Pfizer Corporation v. The Queen

The two appellant companies sought, by way of petition of right, to recover sales tax paid under protest on a product in biscuit form sold CoRoTIoN and advertized for sale as a "limited calorie meal plan for weight et al.

control" under the trade mark "Limmits". The appellants claimed that these biscuits were exempt from sales tax as "foodstuff", more THE particularly as "bakers' biscuits or other similar articles", by reason of s. 32 and Schedule III of the Excise Tax Act, R.S.C. 1952, c. 100. The Crown contended that "Limmits" were subject to sales tax as "pharmaceuticals". The Exchequer Court dismissed the petition of right and ruled that "Limmits" were taxable. The taxpayers appealed to this Court.

Held (Ritchie J. dissenting): The appeal should be dismissed.

Per Abbott, Martland, Judson and Spence JJ.: The product "Limmits" was subject to sales tax. To be exempt from sales tax, a product must be a specific article described in Schedule III of the Excise Tax Act; in the present case, it had to be a "bakers' biscuit" or a "similar article". It had to be the ordinary product of the baker's art. It was certain that "Limmits" was not such a product. These biscuits were three times more expensive than baker's biscuits. They were advertised and sold not as a sweet or confection but as an elaborate, calorie-restricted meal for the purpose of reducing weight. Although manufactured by a baking company, they were produced for and under the specific direction of the appellants pursuant to a detailed formula supplied by them with ingredients compounded and provided by them, one of which was an inert appetite depressant.

Per Ritchie J., dissenting: Section 2(1) (cc) of the Excise Tax Act, by defining the meaning which Parliament intended to be attached to the word "pharmaceutical", does not have the effect of creating a distinct class of substance in contradistinction to and exclusion of the "foodstuffs" described in Schedule III. The character of a product for the purpose of entitling it to an exemption as a "foodstuff" under the Schedule is in no sense altered by the way in which it is sold or represented by the manufacturer or by the price charged for it. The product "Limmits" was a "bakers' biscuit" or at least a "similar Les deux compagnies appelantes ont cherch6, au moyen d'une p6tition de droit, h r~cup6rer la taxe de vente qu'elles avaient pay6e sous prot~t sur un produit sous forme de biscuit qu'elles vendaient sous la marque de commerce

'Limmits> et qu'elles annongaient comme 6tant un r6gime amaigrissant h calories limities. Les compagnies ont pr6tendu que ces biscuits 6taient exempts de la taxe de vente comme <denr6e alimentaire>, et plus particulibrement comme tant des cbiscuits de boulanger ou autres articles semblables., en se basant sur l'art. 32 et I'Annexe III de la Loi sur la taxe d'accise, S.R.C. 1952, c. 100. La Couronne a soutenu que le produit aLimmitsv 6tait sujet b la taxe de vente comme 6tant un aproduit pharmaceutiquea. La Cour de l'Tchiquier a rejet6 la petition de droit et a jug6 que le produit aLimmits> 6tait taxable. Les compagnies en ont appel6 devant cette Cour.

R.C.S.

Arrit: L'appel doit 6tre rejet6, le Juge Ritchie 6tant dissident.

Les Juges Abbott, Martland, Judson et Spence: Le produit cLimmits> FIR 6tait sujet la taxe de vente. Pour 6tre exempt de la taxe de vente, un produit doit 6tre un article sp4cifique d6crit dans l'Annexe III de et at. la Loi sur la taze d'accise; dans le cas pr6sent, il devait 6tre un abiscuit de boulangerD ou un carticle semblable*. Il devait Stre le THE produit ordinaire de 1'art du boulanger. Il est certain que le produit cLimmits> n'est pas un tel produit. Ces biscuits sont trois fois plus dispendieux que les biscuits de boulanger. Ils sont annonc6s et vendus non pas comme une sucrerie ou une friandise, mais comme 6tant un mets A calories restreintes dont le but est de faire perdre du poids. Quoiqu'ils soient confectionnis par une boulangerie, ils sont produits pour et sous la direction spicifique des appelantes en vertu d'une formule d~taill6e fournie par celles-ci et avec des ingr~dients compos6s et fournis par elles, un de ces ingr6dients 4tant un coupe-app6tit. Le Juge Ritchie, dissident: En donnant une d6finition du sens que le Parement voulait attacher aux mots aproduit pharmaceutiques, I'art. 2(1) (cc) de la Loi sur la taxe d'accise n'a pas l'effet de cr6er une classe distincte de substances en opposition avec et en exclusion des adenr6es alimentairess d6crites & l'Annexe III. Le caractbre d'un produit, lorsqu'il s'agit de l'exempter comme adenr6e alimentaire en vertu de l'Annexe, n'est aucunement chang6 par la manibre dont il est vendu ou reprdsent6 par le manufacturier on par son prix de vente. Le produit aLimmitsD 6tait un abiscuit de boulangerv ou au moins un 'article semblablep.

APPEL d'un jugement du Juge Dumoulin de la Cour de l'Pchiquier du Canada', d~clarant le produit <Limmits> sujet h la taxe de vente. Appel rejeti, le Juge Ritchie 6tant dissident.

APPEAL from a judgment of Dumoulin J. of the Exchequer Court of Canada', holding that the product "Limmits" was subject to sales tax. Appeal dismissed, Ritchie J. dissenting.

JUDSON J.:-In these proceedings, which are by way of petition of right, the two Pfizer Companies seek to recover sales tax paid under protest. The Customs and Excise Division began to exact this tax following a declaration of the Tariff Board in March of 1963, which held that "Metrecal", a product similar to the one with which we are here 1 [1965] C.T.C. 394, 65 D.T.C. 5245.

S.C.R.

119661 concerned, was not exempt from sales tax. The judgment of the Exchequer Court' was that the tax was payable. In my opinion this judgment should be affirmed.

The tax is imposed by s. 30 of the Excise Tax Act, R.S.C. 1952, 100, which reads as follows:

In addition to this sales tax there is a 3 per cent old age security tax collected with it, making a combined tax of 11 per cent. This is imposed by R.S.C. 1952, 200, s. 10. To be exempt the product must come within Schedule III of the Excise Tax Act and the appropriate part of the schedule reads:

In 1963 the following words were added after "similar articles":

The addition of these words does not affect the decision in this case.

The product in question is sold under the trade mark "Limmits". Pfizer claims that it is a food product in biscuit form sold and advertised for sale as a "limited calorie meal plan for weight control". It was made and baked for Pfizer by Christie, Brown and Co. Limited, who are bakers. The baker receives its manufacturing instructions from Pfizer but not all the information as to the contents of the biscuit is communicated to the baker. Several of the ingredients are referred to by code letters alone.

In the reasons for judgment of Dumoulin J., there is a full reproduction of the material appearing on the packet of biscuits, including directions and a description of the composition of the product. Briefly, two biscuits are recommended to replace breakfast or lunch, together with tea or coffee, but no cream. The object is to provide a nutritious, satisfying, calorie-limited meal in biscuit form with the object of losing weight. The contents are described in the following paragraph:

An important ingredient mentioned is "carboxymethyl cellulose". This is described as "a bulking agent" without nutritional value which swells in the stomach and gives a feeling of fullness.

There is nothing distinctive about the shell of the biscuits. They are like other biscuits in this respect. Their peculiarity is to be found in the contents above described. I have real doubt whether they can be described as biscuits at all. I think this word means the ordinary, everyday product. But of this I am sure, they are not "bakers' biscuits". They are three times more expensive than bakers' biscuits. They are advertised and sold not as a sweet or confection but as an elaborate, calorie-restricted meal for the purpose of reducing weight. Although manufactured.by a baking company, they are produced for and under the specific direction of Pfizer pursuant to a detailed formula supplied by Pfizer with ingredients compounded and provided by that company. Further, as already mentioned, a number of the ingredients are kept secret from the baking company. It is quite true that many foods are now sold with vitamins and other chemicals added. But to me the inert appetite depressant "sodium carboxymethyl cellulose" and its function to create the impression of fullness makes it impossible to hold that this product is a "bakers' biscuit".

It is unnecessary to go further than this. It is neither a "bakers' biscuit" nor a "similar article". Dumoulin J. put his judgment on three grounds. This is the only one I need to consider.

It is important to realize that under the Excise Tax Act all goods produced or manufactured in Canada are subject to tax. The exempting section 32(1) provides that It is not enough that a product may be described as a "foodstuff". To be exempt is must be a specific article described in Schedule III. The fact that one of the sections in Schedule III is headed "Foodstuffs" does not govern the decision. The article in question here must be a "bakers' biscuit" or a "similar article". This means the ordinary product of the bakers' art and it is certain that this article is not such a product.

I would dismiss the appeal with costs.

J. (dissenting):-I have had the advantage of reading the reasons for judgment of my brother Judson in which he has outlined the circumstances giving rise to this appeal and has cited the provisions of the Excise Tax Act pursuant to which the appellants claim exemption for their products.

The question to be determined on this appeal, as I see it, is whether the appellants' products, which are sold under the trade name "Limmits", are disentitled to the exemption from sales tax which is extended to "bakers' . . . biscuits ... or other similar articles" as "foodstuffs" within the meaning of Schedule III of the Excise Tax Act, by reason of the following facts:

(a) That they are sold or represented for use in the treatment, mitigation or prevention of a disorder or abnormal physical state in man, namely overweight; (b) that they are produced for, and under the specific direction of, the appellants pursuant to a detailed chemical formula prescribed by them and for which they supply the ingredients.

In summarizing his reasons for deciding that "Limmits" were not "foodstuffs" within the meaning of the Excise Tax Act, Mr. Justice Dumoulin concluded in the following terms:

The relevant provisions of s. 2(1) of the Act read as follows:

In the course of his reasons for judgment, Mr. Justice Dumoulin placed the following interpretation on the words PIZER "sold or represented" as they occur in this subsection: coet aloN In my humble opinion those three governing words have paramount sway over the Act and are mandatory unless superseded by an exception, expressed or logically inferred.

Ritchie J. It was convincingly shown, I believe, that the particular products, in biscuit form, called Limmits, were 'sold or represented' to the public at large precisely in the manner and for the purposes forseen by s. 2(1) (cc). How, then, could they escape the consumption taxes of eight percent and two percent imposed, respectively, by the Excise Tax and Old Age Security Acts?

Later in his judgment, the learned judge explained what he found to be the mandatory condition of the tax exemption in Schedule III in the following terms:

The determining, decisive, factor does not consist in the quantity of vitamins contained in, or calories excluded from, an edible substance; it is set and prescribed by the interpretative authority of a. 2(1) (cc) decreeing that: must be considered 'pharmaceuticals', unmentioned in Schedule III, 'any material, substance, mixture, compound or preparation, of whatever composition or in whatever form, sold or represented for use in the. . . treatment, mitigation or prevention of a . . . disorder (or) abnormal physical state . . in man'.

With the greatest respect for those who may hold a different view, I do not regard the subsection to which Mr. Justice Dumoulin refers as effective to do more than to define the meaning which Parliament intended to be attached to the word "pharmaceutical" as it is used from time to time in the Excise Tax Act, and I do not think that it has the effect of creating a distinct class of substance in contra-distinction to and exclusion of the "foodstuffs" described in Schedule III. If the definition of "pharmaceutical" had this effect it would mean, in my view, that "foodstuffs" which would otherwise come within the exemption provided by that Schedule would, if they were sold or represented for "use in . . . modifying organic functions in man or animal", cease to be "foodstuffs" for the purpose of the statute. It occurs to me that this would mean, for example, that upon a manufacturer representing that a particular "foodstuff" was beneficial for use by those suffering from indigestion, the product so represented would cease to be a "foodstuff" within the meaning of the schedule and would become subject to excise tax as a "pharmaceutical". In my opinion the character of the product for the purpose of entitling it to an exemption as a "foodstuff" under Schedule III is in no sense altered by S.C.R.

the way in which it is sold or represented by the manufacturer or by the price charged for it.

et

The appellants' products are baked by a bakery company and each consists of two small biscuits between which is inserted a flavoured filling prepared according to a formula h Jsupplied by the appellants which contains chemical constituents, including the appetite depressant, sodium carboxymethylcellulose.

Although it is not expressly admitted that the so-called shells on each side of the filling are the same as the shell of any ordinary biscuit, the description given on behalf of the appellants by S.A.B. Dean remains uncontradicted. That witness said:

It is, however, contended on behalf of the respondent that the chemical constituents of the filling distinguish the product from the usual bakers' biscuits and exclude it from the class of "Foodstuffs" prescribed by Schedule III of the Excise Tax Act.

The class of "Foodstuffs" under which the exemption is here sought is described in the Schedule as "bakers' cakes and pies, including biscuits, cookies or other similar articles" (the italics are my own). While I agree that the special properties contained in the filling which is inserted between the two small biscuits in the preparation of "Limmits" differentiate them from ordinary "bakers' biscuits", I am nevertheless of the opinion, with the greatest respect for those who hold a different view, that the effect of inserting the prepared filling is to make the finished products a somewhat unusual type of "bakers' biscuits" with special dietary qualities which are said to aid in the treatment of obesity, but that they remain "bakers' biscuits" and as such are exempt under the Schedule. Even if I were not satisfied that "Limmits" were "bakers' biscuits" within the meaning of the Statute, I would not be prepared to say that, baked as they are in a baker's oven with two sides which are indistinguishable from ordinary "bakers' biscuits" they are not, at least, "similar" to such biscuits and therefore "similar articles" within the meaning of the Schedule and entitled to the exemption for which provision