Judgments

A-552-01

2002 FCA 453

Penner International Inc. (Appellant)

v.

Her Majesty the Queen (Respondent)

and

Bison Diversified Inc. (Appellant)

v.

Her Majesty the Queen (Respondent)

Indexed  as:  Penner  International  Inc.  v.  Canada (C.A.)

Court of Appeal, Rothstein, Noël and Sexton JJ.A. -- Winnipeg, October 7; Ottawa, November 20, 2002.

Customs and Excise -- Excise Tax Act -- Whether diesel fuel purchased in Canada, consumed in U.S.A. by commercial trucks transporting goods from Canada «exported» for rebate purposes under Excise Tax Act, s. 68.1(1) -- Not entitled to «drawbacks» under s. 70(1)(a) as no evidence fuel imported to Canada or used to produce exported goods -- Definition of «export» for tax purposes provided by S.C.C. in Carling Export Brewing case: severance of goods from mass of things belonging to this country with intention of uniting them with mass of things belonging to foreign country and transporting exported thing beyond boundaries of Canada -- Carling Export Brewing involved shipping beer to U.S.A. during Prohibition; S.C.C. held such activity could not be reconciled with understanding of export in commerce or as contemplated by statute -- Dictionary definition of «export» perhaps not apt in tax cases -- Wording of reasons in Carling Export Brewing not to be taken literally -- Facts of instant case satisfying Carling Export Brewing interpretation of «export» -- Use in foreign country by person taking goods from Canada sufficient -- Sale in foreign country not obligatory -- Excise Tax Act s. 252(1) considered -- American case law considered at length in dissenting opinion of Sexton J.A. -- Noël J.A.: even if narrow meaning of «exported» favoured by Sexton J.A. accepted, fuel in question was removed from Canada in commercial context and «unladen» in U.S.A. -- Holding in appellants' favour not causing administrative chaos as agreed statement of facts indicating fuel removed for commercial operation, not by private automobile driver -- Court's role not to restrict meaning of legislation to aid administration.

This was an appeal from a Trial Division decision that diesel fuel purchased in Canada but consumed in the United States by commercial trucks transporting goods from Canada to the United States was not goods «exported» from Canada for rebate purposes under Excise Tax Act, subsection 68.1(1). The taxation years in question were 1989, 1990, 1991 and 1992. Appellants claim entitlement to federal sales tax and excise tax rebates for 1989 and 1990, and excise tax rebates for 1991 and 1992. While conceding that their claims for the first two years were out of time under section 68.1, they say that they may claim for those years as «drawbacks» under Act, paragraph 70(1)(a).

Held (Sexton J.A. dissenting), the appeal should be allowed.

Per Rothstein J.A.: Appellants were not entitled to drawbacks since section 3 of the Canadian Manufactured Goods Exported Drawbacks Regulations authorizes drawbacks only in respect of duties and taxes paid on imported materials that are attached to or consumed in the production of goods that are exported. There was no evidence that the diesel fuel was imported to Canada. Nor was it used to produce exported goods.

«Export» means «to send out from one country to another». The fuel in question would fall within the dictionary definition. But, for tax purposes, the binding interpretation is that provided by the Supreme Court of Canada in a 1930 case, The King v. Carling Export Brewing and Malting Co. Ltd.: «export . . . involves the idea of a severance of goods from the mass of things belonging to this country with the intention of uniting them with the mass of things belonging to some foreign country. It also involves the idea of transporting the thing exported beyond the boundaries of this country with the intention of effecting that». In that case, taxpayer was providing beer during Prohibition -- the period when the manufacture and sale of alcoholic beverages was prohibited by law in the United States. Duff J. accepted the Crown argument, that sending goods to the U.S.A. in deliberate violation of American law could not be reconciled with the ordinary notion of export, as commonly understood in commerce, and as contemplated by the statute. While the case at bar did not involve any illegality, Carling Export Brewing instructs us that the dictionary definition of «export» may not be apt in tax cases. The question here was whether the fuel was severed from the mass of things belonging to Canada with the intention of uniting it with the mass of things belonging to the U.S.A.

The wording of the reasons for judgment in Carling Export Brewing was not, of course, to be taken literally. «Belonging to» did not mean ownership by the state and «severance» and «uniting» did not imply the physical separation or joining of the goods. In context, what was contemplated is the removal of goods from one country with the intention that they be destined to, and remain to be used or sold in another country and not returned to the country of origin. The fuel in question was used by trucks in the U.S.A. and thus not returned to Canada. On the facts of this case, the interpretation of «export» established in Carling Export Brewing was satisfied. While export usually contemplates the movement of goods for sale in another country, that word is not exclusively tied to sales in a foreign country and did not have to be construed so narrowly as to exclude use in a foreign country by the person taking the goods out of Canada. This view is supported by subsection 252(1) of the Excise Tax Act which provides that diesel fuel, such as that at issue, is not entitled to a GST rebate but is described as being exported.

Per Sexton J.A. (dissenting): The appeal should be dismissed.

For Excise Tax Act purposes, «export» means to «carry out of the country» for a sale or transaction, or with the intention of seeking a foreign market for goods, or for the purpose of «landing» the goods in a foreign country. The mere consumption of a commodity in a foreign country does not satisfy the test in Carling Export Brewing. In Swan and Finch Company v. United States (adopted by our Supreme Court in Carling Export Brewing), the U.S. Supreme Court denied a drawback in respect of consumed rapeseed oil, holding that only oil «shipped to foreign countries and there landed» was exported. To satisfy the two-part test derived from Swan and Finch Company, it had to be demonstrated that this diesel fuel was (1) severed from the mass of things belonging to Canada (2) with the intention of uniting them with the mass of things belonging to the U.S.A. American case law teaches that there are three ways by which the uniting of goods with the mass of things in a foreign country can be accomplished: (1) sale; (2) intent to seek foreign markets; (3) unloading or landing of goods in a foreign country. All of these methods suggest the requirement for a unification of the goods with the commerce of a foreign country. To the same effect was Carling Export Brewing, in which the Court was of opinion that «export» ought to be limited so as to exclude export that was entirely beyond the ordinary course of commerce. More recently, in a 1997 case, Flavell v. Deputy M.N.R., Customs and Excise, this Court's Trial Division held that «export» had to be interpreted within a clearly commercial context and not according to a downgraded notion of mere mechanical movement from one country to another. That «export» contemplates trade or commerce is supported by the definitions of the word found in numerous dictionaries. Although for «export» a sale may not be absolutely necessary, there has to exist some purpose beyond mere consumption. Shipping goods with the intention of seeking a foreign market would satisfy the test of commerciality. There are few Canadian cases on what constitutes an «export» within the sale of goods context but many American cases support the last-mentioned proposition. Another method of unifying goods with those of a foreign country is for them to be unloaded with the intention they be joined with the commerce of that foreign country. That did not happen to the diesel fuel in question. The mere consumption of fuel was not even part of the export process, let alone an «export». This view is adopted in both recent and older American case law: «oil . . . consumed on a voyage does not constitute an exportation of that article. We might as well say that provisions which go out on the same ship for use on the outward passage are exported». Appellants must have used a portion of the fuel in Canada and to cross the American border. Purchase of the fuel was a domestic transaction, not an export. It was not clear that there had been a severance of this fuel from the mass of goods in Canada.

Support for the conclusion reached by Rothstein J.A. could not be based upon a consideration of the GST provision in the Excise Tax Act. The law was established in Carling Export Brewing and it could not be assumed that Parliament intended to change the law as to «export» in the excise tax context by amending a portion of the Excise Tax Act to deal with a wholly separate tax (the GST).

Finally, holding consumed fuel to be an «exported» good would yield an absurd or illogical result and have negative policy implications: every automobile consuming fuel when crossing into the U.S.A. would be exporting fuel and a tax refund could be claimed. Administrative chaos would result.

Per Noël J.A. (concurring with Rothstein J.A.): Even if «exported» should be accorded the narrow meaning favoured by Sexton J.A., the diesel fuel in question was taken out of Canada in a clearly commercial context. It was taken out with a view to its being consumed in the U.S.A. in the course of the business of transporting goods. Thus, it was used «in the course of trade». Furthermore, it was «unladen» in the U.S.A. in every sense of that word: the fuel tanks were emptied in that country.

Nor could it be said that holding in favour of appellants would give rise to administrative chaos: the agreed statement of facts indicates that the fuel at issue was removed from Canada for a commercial operation and not by a private automobile driver. In any event, the Court's role was not to restrict the meaning of legislation so to accommodate the administration.

statutes and regulations judicially

considered

Canadian Manufactured Goods Exported Drawback Regulations, SOR/78-373, s. 3.

Excise Tax Act, R.S.C., 1985, c. E-15, ss. 68.1(1) (as enacted by R.S.C., 1985 (2nd Supp.), c. 7, s. 34; S.C. 1993, c. 25, s. 60), 70(1)(a) (as am. by R.S.C., 1985 (2nd Supp.), c. 7, s. 34; S.C. 1993, c. 25, s. 62), 252(1) (as am. by S.C. 1993, c. 27, s. 107; 1997, c. 10, s. 58).

Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1.

Ontario Temperance Act (The), S.O. 1916, c. 50.

Trade-marks Act, R.S.C., 1985, c. T-13.

cases judicially considered

followed:

The King v. Carling Export Brewing and Malting Co. Ltd., [1930] S.C.R. 361; [1930] 2 D.L.R. 725; revd [1931] 2 D.L.R. 545; [1931] 2 W.W.R. 258; [1931] A.C. 435 (P.C.).

applied:

Swan and Finch Company v. United States, 190 U.S. 143 (1903).

distinguished:

Richfield Oil Corp. v. State Board, 329 U.S. 69 (1946); Hess Oil Virgin Islands Corp. v. Quinn, 16 V.I. 380 (1979); Shell Oil Company v. State Board of Equalization, 64 Cal. 2d 713 (1966); Rice Growers' Association of California v. County of Yolo, 17 Cal. App. 3d 227 (1971); Itel Containers International Corp. v. Huddleston, 507 U.S. 60 (1993).

considered:

Rex v. Gooderham & Worts Ltd. (1928), 62 O.L.R. 218 (Ont. H.C.); Flavell v. Deputy M.N.R., Customs and Excise, [1997] 1 F.C. 640; (1996), 137 D.L.R. (4th) 45; 117 F.T.R. 1 (T.D.); revg (1992), 8 T.T.R. 197 (C.I.T.T.); Old HW-GW Ltd. v. Canada, [1991] 1 C.T.C. 460; (1991), 91 DTC 5327; 43 F.T.R. 197 (F.C.T.D.); Molson Companies Ltd. v. Moosehead Breweries Ltd. (1990), 32 C.P.R. (3d) 363; 36 F.T.R. 241 (F.C.T.D.); U.S. v. Ehsan, 163 F.3d 855 (4th Cir. 1998); Will-Kare Paving & Contracting Ltd. v. Canada, [2000] 1 S.C.R. 915; (2000), 188 D.L.R. (4th) 242; [2000] 3 C.T.C. 463; 2000 DTC 6469; Nassau Distributing Co., Inc. v. United States, 29 Cust. Ct. 151 (1952); United States v. National Sugar Refining Co., 39 C.C.P.A. 96 (1951); United States v. Ten Thousand Cigars, 28 Fed. Cas. 38 (1867); The Mary, 16 Fed. Cas. 932 (1812); Canton Railroad Co. v. Rogan, 340 U.S. 511 (1951); Clarke et al. v. Clarke et al., 5 Fed. Cas. 943 (1877); Brown v. The State of Maryland, 25 U.S. 419 (1827); Ammex, Inc. v. Department of Treasury, 237 Mich. App. 455 (1999); R. v. McIntosh, [1995] 1 S.C.R. 686; (1995), 95 C.C.C. (3d) 481; 36 C.R. (4th) 171; 178 N.R. 161; 79 O.A.C. 81; Swan and Finch Company, 37 Ct. Cls. R. 101 (1901).

referred to:

Canada (Deputy Minister of National Revenue) v. Mattel Canada Inc., [2001] 2 S.C.R. 100; (2001), 199 D.L.R. (4th) 598; 29 Admin. L.R. (3d) 56; 12 C.P.R. (4th) 417; 270 N.R. 153; United States v. Vowell and M'Clean, 9 U.S. 368 (1809); Grey v. Pearson (1857), 29 L.T.O.S. 67; 10 E.R. 1216 (H.L.).

authors cited

Black's Law Dictionary, 6th ed. St. Paul, Minn.: West Publishing Co., 1990. «export».

Canadian Dictionary of the English Language: An Encyclopaedic Reference. Toronto: ITP Nelson, 1996. «export».

Concise Oxford Dictionary of Current English, 10th ed. Oxford: Clarendon Press, 2001. «unladen».

Random House Dictionary of the English Language, 2nd ed. New York: Random House, 1987. «exportation».

Shorter Oxford English Dictionary on Historical Principles, 3rd ed. Oxford: Clarendon Press, 1990. «export».

Webster's Third New International Dictionary of the English Language. Springfield, Massachussetts: Merriam--Webster Inc. Publishers, 1986. «export».

APPEAL from a Trial Division decision (Penner International Inc. v. Canada (2001), 211 F.T.R. 72) denying an Excise Tax Act rebate on diesel fuel purchased in Canada but consumed in the U.S.A. as not «exported» from Canada. Appeal allowed.

appearances:

Israel A. Ludwig for appellant.

Frederick B. Woyiwada for respondent.

solicitors of record:

Duboff, Edwards, Haight & Schachter, Winnipeg, for applicant.

Deputy Attorney General of Canada for respondent.

The following are the reasons for judgment rendered in English by

Rothstein J.A.:

ISSUE

[1]The issue in this appeal from the Trial Division ((2001), 211 F.T.R. 72 (F.C.T.D.)) is whether diesel fuel purchased in Canada but consumed in the United States by commercial trucks transporting goods from Canada to the United States constitutes goods «exported» from Canada for purposes of obtaining a rebate of excise tax under subsection 68.1(1) [as enacted by R.S.C., 1985 (2nd Supp.), c. 7, s. 34; S.C. 1993, c. 25, s. 60] of the Excise Tax Act, R.S.C., 1985, c. E-15. Subsection 68.1(1) provides:

68.1 (1) Where tax under this Act has been paid in respect of any goods and a person has, in accordance with regulations made by the Minister, exported the goods from Canada, an amount equal to the amount of that tax shall, subject to this Part, be paid to that person if that person applies therefor within two years after the export of the goods. [Emphasis added.]  

[2]The learned Trial Judge found that the diesel fuel was not exported and that subsection 68.1(1) was not applicable to permit a rebate of the excise tax paid.

TAXATION YEARS IN QUESTION

[3]The years in question are 1989, 1990, 1991 and 1992. The appellants claim they are entitled to federal sales tax and excise tax rebates for 1989 and 1990, and excise tax rebates for 1991 and 1992. Their application for rebates was dated December 30, 1992. The appellants concede their claims for 1989 and 1990 are out of time under section 68.1. However, they say they are entitled to claim for those years as «drawbacks» under paragraph 70(1)(a) [as am. by R.S.C., 1985 (2nd Supp.), c. 7, s. 34; S.C. 1993, c. 25, s. 62] of the Act. Paragraph 70(1)(a) provides:

70. (1) Subject to subsection (5), on application, the Minister may, under regulations of the Governor in Council, grant a drawback of the taxes imposed by Part III, IV, V or VI and paid on or in respect of

(a) goods exported from Canada;

[4]Section 3 of the Canadian Manufactured Goods Exported Drawback Regulations, SOR/78-373, only authorizes drawbacks in respect of customs duties, sales and excise taxes paid in respect of parts and materials that are imported and that are attached to or consumed in the manufacture or production of goods that are exported. There is no evidence that the diesel fuel in question in this case was imported into Canada. Nor was it used in the manufacture or production of goods that were exported. Therefore, excise tax paid in respect of the diesel fuel cannot be obtained as drawbacks under paragraph 70(1)(a) of the Act. That leaves only the excise tax for 1991 and 1992 in issue.

ANALYSIS

[5]The dictionary meaning of the term «export» is «to take away or carry off» or «to send out [commodities] from one country to another» (The Shorter Oxford English Dictionary on Historical Principles, 3rd ed., 1990). Certainly diesel fuel purchased in Canada but consumed in the United States by commercial trucks transporting goods from Canada to the United States would fit within the dictionary definition of the term «export». However, for taxation purposes, the Supreme Court of Canada has provided the authoritative interpretation of the term in the taxation context that is binding on this Court and must be applied. Interestingly, the interpretation appears to derive from an opinion given to the President of the United States, Chester A. Arthur, by the Solicitor General and Acting Attorney General of the United States, Samuel F. Phillips, in 1883. The words used in the Phillips opinion were adopted verbatim by the Supreme Court of the United States in Swan and Finch Company v. United States, 190 U.S. 143 (1903). At pages 144 and 145, Mr. Justice Brewer stated:

Whatever primary meaning may be indicated by its derivation, the word «export» as used in the Constitution and laws of the United States, generally means the transportation of goods from this to a foreign country. «As the legal notion of emigrating is a going abroad with an intention of not returning, so that of exportation is a severance of goods from the mass of things belonging to this country with an intention of uniting them to the mass of things belonging to some foreign country or other.» 17 Op. Attys. Gen. 583. [Emphasis added.]

[6]In Swan and Finch, it was found that rapeseed oil used and consumed in vessels bound for foreign ports was not «exportation» and was, therefore, not entitled to the drawback of duties paid on the rapeseed oil when it was originally imported.

[7]The words used by the Supreme Court of the United States in Swan and Finch were adopted almost verbatim by the Supreme Court of Canada in The King v. Carling Export Brewing and Malting Co. Ltd., [1930] S.C.R. 361, at pages 371-372:

Generally speaking, export, no doubt, involves the idea of a severance of goods from the mass of things belonging to this country with the intention of uniting them with the mass of things belonging to some foreign country. It also involves the idea of transporting the thing exported beyond the boundaries of this country with the intention of effecting that. [Underlining added.]

The case involved the purported export of beer from Canada to the United States between 1924 and 1927. If the beer was exported, it would be exempt from sales tax and gallonage tax. This was the time of «Prohibition» in the United States. Duff J. stated at page 372:

As I shall point out, there are difficulties in reconciling with the ordinary notion of export, as commonly understood in commerce, and as contemplated by this statute, the kind of operation in which the respondents were engaged.

At page 374, he elaborated as follows:

The Crown argues that as the export alleged in this case involves, as already indicated, a deliberate violation of the United States laws to the extent pointed out, it cannot be treated as «export» within the meaning of the statute. I think there is a great deal to be said in favour of the view that «export» in the sense of the statute may be limited in such a way as to exclude export so entirely beyond the ordinary course of commerce. The considerations in favour of this view are so numerous and so obvious that they need not be dwelt upon.

The Supreme Court decision in Carling Export Brewing was reversed by the Privy Council, [1931] 2 D.L.R. 545, but not on this point.

[8]The Swan and Finch and Carling Export Brewing cases indicate that the dictionary definition of  «export», in its broadest sense, may not be apt in determining questions of taxation with regard to goods sent out of the country. We are not concerned with illegality as in Carling Export Brewing. However, the circumstances here are, in some respects, similar to the facts in Swan and Finch. Having regard to the Supreme Court's interpretation of the term «export», the question is whether the diesel fuel in question in this case was severed from the mass of things belonging to Canada with the intention of uniting it with the mass of things belonging to the United States.

[9]It must first be noted that the Supreme Court's words must be read having regard to context and cannot be read literally. The term «belonging to» does not mean state ownership by Canada or the United States. The rapeseed oil in Swan and Finch and the beer in Carling Export Brewing did not belong to the governments of the United States or Canada in the ownership sense. The terms «severance» and «uniting» also do not mean the physical parting or joining of goods.

[10]Having regard to context, I think what is contemplated is the removal of goods from one country with the intention that they be destined to, and remain to be used or sold in another country without being returned to the country of origin. This view is supported by the words of the United States Supreme Court in Swan and Finch, supra, at page 145.

Another country or State as the intended destination of the goods is essential to the idea of exportation.

[11]The agreed facts are that the appellants acquired diesel fuel in Canada for use in the operation of trucks whose destinations were in the United States. Their applications for rebates under subsection 68.1(1) were for the fuel consumed in the operation of the trucks in the United States. Therefore, the diesel fuel in question was not returned to Canada. Having regard to the Supreme Court's interpretation of the term «export», the diesel fuel was removed from Canada and was destined to the United States with the intention that it remain and be used in the United States and not be returned to Canada. In my view, that constitutes a severance of the diesel fuel from the mass of things belonging to Canada and a uniting of the fuel with the mass of things belonging to the United States. It, therefore, satisfies the Supreme Court's interpretation of goods «exported».

[12]Export might often be thought to relate to the movement of goods for sale in another country. Some definitions of export cited in the Court of Claims decision in Swan and Finch Company 37 Ct. Cls. R. 101 (1901), tend to this view. However, I do not think that the term «exported» is to be defined so narrowly as to require there to be a transaction in the United States involving the goods. The learned Trial Judge herself says, at paragraph 35, that export «usually involves some form of economic transaction» and I would think that would generally be true. But, her use of the word «usually» indicates that she, herself, was of the view that the term is not exclusively tied to sales or transactions of goods in the United States. I see no reason why the term «exported» should not also cover use in the United States by the person taking the goods out of Canada and into the United States.

[13]At paragraph 35, the Trial Judge refers to the Excise Tax Act as a taxation statute that is designed to generate revenues for the government. I agree with her. However, the Act also provides for rebates and the provisions pertaining to rebates must be given effect.

[14]I think the construction I have placed on the term «exported» in subsection 68.1(1) is supported by the words used by Parliament in subsection 252(1) [as am. by  S.C. 1993, c. 27, s. 107; 1997, c. 10, s. 58] of the Excise Tax Act dealing with the Goods and Services Tax. I consider the use by Parliament of the words in subsection 252(1) to be pertinent because they appear in the same Act as subsection 68.1(1) and because they deal with the very circumstances with which we are concerned here. Subsection 252(1) provides:

252. (1) Where a non‑resident person is the recipient of a supply of tangible personal property acquired by the person for use primarily outside Canada, other than

(a) excisable goods,

(b) wine, and

(c) gasoline, diesel fuel or other motive fuel, other than such fuel that

(i) is being transported in a vehicle designed for transporting gasoline, diesel fuel or other motive fuel in bulk, and

(ii) is for use otherwise than in the vehicle in which or with which it is being transported,

and the person exports the property within sixty days after it is delivered to the person, the Minister shall, subject to section 252.2, pay a rebate to the person equal to the tax paid by the person in respect of the supply. [Emphasis added.]

[15]As I interpret subparagraph 252(1)(c)(ii), fuel acquired in Canada for use primarily in the United States in the vehicle in which it is being transported, is not entitled to a GST rebate. However, it is personal property which the provision describes as being exported. In other words, while it is denied the GST rebate, that does not mean the fuel is not exported. Rather, by reason of subparagraph 252(1)(c)(ii), the diesel fuel is exported but it is not entitled to the rebate.

[16]The respondent argues that it is significant that subsection 252(1) deals only with non-residents. I am unable to see the force of that argument. It is true that subsection 252(1) only applies to non-residents. But that does not, in my view, mean that something is exported in the hands of a non-resident but not exported in the hands of a resident. For example, if a person acquires wine in Canada, takes it to the United States and consumes it there, it seems to me that the wine must be considered to be exported whether the person is a resident or non-resident and even though the person is not entitled to a GST rebate on the wine.

[17]Under subparagraph 252(1)(c)(ii), the diesel fuel used in the vehicle in which it has been transported is considered to be exported. I find it difficult to think that Parliament considered the term «exported» in subsection 68.1(1) to mean anything different. I think the diesel fuel used in the vehicle in which it has been transported must be treated as being exported for purposes of subsection 68.1(1). It is, therefore, entitled to rebate of excise tax pursuant to that provision.

[18]I have read the draft concurring reasons of Noël J.A. and I am in entire agreement with them.

CONCLUSION

[19]I would allow the appeal with costs here and in the Trial Division and remit the matter to the Minister of National Revenue for reassessment in accordance with these reasons. The parties have agreed that, at present, the refund claims are unaudited and that the Minister of National Revenue should now conduct an audit to determine the amount of taxes paid and the rebates to which the appellants are entitled and it is so ordered.

* * *

The following are the reasons for judgment rendered in English by

Sexton J.A. (dissenting):

Introduction

[20]The issue in this case is whether the mere consumption of fuel purchased in Canada but later used by trucks travelling in the United States constitutes an «export» within the meaning of the Excise Tax Act. My conclusion, based on the jurisprudence, is that the word «export» is used in the Excise Tax Act in a commercial sense such as to «carry out of the country» for purposes of a sale or transaction, or with the intention of seeking a foreign market for goods, or for the purpose of «landing» the goods in a foreign country.

Analysis

[21]With regret, I cannot agree with Rothstein J.A.'s interpretation of the meaning of the term «export». I agree that the test for export appears to derive from an opinion given to the President of the United States by the Solicitor General and Acting Attorney General, Samuel F. Phillips, in 1883, which was adopted verbatim by the United States Supreme Court in Swan and Finch Company v. United States, 190 U.S. 143 (1903) (Swan) which was, in turn, adopted by the Supreme Court of Canada in The King v. Carling Export Brewing and Malting Co. Ltd., [1930] S.C.R. 361 (Carling). However, I cannot accept that the mere consumption of a commodity in a foreign country satisfies this test. I cannot interpret the term «export» in such a broad manner.

[22]In Swan, the United States Supreme Court quoted the following statement at page 145, which has since been adopted as the test to apply to the question of whether or not an exportation has occurred:

«As the legal notion of emigrating is a going abroad with an intention of not returning, so that of exportation is a severance of goods from the mass of things belonging to this country with an intention of uniting them to the mass of things belonging to some foreign country or other.»

[23]The Supreme Court in Swan held that the consumed rapeseed oil, in contrast to the rapeseed oil transported for sale, did not constitute an export. The Court refused to allow the appeal from the decision of the United States Court of Claims regarding the consumed oil, which had concluded that only the oil which was «shipped to foreign countries and there landed» (in Japan) was exported and thus eligible for a drawback (at page 144).

[24]The appellants cite at page 8, point 10, of their factum that the Supreme Court decision in Swan provides authority for the following proposition:

It is interesting to note that in the American context, while the goods were in international waters, the goods were not deemed to be exported until they actually arrived within the territorial waters of the country to which they were destined, in this case, Japan. Once the goods were within the territorial waters of Japan the consumption of those goods in the process of lubricating the engine, was considered uniting them to the mass of things belonging to a foreign country.

[25]I do not agree with the appellants' submission. It should be noted that some of the rapeseed oil, though it entered into the territorial waters of Japan and was consumed therein, was obviously not considered an export because the Court held that only the oil which was landed was exported. The Court refused to hold that the consumed rapeseed oil constituted an export, and, thus, obviously the consumed oil was not united with the mass of things in Japan. Arguably, then, something more than mere consumption is required to satisfy the common law test of uniting goods with the mass of things in a foreign country. In Swan it was the «landing» of the oil that met this test.

[26]The common law test derived from Swan is really a two-part test, such that both parts need to be met in order for a legal exportation to occur: (1) a severance of goods from the mass of things belonging to this country; (2) with an intention of uniting them with the mass of things belonging to some foreign country or other. Therefore, the question is whether the diesel fuel in question in this case was severed from the mass of things belonging to Canada with the intention of uniting them with the mass of things belonging to the United States.

[27]The Supreme Court of Canada adopted this test in Carling, and stated [at pages 371-372]:

Generally speaking, export, no doubt, involves the idea of a severance of goods from the mass of things belonging to this country with the intention of uniting them with the mass of things belonging to some foreign country. It also involves the idea of transporting the thing exported beyond the boundaries of this country with the intention of effecting that.

Therefore, the jurisprudence relating to the interpretation of the word «export», particularly the test of severance and unification, was adopted into Canadian law through the Carling decision in 1930. There is little other Canadian jurisprudence dealing specifically with this interpretation of «exportation» as the severing and uniting of goods with the mass of things belonging to some foreign country. However, one such case was the Ontario High Court decision of Rex v. Gooderham & Worts Ltd. (1928), 62 O.L.R. 218 (Gooderham), which involved the imposition of a sales tax on liquor. Gooderham was decided prior to the Supreme Court's decision in Carling.

[28]It is my contention that diesel fuel being used or consumed by trucks destined for the United States is not sufficient to meet the test outlined in Swan. I am not sure that the first part of the test regarding severance has been met. While the diesel fuel was physically carried out of the country in the fuel tanks of the trucks, it was purchased in Canada and some of the fuel was consumed in Canada. I will, however, return to this matter later.

[29]However, even if there was a severance of the fuel from the mass of things belonging to Canada, the fact of its being consumed in the United States does not necessarily mean that there was an immediate uniting of fuel with the mass of things belonging to the United States. Closer analysis of the definition of exportation as involving a severance and a unification needs to be undertaken. Such a close analysis reveals that the intent of uniting goods with the mass of things in the foreign country means something more than mere consumption. A review of the American jurisprudence suggests that «uniting the goods with the mass of things» in a foreign country can be done in, at least, the following three ways: through sale; through the intent to seek foreign markets; or through the unloading or landing of goods in a foreign country. All of these methods suggest that in order for there to be an exportation of goods, there must be a unification of the goods with the commerce of the foreign country. This commerce aspect was noted by the Supreme Court of Canada in the Carling case where the Court stated, at page 374:

The Crown argues that as the export alleged in this case involves, as already indicated, a deliberate violation of the United States laws to the extent pointed out, it cannot be treated as «export» within the meaning of the statute. I think there is a great deal to be said in favour of the view that «export» in the sense of the statute may be limited in such a way as to exclude export so entirely beyond the ordinary course of commerce. The considerations in favour of this view are so numerous and so obvious that they need not be dwelt upon. [My emphasis.]

[30]Likewise, in Gooderham, a case involving the imposition of sales taxes on intoxicating liquors and the penalties  of  The  Ontario Temperance Act [S.O. 1916, c. 50], the Ontario Court stated at page 227 that the word «exported» is used in a commercial sense:

Sales of goods form the basis for the imposition of the tax, and it seems to me that the word is here used in its commercial sense. Murray's English Dictionary gives the meaning of «to export» in commercial usage, as «to send out commodities of any kind from one country to another». This interpretation would be in accord with the obvious purpose of the exemption provision, as already mentioned. It is also the meaning given to the word in its ordinary acceptation in commercial matters (in this country).

Therefore, the Court accepts the commercial meaning of the word «export».

[31]The Court of Claims decision of Swan and Finch Company, 37 Ct. Cls. R. 101 (1901), which was approved by the United States Supreme Court, further reveals that «export» must be interpreted in a commercial sense. At page 104, the Court stated:

Restricted to the general definition, the etymological meaning of which is «to carry out of» or «away,» the contention [that the shipment of oil upon steamers and its consumption on such vessels constituted an exportation] would cover this case. Lexicons, however, go farther. The words «to export» have a specific meaning. They mean «to send to a distant point, as commodities; send for sale or exchange to other countries or places.» Exports refer to merchandise or commodities in the way of commerce shipped to foreign countries. An exporter is one who ships goods, wares, or merchandise of any kind to a foreign country or distant place for sale. An exportation is the act or practice of exporting or of sending out commodities from one country to another for traffic or sale. These specific definitions from standard lexicons show that the mere carrying out is not the only essential to an export. Commercially, the commodities must go somewhere beyond the sea in shipments made from home ports.

Also, the Court of Claims in Swan stated, at page 107:

But an importation does not merely mean a bringing in. It takes place when the vessel arrives at a port of entry, intending there to discharge her cargo. The intent characterizes the act and determines its legal complexion.

Finally, at page 111, the Court went on to quote the following statement:

The words «imports» and «exports» are frequently used in the Constitution. They have a necessary correlation. * * *  It is not too much to say that, so far as our research has extended, neither the word «export», «import», or «impost» is to be found in the discussions on this subject, as they have come down to us from that time, in reference to any other than foreign commerce, without some special form of words to show that foreign commerce is not meant.»

Therefore, the Court of Claims decision of Swan, affirmed by the Supreme Court, repeatedly maintains that the term «export» is to be used or interpreted in a commercial sense.

[32]In the Federal Court, Trial Decision of Flavell v. Deputy M.N.R., Customs and Excise, [1997] 1 F.C. 640, the Court held that the term «export» should be interpreted in a commercial sense. Mr. Flavell appealed from the decision of the Canadian International Trade Tribunal (CITT) [(1992), 8 T.T.R. 197]. The Federal Court allowed Mr. Flavell's appeal. When discussing the CITT's misinterpretation of Justice Strayer's reasons in Old HW-GW Ltd. v. Canada, [1991] 1 C.T.C. 460 (F.C.T.D.) (Old HW-GW), the Court in Flavell stated as follows [at paragraphs 23-24]:

The error is that the majority [of the CITT] finds from Strayer J.'s words [in Old HW-GW] the meaning of «export» to be the downgraded notion of mere mechanical movement from one country to another. The words used by Strayer J. [in Old HW-GW] as authority state much more; a «transfer» of goods from one country to another or «a sending» within a commercial context.

The question is, what would [Pierre-André] Côté more properly stated «average person on the street» understand by the words «export» and «import» used in an Act administering the collection of customs. Within my understanding of what generally informed people think, there is no doubt that international trade comes to mind with trucks and ships transporting goods to and from Canada and nations around the world. Thus, the words should be interpreted within this clearly commercial context. [My emphasis.]

[33]The connection with commerce, trade, and the economy must be stronger than the mere consumption of a Canadian product across the United States border. In U.S. v. Ehsan, 163 F.3d 855 (4th Cir. 1998) (Ehsan), the Maryland Court of Appeals for the Fourth Circuit held, at page 858 that «export» is a clear term. Citing the Random House Dictionary of the English Language, the Court noted that «exportation» is defined as «the act of exporting; the sending of commodities out of a country, typically in trade», and as «a severance of goods from [the] mass of things belonging to [the] United States with [the] intention of uniting them to [the] mass of things belonging to some foreign country». Also, the Court noted that the verb «export» is defined in Black's Law Dictionary (6th ed., 1990) as the following: «to send, take, or carry an article of trade or commerce out of the country». The Court held at page 858 that «all» these definitions, including that of severance and unification, «make [it] clear that exportation involves the transit of goods from one country to another for the purpose of trade»:

Throughout this history «exportation» has consistently meant the shipment of goods to a foreign country with the intent to join those goods with the commerce of that country. «The intent characterizes the act, and determines its legal complexion.» [My emphasis.]

[34]Further support for these trade-associated definitions of «export» can be found in the Canadian Dictionary of the English Language: An Encyclopaedic Reference (Toronto: ITP Nelson, 1996), where the verb «export» means «to send or transport (as a commodity) abroad, esp. for trade» or «to export merchandise, esp. for trade». Also, in Webster's Third New International Dictionary of the English Language (Springfield, Massachusetts: Merriam--Webster Inc. Publishers, 1986), the noun «export» means «something that is exported: a commodity conveyed from one country or region to another for purposes of trade», and «exporter» means specifically «a wholesaler who sells to merchants or industrial consumers in foreign countries».

[35]In interpreting the Trade marks Act [R.S.C., 1985, c. T-13], the Court adopted the commercial sense or meaning of «export». If the term «export» is so used in that statute, then it only makes logical sense to use the term «export» in a commercial sense in the Excise Tax Act. In the Federal Court, Trial Division case of Molson Companies Ltd. v. Moosehead Breweries Ltd. (1990), 32 C.P.R. (3d) 363, the Court stated at pages 372-373 the following, having regard to the legislative purpose of the Trade marks Act:

That purpose is clearly to provide for registration and regulation of trade marks used in commercial transactions, whether those be in domestic or international trade. That purpose, in my view, is met by construing the word «exported» in s. 4(3) as having a meaning beyond that based on the Latin derivation of the word «export» meaning to take away, carry off, or send out. In the context of the Trade marks Act as a whole the words «exported from Canada» must be taken to mean «sent from Canada to another country in the way of commerce», or «transported from Canada to another country in the course of trade». [My emphasis.]

Thus, so should «export» be taken to mean in the Excise Tax Act, as a whole, sent from Canada to another country in the way of commerce, or transported from Canada to another country in the course of trade. It should be used in a commercial sense.

[36]Analogous reasoning was applied by the Supreme Court of Canada in the decision of Will-Kare Paving & Contracting Ltd. v. Canada, [2000] 1 S.C.R. 915, which dealt with the meaning of the word «sale» in the Income Tax Act. The Court stated at paragraphs 30-31 that the term «sale» should be used in the broader sense of commercial law:

Absent express direction that an interpretation other than that ascribed by settled commercial law be applied, it would be inappropriate to do so.

To apply a «plain meaning» interpretation of the concept of a sale in the case at bar would assume that the Act operates in a vacuum, oblivious to the legal characterization of the broader commercial relationships it affects. It is not a commercial code in addition to a taxation statute. Previous jurisprudence of this Court has assumed that reference must be given to the broader commercial law to give meaning to words that, outside of the Act, are well-defined.

[37]Outside of the Excise Tax Act, the meaning of «export» is associated with trade and commerce, and interpreted in a commercial sense. Absent any express direction by the Legislature that the interpretation of «export» in the Excise Tax Act should mean otherwise than settled commercial law, the term «export» should be used in this commercial sense.

[38]Thus, by examining the lexicons (the vocabulary of a branch of knowledge, such as that involving trade and commerce) of «exports» and «exportation», and the commercial interpretation of «export» in the jurisprudence, it is clear that to be categorized as an export requires more than a mere consumption of the goods. I would not go so far as to say that a transaction, such as a sale or exchange of goods, is necessary to constitute an exportation, although that would certainly satisfy the requirement of commerciality. However, there must exist some purpose to the carrying of the fuel, beyond mere consumption. The cases have suggested what such purposes might entail. One such possible purpose is the selling of the goods in the foreign country. Another is the intent to seek a foreign market for the goods for which the party is seeking export status. Another is the intention to unload the goods with the intent to join those goods with the commerce of the foreign country.

Sale of Goods

[39]Because of the shortage of Canadian jurisprudence on the interpretation of «export», it is helpful to turn to American case law for input regarding the severance and unification test. In fact, American case law has been used by the Supreme Court of Canada to help interpret statutes dealing with exports and imports  (Canada (Deputy Minister of National Revenue) v. Mattel Canada Inc., [2001] 2 S.C.R. 100).

[40]A sale of goods transported across the boundary of a foreign country obviously satisfies the requirement of a «commercial purpose». Goods transported to a foreign country for the purpose of sale are certainly goods exported, as they, through the sale, are physically severed from the goods held by the exporter and united with other goods of their kind in the United States. When a country's commodities are sold to parties in a foreign country, they are exchanged for money or other consideration from that foreign country, and, as such, obviously participate in the commerce of that foreign country. For instance in Richfield Oil Corp. v. State Board, 329 U.S. 69 (1946) (Richfield), the Supreme Court held, at page 78:

The questions remain whether we have here an export within the meaning of the constitutional provision and, if so, whether this tax was a prohibited impost upon it.

The requirement that foreign commerce be involved . . . is met, for concededly the oil was sold for shipment abroad.

Intent to Look for a Foreign Market

[41]The intention of shipping goods with the intention of looking for a foreign market has been held to satisfy the test of commerciality.

[42]In Ehsan, supra, the Court seemed to imply that �??united with the mass of goods belonging to some foreign country or other�?? means the intent to look for a foreign market. In Ehsan, then President Clinton banned the importation, exportation, and re-exportation of goods between the United States and Iran, and it was alleged that the defendant, Ehsan, had shipped equipment in violation of the ban. In order to avoid the ban, Ehsan planned to ship the equipment to the United Arab Emirates (U.A.E.) and later to have it shipped to Iran. Ehsan argued for the dismissal of the indictments by maintaining that the shipment was a permissible export to the U.A.E. and was only re-exported to Iran. However, the Court held that the indictments of Ehsan should stand, as «re-export» simply meant «to export again». At pages 858-859, the Court determined the issue of whether the equipment had actually been exported to Iran by looking at whether Ehsan's bona fide purpose was to seek a market in Iran; the Court stated that if this was Ehsan's purpose, then the shipment would be consistent with the plain meaning of an «exportation»:

If Ehsan's bona fide purpose was to seek a market in Dubai, then this was an exportation to the U.A.E. . . . If, however, he intended to seek a market in Iran, then the shipment fits the plain meaning of an «exportation» to Iran.

The meaning of «exportation» was associated with seeking a foreign market. It is clear, then, that merely sending the goods to the U.A.E. did not constitute an export because there was no intent to seek a foreign market there. However, because there was an intent to seek a foreign market in Iran, the Court concluded that an exportation to Iran, contrary to the ban, had occurred.

[43]Further cases reveal the importance of the intention to seek a foreign market. In Nassau Distributing Co., Inc. v. United States, 29 Cust. Ct. 151 (1952) (Nassau Distributing), the Customs Court, Third Division stated at page 153 that the controlling factor of the Swan test has been held to be the intention of the parties at the time of shipment. The Court stated at page 154 that the Nassau Distributing Co. had the requisite intent: there was an immediate bona fide purpose to seek a foreign market.

[44]The Court in Nassau Distributing cited United States v. National Sugar Refining Co., 39 C.C.P.A. 96 (1951) (National Sugar) with approval. In National Sugar, the Customs Court noted at page 100 that the requisite intent to export by severance and unification would be satisfied �??so long as a bona fide purpose to seek a foreign market coincide[s] with a bona fide act of shipment.�?? Therefore, since intent has been cited as characterizing the act and determining its legal complexion, and since the intent to sever and unify has been often cited or defined as the bona fide purpose to seek a foreign market, the diesel fuel in question in our case does not satisfy this test for severance and unification. There was no bona fide intent by the appellants to seek a foreign market for the fuel in question, separate and distinct from the goods being transported by the consumption of that fuel.

Goods Intended to be Landed

[45]Another method of unifying goods with the mass of goods belonging to a foreign country has often been cited as the following: the goods must be intended to be landed, or unloaded or discharged, with the intent that they be joined with the commerce in that foreign country. I do not believe that this test has been satisfied with respect to the diesel fuel in question in this case. For instance, in United States v. Ten Thousand Cigars, 28 Fed. Cas. 38 (1867), the Court cited Justice Marshall's decision for the Supreme Court in United States v. Vowell and M�??Clean, 9 U.S. 368  (1809) (Vowell) for the following proposition: �??An importation is complete when the goods are brought within the limits of a port of entry, with the intention of unlading them there�??. According to the Concise Oxford Dictionary of Current English (10th ed., 2001), �??unladen» means «not carrying a load». Therefore, «unlading» implies discharging or unloading one's cargo. Thus, unlading, or the discharging of one's cargo, is essential to the completion of importation in this test. Also, since importation is the equal opposite of exportation, the definitions and interpretations that apply to importation also apply to exportation. Thus, I believe that one of the ways of uniting the goods with the mass of goods belonging to the foreign country is the unloading or discharge of those goods in that foreign country. This suggests a commercial purpose.

[46]Likewise, in The Mary, 16 Fed. Cas. 932 (1812), Justice Story of the Circuit Court of Massachusetts stated that landing and unloading the goods was necessary for their exportation. At page 933, Justice Story stated that he was �??satisfied that an actual landing of the goods was not intended to be made in any port of the United States . . . and that the goods of course were not put on board with that intent�??. While citing Vowell, supra Justice Story stated at page 934 that an intention to unload the goods was necessary to constitute an importation. The attorney for the United States argued that the term «import» meant merely «bringing into» a country, but Justice Story responded at page 933 by stating:

Perhaps the argument of the attorney on this head may be perfectly consistent with the laws of nations, but as to revenue laws, I am well satisfied that an importation into the United States, means not merely a bringing within our jurisdictional limits, but also a bringing into some port, harbor, or haven, with an intent to land the goods there.

In our fact situation, the diesel fuel in question was not unloaded or discharged in the United States. The appellants admitted as much in their factum at page 2, point four:

The fuel was carried out of Canada in the fuel tanks of the trucks. It was consumed by the trucks during their operations. It was not unloaded at the destination outside of Canada. It was not destined, apart from the delivery of goods on hand, for supply or sale to any foreign customer.

[47]Another case that supports the importance of unloading one's goods in the foreign country when discussing exportation is Canton Railroad Co. v. Rogan, 340 U.S. 511  (1951) (Canton Railroad). This case involved a franchise tax imposed by Maryland on railroads, measured by gross receipts and apportioned to the length of their lines within the State. The railroad company claimed that a portion of its gross receipts were exempt from taxation because they were derived from operations in foreign commerce and constituted the handling of goods destined for export. The Court rejected the exemption and imposed the tax, finding the tax constitutional within the Import-Export Clause of the United States Constitution. The Import-Export clause states as follows [at page 513]:

«No state shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection laws. . . .»

The tax in question was not on the goods but on the handling of the goods at the port. The United States Supreme Court concluded at page 515 that:

. . . any activity more remote than that [loading for export and unloading for import] does not commence the movement of the commodities abroad nor end their arrival, and therefore is not a part of the export or import process.

By analogy, the mere consumption of fuel is not sufficient to be considered part of the export process, let alone an «export». In my opinion, filling a fuel tank in Canada, consuming that fuel across the border into the United States in order to transport other goods, and never unloading or discharging that fuel is more remote than loading for export and unloading for import, and not part of the export/import process.

[48]Also, in Clarke et al. v. Clarke et al., 5 Fed. Cas. 943 (1877), a case involving the exportation of timber logs, the Georgian Court held that [at page 945]:

. . . goods imported do not lose their character as imports and become incorporated into the mass of the property of the state until they have passed from the control of the importer or been broken up by him from their original cases. [My emphasis.]

In our case, the fuel was consumed by the trucks. It was not separated out for commercial use in the United States.

[49]Likewise, in Brown v. The State of Maryland, 25 U.S. 419 (1827), a case which involved the unconstitutional exercise of taxing power with regards to the Import-Export Clause of the U.S. Constitution, the Supreme Court stated, at pages 441-442:

It is sufficient for the present to say, generally, that when the importer has so acted upon the thing imported, that it has become incorporated and mixed up with the mass of property in the country, it has, perhaps lost its distinctive character as an import, and has become subject to the taxing power of the State; but while remaining the property of the importer, in his warehouse, in the original form or package in which it was imported, a tax upon it is too plainly a duty on imports to escape the prohibition in the constitution. [My emphasis.]

Thus, from this statement it can be implied that the incorporation or mixing of a good with the mass of things in a country involves having acted upon the good such that it has changed from the original form or package in which it was imported. This implies some active component in the unloading or discharge of goods. The fuel in question never changed from its original package in that it was never unloaded or broken up. It was merely consumed. Mere consumption is inconsistent with this idea of incorporation or unification.

[50]In my opinion, the appellants have not met the relevant two-part test. Specifically, they have not shown that the fuel in question was united with the mass of goods in the United States by showing a sale or transaction, or by showing an intent to seek a foreign market for the fuel in question, or by unloading, discharging, or otherwise landing the fuel in the United States. Shortly put, there was no intent to unite the fuel with the commerce of the United States. As stated in the Court of Claims decision of Swan, supra, at pages 108 and 109:

Especially ought the departmental construction to be given weight since no decision has been disclosed in the course of the century succeeding the act of 1799 which shows that the Department viewed the term «export» as relating to anything but foreign commerce.

Mere Consumption is Insufficient

[51]When one steps beyond the specific two-part test, one finds that the more recent American case law reveals that the consumption of fuel, itself, cannot be classified as an «export». One of the reasons for this refusal to classify the consumption of fuel as an act of exportation is that fuel is just one of the many provisions or items which are used by vessels transporting goods to foreign countries. It would be inconsistent to classify fuel as an export. For instance, the Court of Claims decision of Swan, supra, which was approved by the Supreme Court decision in 1903, supra, held at page 112 that such items cannot be considered exported:

Therefore, oil taken from this country and consumed on a voyage does not constitute an exportation of that article. We might as well say that provisions which go out on the same ship for use on the outward passage are exported.

[52]In Hess Oil Virgin Islands Corp. v. Quinn, 16 V.I. 380 (1979) (Hess Oil), the Court was called upon to determine whether or not Hess was liable to the Government of the Virgin Islands for gross receipts taxes on sales of bunker fuel oil. Hess had made an agreement with the government of the Virgin Islands, which granted Hess and its affiliates an exemption from all gross receipts taxes on exports. The grant did not extend to sales to unrelated third parties. After signing this agreement, Hess began selling bunker fuel to ships involved in transporting petroleum products to and from its refinery on St. Croix. The bunker oil was used by those vessels as fuel to propel them to their various destinations. The bunker fuel oil was also sold to unrelated third parties, other than to Hess or an affiliate of Hess, for use on ships at sea. The issue was whether these latter sales of bunker fuel to third parties were «exports». The Court found at pages 386-387 that the bunker fuel oil in question was not an export, as the sales were essentially local business transactions. The fuel oil purchased by the ships was only one item of the many ships' stores purchased in port to sustain those ships on their outgoing voyages.

[53]Similarly, the diesel fuel in question in our fact situation was only one item of many that sustained the trucks on its voyage across the United States border, and was not an export. Other similar items in the trucks would have included such things as oil and windshield washer fluid, which are consumed on the journey. If they are all items of export, then presumably also parts which wear out after crossing the border would also be exports. Such parts might include engines and tires.

[54]In making this determination that bunker fuel oil was not an export, the Court in Hess Oil followed Shell Oil Company v. State Board of Equalization, 64 Cal. 2d 713 (1966) (Shell Oil), a case which involved taxes collected on the sales of bunker fuel oil to vessels engaged in interstate and foreign commerce. The California Court in Shell Oil held that fuel oil sold to be consumed by ships as «they ply the oceans to foreign ports» was not an article of «export» within the meaning of the Import-Export Clause of the United States Constitution, and, thus, could be taxed (at pages 718 and 729).

[55]Specifically, in Shell Oil, the Court held at pages 718-719 that it would seem unlikely that fuel or other consumables utilized during the voyage from the United States to foreign shores could be classified as exports. At pages 721-722, the Court stated that invalidating a tax on any product, process or service somehow related to and necessary for exportation would:

. . . lead back to every forest, mine, and factory in the land and create a zone of tax immunity never before imagined. Such a broad and all-embrasive interpretation of the export clause has never been accepted.

Rather, the Court determined that a sales tax levied against bunker fuel oil sold to a carrier vessel is not related in any manner to the articles of export which the vessel may carry. The tax is not on the goods shipped as exports, but on the fuel used to further the transportation of such goods, which is a «distinct or separable subject» which may be taxed. Thus, the Court held that the tax imposed did not infringe the Import-Export Clause in the Constitution, as the goods being exported were not the items (fuel) being taxed. Fuel consumed during the transportation of other goods is not an export. Likewise, in Canton Railroad, supra, the Supreme Court held at page 515 that, when the tax is on activities connected with export or import, the range of immunity cannot be so wide. Thus, the fuel consumed by the appellants in question, though aiding the exportation process, must not be considered exempt from tax due to a supposed «export» status.

[56]Also, in the case of Rice Growers' Association of California v. County of Yolo, 17 Cal. App. 3d 227 (1971), at page 241, which involved the constitutionality of a tax with respect to the Import-Export Clause of the U.S. Constitution, the Court of Appeal of California summarized what the case law had so far established, and stated at page 239 that:

To summarize: The cases establish:

. . .

(9) Goods do not become «exports» by the mere fact of leaving the country. Hence, oil delivered to a ship for use as bunker fuel on its voyage is not an export.

[57]More specifically with reference to the general use of fuel to cross an international border, the case of Ammex, Inc. v. Department of Treasury, 237 Mich. App. 455 (1999) (Ammex) is helpful. In Ammex, the plaintiff, a gasoline retailer, sought relief from the retail sales taxes and motor fuels taxes it paid under protest. A discussion of the background of the statutes which dealt with the taxes in question is necessary to understand the basis of the case. The Motor Fuel Tax Act in question imposed a tax at a specific rate per gallon on all gasoline and diesel fuel sold in Michigan or used in propelling motor vehicles on the public roads and highways of Michigan. The purpose of the act was to «prescribe a privilege tax for the use of the public highways by owners and drivers of motor vehicles». The tax was collected by the supplier at the time of distribution, and is intended to be imposed on the ultimate consumer of gasoline or diesel fuel. In this case, the plaintiff paid the motor fuel taxes when it purchased the gasoline and diesel fuel from its suppliers. However, the Motor Fuel Tax Act provided that the «purchaser» of gasoline or diesel fuel used for a purpose other than the operation of a motor vehicle on Michigan's public roads and highways may file a claim for a refund of the taxes paid. (at pages 459-460). The General Sales Tax Act in question imposed a tax on the seller for the privilege of engaging in the business of making retail sales of tangible personal property in Michigan. When the property sold at retail was gasoline, the sales tax was collected from the retailer before the sale, in much the same manner as motor fuel taxes were collected. The plaintiff in Ammex argued that the state's imposition of the two taxes in issue constituted a violation of the Import-Export clause of the United States Constitution.

[58]The Court in Ammex concluded, however, that the gasoline and diesel fuel purchased at the plaintiff's facility did not constitute exports within the meaning of the Import-Export clause. The plaintiff's facility sold a variety of goods in «personal use» quantities, including gasoline and diesel fuel dispensed directly into the fuel tanks of its customers' vehicles. Every customer entering the plaintiff's facility had to exit the facility over the Ambassador Bridge into Canada, which was less than two miles from the facility. Thus, the Court found that it was clear that the end-use consumers who purchased fuel at the plaintiff's facility in Michigan necessarily were required to use a portion of that fuel within the United States before entering Canada, and, therefore, the gasoline and diesel fuel purchased at the plaintiff's facility did not constitute «exports» within the meaning of the Import-Export Clause. The Court stated at pages 464 and 465:

. . . we conclude that the gasoline and diesel fuel purchased at plaintiff's facility did not constitute «exports» within the meaning of the Import-Export Clause. It is clear that the end-use consumers who purchased fuel at plaintiff's facility in Michigan necessarily were required to use a portion of that fuel for its designed purpose within the United States before entering Canada. Accordingly, Richfield Oil is not directly applicable to the facts in this case. As Justice Scalia noted in his concurring opinion in Itel Containers, supra at 82, no portion of the «export» in Richfield Oil was ever «used or consumed in the United States» and there was no probability that it would be «diverted to domestic use». Because a portion of the fuel purchased by each of plaintiff's customers was necessarily used within the United States, the transactions at issue in this case did not involve exportation. To the contrary, they were merely domestic transactions occurring at a location near the international border.

In our case, the appellants must have used a portion of the fuel in Canada and to cross the U.S. border. The purchase of the fuel was a domestic transaction, and, thus, according to Ammex, it does not constitute an export.

[59]In Richfield, supra, the appellant entered into a contract for the sale of oil to the New Zealand Government. The oil was delivered by the appellant from  dockside  tanks  into  a  vessel  owned  by  the New Zealand Government and transported to New Zealand.  None  of  the  oil  was  used  or  consumed  in the  United  States.  The  Supreme  Court  held  that  the tax  levied  upon  the  transaction  was  a  tax  upon  an export,  within  the  meaning  of  the  Import-Export Clause of the U.S. Constitution, and was, therefore, unconstitutional. In the course of its decision, however, the Court said, at page 83 that:

. . .when the oil was pumped into the hold of the vessel, it passed into the control of a foreign purchaser and there was nothing equivocal in the transaction which created even a probability that the oil would be diverted to domestic use. It would not be clearer that the oil had started upon its export journey had it been delivered to a common carrier at an inland point.

The fuel in question in our fact situation never passed into the control of a foreign purchaser; it also was used in Canada prior to entering the United States. Thus, there was a certainty that some of the fuel would be diverted to domestic use, and the possibility that all of the fuel would be so diverted. Therefore, it is not clear that there has been a severance of the fuel from the mass of goods in Canada.

[60]In Itel Containers International Corp. v. Huddleston, 507 U.S. 60 (1993), the United States Supreme Court distinguished Richfield, and sustained the validity of the state sales tax paid by Itel Containers, a domestic company that leased cargo containers for use exclusively in international shipping. Itel unsuccessfully challenged the tax's constitutionality under the Import-Export Clause of the U.S. Constitution. The Court held, at pages 64 and 78, that the tax was neither a tax on importation or imported goods, nor a direct tax on imports and exports in transit within the meaning of the Richfield case. It was not a direct tax on the value of goods destined for export. The «taxation falls upon a service distinct from [import] goods and their value». In a concurring judgment, Justice Scalia stated, at page 82:

I do not think a good can be an export when it will be used in this country, for its designed purpose, before being shipped abroad. . . . The Richfield Court noted not only that no portion of the oil was «used or consumed in the United States», . . . but also that «there was nothing equivocal in the transaction which created even a probability that the oil would be diverted to domestic use». . . . With respect to the containers at issue in the present case, by contrast, it was entirely certain that after the time at which the tax accrued (viz., upon delivery of the empty containers to the lessee) they would be used in this country, to be loaded with goods for export. . . . It could not be said, when the tax attached, that «the process of [their] exportation ha[d] started».

Therefore, since the fuel in question in our fact situation obviously had to be used, for its designed purpose, domestically in Canada, prior to crossing the United States border, it cannot be considered an export. No process of exportation of the fuel had commenced at the time the tax attached to the fuel.

Section 252 and its Implications

[61]Rothstein J.A. cites subsection 252(1) of the Excise Tax Act as support for his opinion that the term «export» includes diesel fuel consumed during the transportation of goods en route to the United States. According to Rothstein J.A., subparagraph 252(1)(c)(ii) outlines that fuel acquired in Canada for use primarily in the United States in the vehicle in which it is being transported is not entitled to the rebate, but is personal property which the provision describes as being exported.

[62]With respect, I cannot agree that an examination of the GST provision is helpful. The definition of export as a good being severed from the mass of goods in one country and then united with the mass of goods belonging to a foreign country was established in the Carling case in 1930. It simply cannot be assumed that Parliament would have intended to change the established commercial definition of «export» with respect to an excise tax by amending the portion of the Excise Tax Act in 1990 to deal with a wholly separate tax (the Goods and Services Tax). It cannot be assumed that Parliament would amend the definition of «export» in such a roundabout fashion; rather, it would have done so directly. Consequently, until Parliament does so amend the definition directly with respect to the excise tax portion of the Excise Tax Act, I cannot interpret the term «export» as including diesel fuel being consumed while transporting other goods to a foreign country.

Policy Implications

[63]Finally, if this Court were to decide that the consumption of diesel fuel constitutes an export, negative policy implications would result. A pragmatic interpretation of the Excise Tax Act must be employed, such that consideration is given to the effects of a given interpretation. Statutes should be constructed so as to avoid irrationality. When the issue is one of clarifying ambiguous wording, as it is here with regards to the vague definition of «export» in the Excise Tax Act, the absurdity of results can be a factor to consider in the interpretation of that wording (R. v. McIntosh, [1995] 1 S.C.R. 686, at page 704):

Thus, only where a statutory provision is ambiguous, and therefore reasonably open to two interpretations, will the absurd results flowing from one of the available interpretations justify rejecting it in favour of the other. Absurdity is a factor to consider in the interpretation of ambiguous statutory provisions, but there is no distinct «absurdity approach».

In this case, the inclusion of the consumption of fuel in the definition of an «exported» good would lead to an absurd or illogical result. If the mere consumption of fuel is sufficient to constitute a severing of that fuel from the mass of goods in one country and the uniting of that fuel with the mass of goods in a foreign country, then every automobile that consumes fuel when crossing the United States border would be exporting that fuel, and would qualify for a refund. Such a result is incongruous with what is commonly thought of as «exportation», and would result in administrative chaos. Such an absurdity cannot have been intended by this legislation. It should be left to the Legislature to extend the application of exempt «export» status that far.

[64]Consequently, because it cannot be said that there was an intention to unite the fuel with the mass of goods in the United States in a commercial sense, and because the cases establish that, in general, the consumption of fuel does not constitute an act of exportation, the diesel fuel in question does not constitute an export and should not be exempted from the application of excise tax.

[65]I would, therefore, dismiss the appeal with costs.

* * *

The following are the reasons for judgment rendered in English by

[66]Noël J.A. (concurring): I have had the benefit of reading the draft reasons of Rothstein J.A. and Sexton J.A. In my respectful view, Rothstein J.A. has arrived at the correct conclusion for the reasons that he gave. I merely wish to add the following brief comments which arise from the reasons of Sexton J.A.

[67]With respect to the decision of the United States Supreme Court in Swan, supra, there is no mention in that case about the territorial waters of Japan (reasons of Rothstein J.A., at paragraph 25). The consumption of rapeseed oil in Japanese territorial waters undoubtedly would be de minimis and was not in issue in that case. What was at issue was whether rapeseed oil consumed on the high seas was exported. Because that rapeseed oil was consumed before it reached another country, the requirement that «Another country or state as the intended destination of the goods is essential to the idea of exportation» was not met and the rapeseed oil was not considered to be exported. The same analysis applies to the decision of the U.S. District Court in Hess Oil, supra, (reasons of Sexton J.A., at paragraph 54), the decision of the California Court in Shell Oil, supra (ibid) and the decision of the California Court of Appeal in Rice Growers' Association of California, supra (reasons of Sexton J.A., at paragraph 56). In the case before this Court, there is no question but that the United States was the destination of the diesel fuel in question.

[68]The majority reasons do not restrict the meaning of «exported» for the purposes of subsection 68.1(1) solely to the commercial context. I need not elaborate on the soundness of this view. However, even if the meaning of «exported» was so limited, as my colleague maintains (reasons of Sexton J.A., at paragraph 37), the diesel fuel in this case was taken out of the country in a clearly commercial context. Indeed, it was taken out of Canada with the view that it be consumed in the United States in the course of the business of transporting goods. It follows that the fuel in question was taken out and used «in the course of trade» (compare Moosehead Breweries, supra, reasons of Sexton J.A., at paragraph 35) and in a «commercial context» (see Old HW-GW Ltd. v. Canada, supra, reasons of Sexton J.A., at paragraph 32).

[69]The position of my colleague appears to be that «export» requires a sale, an intended sale, or at least a landing of goods in the country of destination. I agree that the diesel fuel in this case was not sold or intended to be sold. However, it was «unladen» in the United States in every sense of that word (reasons of Sexton J.A., at paragraph 45). It is common ground that the fuel in issue was consumed in the United States, with the result that the fuel tanks were emptied or discharged of their contents in that country. It is also common ground that by reason of bringing into the United States fuel purchased in Canada, the appellants did not, to the extent of the fuel so brought, purchase fuel in the United States. It follows, in my respectful view that the Canadian-sourced fuel was «unladen» in the United States whether reference is made to the dictionary meaning of this word, or the meaning attributed to it by the case law (reasons of Sexton J.A., at paragraphs 46 - 50).

[70]With respect to my colleague's remarks at paragraphs 59 and 60 of his reasons, The Richfield and Itel Containers cases do not deal with the facts as agreed in this appeal. The diesel fuel in question in this appeal was used solely in the operation of commercial trucks in the United States. There is no issue here of diversion to domestic use. The rebates only apply to diesel fuel used in the United States and, by agreement, that will be subject to audit.

[71]With respect to my colleague's comments pertaining to policy (reasons of Sexton J.A., at  paragraphs 63 and 64), I find nothing absurd with the notion that the fuel in the tank of a vehicle leaving the country can be said to be «exported» within the meaning of the Act. Indeed, subsection 252(1) was drafted on the basis that, when the other requirements are present, the fuel in the tank of a vehicle which crosses the border is thereby exported. I do not believe that it would be open to us to disregard this provision on the basis that the legislator acted irrationally in so providing (compare Grey v. Pearson (1857), 29 L.T.O.S. 67 (H.L.), at page 71; 10 E.R. 1216).

[72]Finally, there is no basis for the suggestion that a decision favourable to the appellants in this case would give rise to administrative chaos. In this respect, I stress that according to the agreed statement of fact, the fuel in issue was taken out of the country in the context of a commercial operation (not by a private car operator) and that, irrespective of the circumstances, it is the taxpayer filing a refund claim who bears the burden of establishing the actual amount of fuel exported. In any event, it is not the role of the Court to curb the meaning of the legislation so as to accommodate the administration.

[73]I would dispose of the appeal as suggested by Rothstein J.A.