1. Recovery of sales tax under Special War Revenue Act — Goods not physically delivered — Property not passed to purchaser. (Para 1 , 2 , 4 )
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1946 Supreme(SC) 37
Privy Council At Canada
Uthwatt, Porter , Wright, Macmillan, Justice Lords Thankerton, JJ.
The King -Appellant
Versus
Dominion Engineering Co., Ltd -Resopndent
Privy Council Appeal No. 76 of 1945
Decided On : 10-10-1946
Advocates Appeared:
Lawrence Jones and Co., Charles Russell and Co., Sir Valentine Holmes, L.A. Forsyth, King , W.R. Jackett, Frank Gahan , H.E. O’Donnell
Lawrence Jones and Co., Charles Russell and Co., Sir Valentine Holmes, L.A. Forsyth, King , W.R. Jackett, Frank Gahan , H.E. O’Donnell
Where a tax statute contains conflicting provisos regarding the timing of tax liability—one for progress payments and another for cases of no physical delivery—the later proviso prevails, making tax payable only upon the passing of property if no physical delivery occurs.
Headnote:(A) Special War Revenue Act - Section 86(1) - Consumption or sales tax - Liability for tax in contracts for manufactured goods - Point of time for tax attachment - Notional delivery vs. physical delivery - Conflict between provisos - Later proviso prevails as the last intention of the legislature. (Paras 5-7)
(B) Statutory Interpretation - When two provisos in a section are repugnant, the one appearing last in the enactment prevails. (Para 7)
Facts of the case:
A manufacturer contracted to supply machinery to a purchaser for a specified sum, payable in monthly progress instalments. The contract stipulated that property and possession would not pass until full payment was made. The purchaser paid six instalments, on which tax was paid, but subsequently became insolvent. The remaining instalments remained unpaid, and the machinery was never physically delivered. The revenue authority sought to recover sales tax on the unpaid instalments.
Findings of Court:
There was no physical delivery of the goods, and the property in the goods never passed to the purchaser. Consequently, the tax had not become payable.
Issues: Whether the tax liability on progress payments under the first proviso of the statute is overridden by the second proviso when there is no physical delivery and property has not passed.
Ratio Decidendi: The court held that the second proviso, which specifies that tax is payable when property passes in cases where there is no physical delivery, qualifies both the main enactment and the first proviso. Since the second proviso appears last in the enactment, it represents the final intention of the legislature and prevails over the first proviso. (Paras 6-7)
Result: Appeal dismissed.
Legal Category Hierarchy
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tax law
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sales tax
- taxable event (Para 1)
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sales tax
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statutory interpretation
- conflict of provisions
Table of Contents
2. When is sales tax generally payable for goods produced in Canada under the Special War Revenue Act?
The tax is generally imposed, levied, and collected at the time of the delivery of the goods to the purchaser. (Para 1 )
3. How is sales tax treated for contracts where payment is made by instalments and property passes at a future date?
Such transactions are regarded as sales and deliveries, with the tax payable pro tanto at the time each instalment falls due and becomes payable. (Para 1 )
Lord Macmillan:-
The Crown is here the appellant in a claim to recover from the respondents, the Dominion Engineering Company Limited (hereinafter called "the Dominion Company") the sum of $10,844.46 as sales tax, together with penalties, under S. 86, Special War Revenue Act, Chap. 179 of the Revised Statutes of Canada, 1927, as amended by subsequent enactments. The claim of the Crown has been rejected by the Exchequer Court of Canada (Angers J.) and by a unanimous judgment of the Supreme Court. The terms of S. 86 (1), Special War Revenue Act, under which the Crown seeks to impose liability on the Dominion Company are as follows:-
"86 (1) There shall be imposed, levied and collected a consumption or sales tax of 8 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 the delivery of such goods to the purchaser thereof.
Provided that in the case of any contract for the sale of goods wherein it is provided that the sale price shall be paid to the manufacturer or producer by instalments as the work progresses, or under any form of conditional sales, agreement, contract of hire-purchase or any form of contract, whereby the property in the goods sold does not pass to the purchaser thereof until a future date, notwithstanding partial payment by instalments, the said tax shall be payable pro tanto at the time each of such instalments falls due and becomes payable in accordance with the terms of the contract, and all such transactions shall for the purposes of this section, be regarded as sales and deliveries.
Provided further that in any case where there is no physical delivery of the goods by the manufacturer or producer, the said tax shall be payable when the property in the said goods passes to the purchaser thereof."
[2] The transaction which has led to the present claim was entered into between the Dominion Company and the Lake Sulphite Pulp Company Limited (hereinafter called "the Pulp Company") in 1937. On 6th August of that year a contract was concluded between these two Companies whereby the Dominion Company undertook to manufacture for and supply to the Pulp Company a pulp-drying machine with accessories and spare parts for the sum of $488,335. The contract provided that the price should be paid in nine monthly "progress payments" of $48,800 each, the first instalment to be payable on 5-7-1937 (the contract proposal having been made on 5th June) and the remaining eight instalments on 5th day of each succeeding month until a total of $439,200 had been paid. Final payment of the balance of the price was to be made after the machine was placed in operation but in no event later than six months from the date of final shipment or offer of shipment of the apparatus from the Dominion Company's works. The contract expressly provided that the property and right of possession of the apparatus should not pass from the Dominion Company to the Pulp Company until all the stipulated payments should have been fully made in cash.
[3] The first six progress payments were made by the Pulp Company to the Dominion Company, the last payment being made on 11-1-1938, of the instalment due on 5-12-1937, which was delayed because the Dominion Company had fallen behind with the construction of the machine. Sales tax was paid by the Dominion Company on each of these instalments.
[4] Early in February 1938, the Dominion Company became aware that the Pulp Company had become involved in serious financial difficulties. Work on the machine was thereupon stopped. On 22-2-1938, an order was made for the winding up of the Pulp Company. No further payments were received by the Dominion Company and the three last instalments of the price of the machine as well as the final sum remain unpaid. The claim of the Crown is for sales tax on these three unpaid instalments. The machine was never delivered to the Pulp Company and all that was shipped to it was a consignment of sole plates of the v
