A-123-78
Eastern Provincial Airways (1963) Limited
(Appellant) (Defendant)
v.
The Queen (Respondent) (Plaintiff)
Court of Appeal, Pratte, Heald and Ryan JJ.—
Ottawa, May 1 and 4, 1979.
Excise tax — Federal sales tax — Remission of tax pursu
ant to Aircraft (Combined Services) Remission Order — Com
mercial aircraft purchased by importer with fleet providing
both domestic and foreign service — Whether importer's fleet,
for purposes of Order, composed only of qualifying aircraft
actually used in both kinds of services or whether fleet com
posed of all its qualifying aircraft irrespective of fact that
some aircraft flown exclusively on domestic or international
routes — Excise Tax Act, R.S.C. 1970, c. E-13, ss. 27, 54 —
Aircraft (Combined Services) Remission Order, SOR/70-87 as
amended by SOR/71-50, ss. 2, 3(1),(2).
This is an appeal from a judgment of the Trial Division
ordering appellant to pay the respondent the unpaid balance of
sales tax in respect of the importation by appellant of aircraft
into Canada. The Aircraft (Combined Services) Remission
Order provides that, on certain conditions, the air carrier who
imports an aircraft "for use in combined international and
domestic service" is entitled to a remission of a portion of the
sales tax "equal to the international usage percentage of the
fleet of the importer during the year of importation". The sole
issue between the parties is whether, for purposes of the Order,
an importer's fleet which provides both domestic and interna
tional services is composed only of its qualifying aircraft which
were actually used in both kinds of services or whether it is
composed of all its qualifying aircraft irrespective of the fact
that some of these aircraft may have been used exclusively on
international or domestic routes.
Held, the appeal is dismissed. The word "service" is used in
the singular in the phrase "combined international and domes
tic service" and, in the French version of the Order, the same
expression is translated by the words "un service combiné
international et national"; this supports respondent's view that
the fleet is composed of all its qualifying aircraft irrespective of
the fact that some of these aircraft may have been used
exclusively on international and domestic routes. This fact also
suggests that, for the drafter of the Order, the international and
domestic services operated by an air carrier constituted only
one service. If that is so, it is clear that an aircraft is used in
such a service irrespective of the fact that it might have been
used in only one of its branches. The Trial Judge's conclusion is
also supported by the absurd consequences which would flow
from the interpretation suggested by the appellant: the sales tax
on identical imported aircraft serving identical fleets would be
different merely by reason of one carrier choosing to use all his
aircraft on both domestic and international routes while the
other used some equipment exclusively on domestic routes.
APPEAL.
COUNSEL:
John M. Coyne, Q.C. and Kenneth L. W.
Boland for appellant (defendant).
Edward R. Sojonky and J. P. Malette for
respondent (plaintiff).
SOLICITORS:
Herridge, Tolmie, Ottawa, for appellant
(defendant).
Deputy Attorney General of Canada for
respondent (plaintiff).
The following are the reasons for judgment
rendered in English by
PRATTE J.: This is an appeal from a judgment
of the Trial Division [[1979] 1 F.C. 831] ordering
the appellant to pay the respondent the sum of
$587,769.63 together with the penalty prescribed
by section 50(4) of the Excise Tax Act and the
costs of the action. That sum of $587,769.63 is the
unpaid balance of the sales tax which the Trial
Division held to be payable in respect of the
importation by the respondent of an aircraft into
Canada.
In 1973, the appellant, which already owned and
used four Boeing 737 aircraft, imported into
Canada another aircraft of the same type which it
had purchased for the sum of $5,331,683.19. Sales
tax in the amount of $639,801.98 would normally
have been payable by the appellant on the sale
price of that aircraft pursuant to section 27 of the
Excise Tax Act, R.S.C. 1970, c. E-13 (as amended
in section 24 of the Old Age Security Act, R.S.C.
1970, c. O-6, as amended). But the appellant was
entitled to a remission of a portion of that tax
under the provisions of the Aircraft (Combined
Services) Remission Order (P.C. 1970-356 [SOR/
70-87] as amended by P.C. 1971-142 [SOR/71-
50]). The appellant claimed to be entitled, under
that Order, to the remission of the sum of $601,-
238.98 and paid to the respondent the sum of
$38,563 as representing the unremitted portion of
the sales tax. According to the respondent's inter-
pretation of the Order, the amount of tax remitted
to the appellant was the sum of $13,469.35, and
the unremitted portion of the tax amounted to
$626,332.63. The respondent sued the appellant
claiming the unpaid balance of the tax and the
penalty prescribed by section 50(4) of the Excise
Tax Act. This is the action that was found to be
well founded by the judgment against which this
appeal is directed.
The sole issue in these proceedings relates to the
interpretation of the Aircraft (Combined Services)
Remission Order.' That Order provides that, on
certain conditions, the air carrier who imports an
aircraft "for use in combined international and
domestic service" is entitled to a remission of a
portion of the sales tax "equal to the international
usage percentage of the fleet of the importer
during the year of importation." (Section 3(2).)
It is sufficient, for the purposes of this case, to be familiar
with section 3 of the Order and with certain definitions con
tained in section 2. Those provisions read as follows:
3. (1) Subject to this Part and subsection 15(3), remission
is hereby granted to an importer of that portion, determined
in accordance with subsection (2), of the sales tax payable
under the Excise Tax Act and the Old Age Security Act, in
respect of
(a) qualifying aircraft, and
(b) engines designed to propel qualifying aircraft
that are imported by him on or after January 1, 1970, for use
in combined international and domestic service.
(2) The portion of the sales tax referred to in subsection
(1) is a percentage of the sales tax equal to the international
usage percentage of the fleet of the importer during the year
of importation.
2. In this Order,
"available ton miles" means the revenue miles flown by an
aircraft multiplied by the payload capacity in tons of that
aircraft;
"eligible carrier" means a common air carrier that is incor
porated under the laws of Canada or a province and
licensed by the Canadian Transport Commission to pro
vide international service to the public;
"fleet" means all qualifying aircraft that are owned or leased
by an eligible carrier and are used in combined interna
tional and domestic service;
"importer" means an eligible carrier;
In order to know the portion of the tax that,
under the Order, is remitted to an importer, it is
therefore necessary to calculate the "international
usage percentage of the fleet of the importer".
That calculation cannot be made without first
determining what constitutes the importer's fleet.
It is that determination which is at the source of
the dispute between the parties.
The word "fleet" is defined as follows in section
2 of the Order:
"fleet" means all qualifying aircraft that are owned or leased
by an eligible carrier and are used in combined international
and domestic service;
The sole issue between the parties is whether,
for the purposes of the Order, an importer's fleet
which provides both domestic and international
services is composed only of its qualifying aircraft
which were actually used in both kinds of services
or whether it is composed of all its qualifying
aircraft irrespective of the fact that some of these
aircraft may have been used exclusively on inter
national or domestic routes. If, as the appellant
contends, the first interpretation were to prevail, it
is common ground that the appellant's fleet for the
year here in question included only one aircraft
which flew both on international and domestic
flights and that the appellant was, as a conse
quence, entitled to the remission of the whole
amount of the tax that it failed to pay. If, on the
other hand, the second interpretation were to be
adopted, it is also common ground that the judg
ment of the Trial Division was well founded.
"international flight" means any flight other than a flight
originating and terminating in Canada;
"international usage percentage" means the percentage that
the available ton miles flown by a fleet on international
flights is of the total available ton miles flown by the fleet
during a year;
"qualifying aircraft" means an aircraft whose gross allow
able weight for take-off as prescribed by the Canadian
Transport Commission is not less than 64,500 pounds;
The expression "combined international and
domestic service" has no technical meaning. As
held by the Trial Judge, those words are used in
the Order in their usual sense which, I must
confess, is not too clear. According to the appel
lant, an aircraft is not used in "combined interna
tional and domestic service" unless it is used in
both international and domestic services. Accord
ing to the respondent, the air carrier which oper
ates both an international and a domestic service
must be said to operate a "combined international
and domestic service" and all the aircraft that he
uses in either branch of that combined service
must be held to be used in the combined service.
In my view, the learned Trial Judge was right in
adopting the respondent's interpretation of the
Order. The word "service" is used in the singular
in the phrase "combined international and domes
tic service" and, in the French version of the
Order, the same expression is translated by the
words "un service combing international et natio
nal" [emphasis mine]; this, in my view, supports
the respondent's view and suggests that, for the
drafter of the Order, the international and domes
tic services operated by an air carrier constituted
only one service. If that is so, then it is clear that
an aircraft is used in such a service irrespective of
the fact that it might have been used only in one of
its branches.
The conclusion reached by the learned Trial
Judge is also supported, in my view, by the absurd
consequences which would flow from the interpre
tation proposed by the appellant. Indeed, following
that interpretation, the amount of sales tax pay
able, on the importation of identical aircraft by
two air carriers providing exactly the same services
with two identical fleets, would be different merely
by reason of the fact that one of those air carriers
would have chosen to use all his aircraft on both
international and domestic routes while the other
would have used some of his equipment on domes
tic routes exclusively.
For these reasons, I would dismiss the appeal
with costs.
* * *
HEALD J.: I concur.
* * *
RYAN J.: I concur.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.