax.

The applicant, which began business in the mid-1960s, did not pay sales tax on its sales of fuel oil for use as diesel fuel until 1975. In November 1974, after hearing from a competitor that there was some “hidden tax” involved, the applicant enquired from the Department as to whether there was any tax payable. After looking into the nature of the applicant’s business the Department informed the applicant that it should take out a manufacturer’s or producer’s sales tax licence but that no tax would be payable on its sales of fuel oil, and that the applicant should file nil returns. A licence was issued to the applicant on November 26, 1974, and it filed returns as suggested until April 1975, when it was informed by the Department that it would be required to pay tax on its sales of fuel oil for use as diesel fuel with effect from the date of its licence. The applicant did as directed. When its business was sold in 1980 the applicant learned that it had not been legally obliged to pay sales tax on the sales of diesel fuel and that its competitors in the distribution of fuel oil had not paid the tax. As a result the applicant claims to have been placed at a competitive disadvantage. It made the application for refund, the particulars of which have been set out above, on May 5, 1981 and January 27, 1982 respectively.

The reasons given on behalf of the Minister for rejection of the applicant’s claim for refund of May 5, 1981, which are to be taken as applicable to the claim of January 27, 1982 as well, are contained partly in a letter of August 5, 1981 informing the applicant of the rejection, but mainly in a letter of November 2, 1981 from K M Burpee, Director, Tax Interpretations, Excise, to Price Waterhouse, the applicant’s accountants. In the letter of August 5, 1981 it is said:

Section 1(d) of Schedule IV of the Excise Tax Act levies tax on diesel fuel at 4.618 cents per gallon. There is no provision for a refund of the tax remitted on fuel oil purchased unconditionally exempt and diverted for resale as diesel fuel.

The letter of November 2, 1981 contains the following paragraphs:

The exemption from tax for fuel for lighting or heating is not an unconditional exemption. The condition “but not including fuel when for use in internal combustion engines” clearly limits the exemption. Since fuel oil for use in internal combustion engines is specifically excluded from exemption, sales of fuel oil which include fuel oil for use in internal combustion engines are subject to tax at the time of sale by the manufacturer.

Since the exemption is conditional, fuel should have been purchased tax paid by distributors and exemption claimed on fuel used for lighting or heating. At the request of the petroleum industry, the Department agreed that all heating fuel could be sold tax exempt to distributors and the sales taxes owing on any fuel diverted to a taxable use would be remitted by the distributor to the Department either directly or via the manufacturer.

In the situation at hand there is no question that the sales tax paid was actually owing to the Crown. The fact that the tax was paid by a person other than the one who was legally liable for it does not affect the situation from the Department’s point of view. Had the sales tax been paid properly in the first place the tax would have been remitted by the manufacturer and billed to Herdman. If a refund of the sales tax was paid to Herdman and assessed to the manufacturer at this time, the manufacturer would recover the tax from Herdman for the sales tax assessment.

The relevant part of section 44 of the Excise Tax Act provides for refund as follows:

44 (1) A deduction from, or refund of, any of the taxes imposed by this Act may be granted

(c) where the tax was paid in error;

Subsection (7.1) of section 44 provides:

(7.1) Subject to subsection (7), no refund of moneys paid or overpaid in error, whether by reason of mistake of fact or law or otherwise, and taken into account as taxes imposed by this Act shall be granted under this section unless application in writing therefor is made to the Minister by the person entitled to the refund within four years afer the time the moneys were paid or overpaid.

Subsection (7.3) of section 44 reads as follows:

(7.3) Where the Minister rejects in whole or in part an application under subsection (6) (7) or (7.1) for a refund, deduction or amount, the application ceases to have effect, for the purposes of determining whether the refund, or deduction may be granted or the amount may be paid, ninety days after notice of the rejection is sent to the applicant, unless, within that ninety day period, an application in respect of the refund, deduction or amount is made to the Tariff Board under section 59 or to the Federal Court under section 28 of the Federal Court Act.

Before considering the merits of the section 28 application it is necessary to deal with the respondent’s contention that the Court is without jurisdiction to entertain the application because the Minister’s decision in rejecting a claim for refund under section 44 of the Excise Tax Act is not a decision required by law to be made on a judicial or quasi-judicial basis. Reference was made to the criteria indicated in MNR v Coopers and Lybrand, [1979] 1 SCR 495; [1979] 1 CTC 352; 79 DTC 5273, for determining when a decision is of this character. I do not find it necessary to consider their application to the Minister’s decision because there is a clear indication in subsection (7.3) of section 44 of the Excise Tax Act, which I have quoted above, that the decision is to be subject to attack under section 28 of the Federal Court Act. This expression of legislative intention disposes conclusively, in my opinion, of the question of jurisdiction.

The applicant contends that the Minister erred in law in rejecting its claim for refund. It supports this contention by alternative submissions which may be summarized as follows:

1 Where sales tax has been paid in error and an application for refund has been made in accordance with section 44, there is a right to a refund, and it is an error of law to refuse such refund for any reason, and in particular for the reason that the tax was payable by another person;

2 If the Minister has a discretion under section 44 as to whether to make a refund of tax paid in error, the reason given for the rejection in this case was extraneous or irrelevant to the exercise of the discretion, and was therefore an error of law.

These contentions were opposed by the respondent, who further submitted, in support of the Minister’s decision, that the tax was not paid in error within the meaning of paragraph 44(1 )(c) of the Act. The respondent argued that the word “error” in paragraph 44(1 )(c) should not be construed to include mistake of law as well as mistake of fact because of the common law rule that there is no right to recover money paid under mistake of law in cases in which the doctrines of in pari delicto and compulsion are not applicable. Reference was made to the majority judgment of the Supreme Court of Canada in Hydro Electric Commission of Township of Nepean v Ontario Hydro, [1982] 1 SCR 347. The short answer to that contention is, I think, that the wording of subsection 44(7.1) of the Act — “paid or overpaid in error, whether by reason of mistake of fact or law or otherwise” — makes it plain that “error” in paragraph 44(1 )(c) is to be understood as including mistake of law as well as mistake of fact.

The respondent also argued that “error” in paragraph 44(1 )(c) refers to error as to whether the tax is payable at all and not error as to the person who is obliged to pay it. In my opinion this contention is without merit. There is no reason to distinguish the two kinds of error. They are both errors as to whether there is a legal obligation to pay the tax.

Finally, the respondent contended that the applicant had not discharged the burden of proving that the payment was made in error because it had not rebutted the possible inference, arising from the understanding with the petroleum industry to which Mr. Burpee referred in his letter of November 2, 1981, that the tax was paid voluntarily pursuant to an understanding with the producer or manufacturer that if tax became payable because of the sale of the fuel oil for use as diesel fuel it would be paid by the distributor in discharge of the liability of the producer or manufacturer. In my opinion the evidence given on behalf of the applicant by Mrs Herdman, in the discovery that was made part of the record, excludes such an inference. It shows that the tax was paid by the applicant not because of an understanding with the refiners but because the applicant was told by the Department that it was required to do so. The applicant paid the tax under the mistaken belief that it was legally obliged to pay it. During the period that is relevant to this section 28 application there was no question of the applicant being a producer or manufacturer by reason of the blending of furnace oil and stove oil. The applicant was, therefore, not legally obliged to pay the tax, and the tax was accordingly paid in error within the meaning of paragraph 44(1)(c) of the Act.

I turn now to the question whether a refund in the cases specified in subsection 44(1) of the Act is a matter of right or discretion. That is the question whether the word “may” in subsection 44(1) is to be construed as permissive or imperative. The general rule, of course, is that which is found in section 28 of the Interpretation Act, RSC 1970, c 1-23: the word “may” is to be construed as permissive, and the word “shall” is to be construed as imperative. Although section 28 does not contain the provision found in other interpretation statutes that the rules which it declares are to apply unless the context otherwise requires, I think a similar result is effected by section 3 of the Act which declares that the provisions apply “unless a contrary intention appears” and that the Act does not exclude an applicable rule of construction that is not inconsistent with it. In my opinion this provision permits one to look at the context in which the word “may” appears and to consider the possible application of the principle affirmed in Julius v Lord Bishop of Oxford (1879-80), 5 App Cas 214 that a power may be coupled with a duty when its exercise is necessary to the effectuation of a right.

In so far as context is concerned, subsections (6), (7) and (7.1) of section 44 speak of the person “entitled” to the refund. That is an indication in my opinion that a refund is regarded by the statute as a matter of entitlement or right in the cases specified in subsection 44(1) and that the authority conferred on the Minister to make a refund is conferred as the means for giving effect to this right and thus gives rise to a duty on the principle recognized in Julius v Lord Bishop of Oxford.

It must be noted, however, as was pointed out in argument, that this Court held in The Queen v' Stevenson Construction Co Ltd, [1979] CTC 86; 79 DTC 5044 that there was a discretion, and not a duty, to grant a refund in the cases specified in subsection 44(2) of the Act. That subsection, which is in the same terms as it was then, except for a reference to a new subsection 44(2.1), reads as follows:

(2) Where goods have been purchased by Her Majesty in right of any province of Canada for any purpose other than

(a) resale;

(b) use by any board, commission, railway, public utility, university, manufactory, company or agency owned, controlled or operated by the government of the province or under the authority of the legislature or the lieutenant governor in council, or

(c) use by Her Majesty or by Her agents or servants in connection with the manufacture or production of goods or use for other commercial or mercantile purposes,

a refund of taxes paid under Part Ill, IV or V may be granted to Her Majesty or to the importer, transferee, manufacturer, producer, wholesaler, jobber or other dealer as the case may require.

The Court based its conclusion in Stevenson Construction on what was said in McHugh v Union Bank, [1913] AC 299 and Smith & Rhuland Limited v The Queen Ex Rel Brice Andrews et al, [1953] 2 SCR 95 concerning the importance and application of a statutory direction such as that found in section 28 of the Interpretation Act. The pertinent passages from these decisions are quoted in the reasons which I wrote for the Court in Stevenson Construction. The essential burden of them is that there must be compelling reasons in the context for departing from the rule that “may” is to be construed as permissive. While the word “entitled” was in subsection 44(6) of the Excise Tax Act as it applied to that case, I attached particular importance to the fact that in Smith & Rhuland six of the seven judges in the Supreme Court of Canada held that the power to certify a union was a discretionary one despite the existence of the statutory conditions for certification and a provision referring to a union as “entitled” to certification in a particular case. That use of the word “entitled” was a principal reason for the opinion of the seventh member of the Court that there was a duty. to certify upon satisfaction of the statutory conditions. This Court also attached importance to the concluding words of subsection 44(2) — “to the importer, transferee, manufacturer, producer, wholesaler, jobber or other dealer as the case may require” — as indicating in its opinion why the subsection should be construed as conferring a discretion. It said: “It would appear that a discretion is necessary if only because of the need to determine the particular person or persons in a chain of transactions to whom a refund should be made in the circumstances of a particular case and the conditions of waiver or indemnity upon which such a refund should be made.”

While these words may have given particular support to the conclusion in Stevenson Construction, as indicating a reasonable scope for a discretion, I am of the opinion that the conclusion in that case should not be applied to the authority to grant a refund conferred by subsection 44(1), where it is difficult to perceive a comparable justification for a residual discretion. It has occurred to me, upon further reflection, that the decisive and overriding consideration in Smith & Rhuland, in so far as context was concerned, was the contrasting use throughout the Act of the words “shall” and “may”. It was this which was given particular emphasis in the majority opinion which did not refer to the word “entitled” in a provision of the Act referring to certification in a particular case. A contrasting use of “shall” and “may” was also a principal reason for the opinion in Re Falconbridge Nickel Mines Ltd and Minister of Revenue for Ontario, 32 OR (2d) 240 (CA), 25 OR (2d) 117 (Div Ct) that the word “may” in subsection 2(8) of the Retail Sales Tax Act, RSO 1970, c. 415, before it was amended in 1975, should be construed as conferring a discretion rather than a duty to make a refund of tax wrongfully paid. There is nothing comparable in the context of subsection 44(1) of the Excise Tax Act. In the result I am of the opinion that the applicant was entitled to a refund and that the Minister erred in law in refusing it.

For these reasons I would allow the section 28 application, set aside the Minister’s decision refusing the application for refund and refer the matter back to the Minister for disposition upon the basis that the applicant was entitled to the refund of $16,582.53.

Clement, D J:—I have had the advantage of reading the judgments proposed by Chief Justice Thurlow and Mr. Justice Le Dain in respect of this application, which is concerned with the claim made on May 5, 1981 by Jack Herdman Limited for refund of amounts aggregating $16,582.53 paid as excise tax. I agree that the application should be granted and that the refusal of the Minister to refund that amount to the company be set aside on the basis that it was paid in error and the company is entitled to its refund. In coming to this conclusion I have been influenced by my opinion of the conduction that should be put on subsection 44(1) of the Excise Tax Act (the Act) by which the refund is authorized, and the interpretation that should be put on the word “may” as it is used in the subsection. I put this opinion forward as an addition to the considerations expressed by Mr. Justice Le Dain on the point.

The relevant provision of the Act for the imposition of a consumption or sales tax (such as is in question here) is stated in broad terms by section 27. Exemptions from such tax are stated in clear and unequivocal language by subsection 29(1):

29 (1) The tax imposed by section 27 does not apply to the sale or importation of the articles mentioned in Schedule III.

Schedule III by Part VI 5 clearly and specifically includes in the exemption from such tax the fuel on which this issue arises.

Subsection 44(1) is directed to deductions, refunds and drawbacks of taxes imposed by the Act: in its relevant terms it provides:

44 (1) A deduction from, or refund of, any of the taxes imposed by this Act may be granted

(c) where the tax was paid in error;

The amount of $16,582.53 was paid as tax by the company in error. I am of opinion that in the circumstances in which this provision operates, the principle of interpretation expressed in Julius v Lord Bishop of Oxford, 5 AC 214 is applicable, and that the word “may” as it is used in the subsection permits the Minister to determine whether the facts of a case bring it within one or other of the several specific grounds for refund or deduction: and if such is found to be the case, then a clear and imperative duty arises — in this case to refund the amount paid in error.

The whole of subsection (1) is directed to the deduction from or refund of payments collected or received by the Crown as taxes imposed by the Act but which in fact and law were not exigible thereunder in the circumstances of the case. In the result the Crown has received payments to which in no wise nor under any guise is it entitled. Such is the case here. Looking at it as a matter of first impression one would think that the taxpayer would be entitled to refund ex debito justitiae, and I cannot believe that Parliament would give a discretion to the Minister to determine only whether or not an injustice to a taxpayer should be relieved. Certainly the language of subsection 44(6) does not derogate from this view in its use of the word “entitled”. It is clear to me that the refusal of the Minister to make the refund under this subsection is subject to review under the criteria formulated by Dickson, J in MNR v Coopers and Lybrand, [supra].

Subsection (1) operates in a different area from subsection (2). The latter is premised on taxes that have been properly imposed and collected, and in the defined circumstances gives to the Minister a discretion to refund them to one or of other designated persons “as the case may require”. The observation by Thurlow, A C J (now C J) in Northrup Corporation v R quoted by Mr Justice Le Dain in R v Stevenson Construction Co Ltd cannot, in my respectful view, have application to funds which are improperly in the consolidated revenue fund.

I am of the opinion that, to employ the words used by Lord Moulton in McHugh v Union Bank and adopted by Rand, J speaking for the majority in Smith v Rhuland there is in subsection 44(1) a clear case of impelling context that justifies giving an imperative construction to “may” as used in it, and that attracts the principle enunciated in Julius v Lord Bishop of Oxford.

Application allowed.