SCC Allows Appeal by UPS of GST Assessment

On April 23, 2009, the Supreme Court of Canada released a precedent-setting decision in United Parcel Service Canada Ltd. v. Canada, 2009 SCC 20. This is the first appeal of a Goods and Services Tax (GST) assessment heard by the Supreme Court. The decision may serve to broaden the range of eligible claimants beyond the person with the “legal liability” to pay GST in the case of claims for rebate in respect of GST paid in error.

By way of background, the dispute arose in the context of UPS's customs brokerage activities in which UPS, during the 1996-1997 period, overpaid some $2.9 million in GST in error to the Minister of National Revenue on shipments imported into and delivered within Canada on behalf of various customers. These overpayments of GST were due to a variety of circumstances including incorrect value for duty declarations, returned shipments, and the fact that some goods were duty-free.

GST overpayments were not collected by UPS from its customers. Instead, UPS reported the overpayments in its monthly GST returns by deducting the amount of the overpayments from its own GST liability as a supplier of goods and services. The Minister of National Revenue reassessed UPS and disallowed the deductions.

In its decision, the Supreme Court of Canada held that UPS was entitled to a rebate for the GST overpayment in question. While UPS was not the person liable for the GST, it was the person that paid an amount on account of GST within the meaning of subsection 261(1) of the Excise Tax Act. The court held that this provision of the Excise Tax Act does not require an inquiry into liability for payment. The court found that subsection 261(1) was broadly worded and it would not be in accordance with the ordinary and grammatical meaning of the provision to interpret it in such a way as to preclude persons who actually paid or overpaid GST in error from obtaining a rebate.

Blake, Cassels & Graydon LLP acted for UPS with a team comprised of Jeff Galway, David Spiro, Greg Kanargelidis and Anne Glover (David Spiro has subsequently joined Fraser Milner Casgrain LLP).

Wendy Burnham, David Jacyk and Bonnie Moon of Justice Canada represented the Minister of National Revenue.