http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/108306/index.do 
Bemco Confectionary and Sales Ltd. v. The Queen (February 26, 2015 – 2015 TCC 48, Paris J.).
Précis: The appeals in question involve roughly $30 million in GST on tobacco sales. This is a report on a motion by the taxpayer to strike large portions of the Crown’s assumptions contained in its Replies. The same motion was taken in each of 5 GST appeals. All of the appeals involved a single issue: Did the appellant sell tobacco products to Status Indians on Reserves or did it misrepresent the identity of its customers? The taxpayer sought to strike paragraphs of the Crown’s assumptions for various reasons:
1. Some were alleged to contain either irrelevant or highly prejudicial allegations of “similar facts”;
2. Some were alleged to contain statements of law or mixed fact and law; and
3. Some were alleged to be insufficiently specific or complete and based on knowledge of the Minister which was not shared with the appellant.
The Court ruled in one of the appeals, dismissing the motions in the others on the basis that it would grant “the Respondent leave to file Amended Replies in the four remaining appeals and granting the Appellant leave to file Answers to those Amended Replies”. On the remaining motion the Court struck two paragraphs on the basis that they contained statements of law and the word “false” in a third paragraph on the basis that it was tantamount to an allegation of “sham” which would be a statement of law. Since the results were somewhat mixed no costs were awarded.
Decision: This is a decision on an interlocutory motion to strike portions of the Crown’s Reply in 5 different GST appeals. At the heart of the appeals was whether tobacco products had in fact be sold to Status Indians on Reserves to other customers. The amount of GST at issue was roughly $30 million. The taxpayer sought to strike portions of the assumptions contained in the Crowns pleadings on a variety of grounds. The Court dismissed four of the motions on the basis that it would grant “the Respondent leave to file Amended Replies in the four remaining appeals and granting the Appellant leave to file Answers to those Amended Replies”. It then proceeded to examine the merits of the grounds raised by the taxpayer in the remaining motion. The first group of paragraphs attacked by the taxpayer were as follows:
[13] The first group is made up of paragraphs 14(a), (b), (k), (l), (m), (n), (o), (p), (q) and (z). The Appellant maintains that these paragraphs involve either irrelevant facts or highly prejudicial assumptions of “similar facts”.
[14] Those paragraphs read as follows:
a) the appellant has a wholesaler’s permit for the province of Ontario;
b) the appellant has not a vendor’s permit to sell tobacco products to consumers in Ontario
. . .
k) the manufacturers who sold their tobacco products to the appellant authorized and permitted the resale of their tobacco products by the appellant only on the basis that the GST/HST is collected from the purchaser on every subsequent resale to wholesale accounts and retail locations (with the exception of sales of allocation cigarettes under the Ontario First Nations Cigarette Allocation System) and that such GST/HST is reported and remitted as required under the Act;
l) the appellant is not an authorized tobacco wholesale under the Ontario First Nations Cigarette Allocation System;
m) none of the tobacco products sold by the appellant during the period were allocation cigarettes (allocation cigarettes bear a peach-colored tear tape or stamp);
n) according to the scheme, the status Indians that the appellant claims to have sold the tobacco products to were intended to be wholesalers of tobacco products;
o) the appellant made no inquiries as to whether any of the status Indians that the appellant claims to have sold the tobacco products to were licenced by the province as tobacco wholesalers;
p) prior to June 26, 2012, none of the status Indians that the appellant claims to have sold the tobacco products to had a vendor’s permit to sell tobacco products to consumers in Ontario;
q) the appellant knew that it was not authorized to sell its tobacco products to unlicenced individuals;
. . .
z) the appellant knew that the Ontario regulated special scheme for unmarked cigarettes provides a sufficient quantity of non-taxable tobacco products to status Indians for their own consumption;
The Court rejected the argument the references to the Ontario tobacco tax regime was irrelevant:
[22] In this case I find that the Appellant has not shown that it is plain and obvious that the facts set out in the Group 1 Paragraphs are irrelevant. I accept the Respondent’s submission that the assumptions in which reference is made to the TTA relate to the scheme alleged by the Minister to have been carried out and that the structure used by the Appellant and the Status Indians was a sham. I am not prepared to say that references to the regulatory regime governing the sale of tobacco or tobacco products in Ontario when setting out the background to the alleged scheme or sham are clearly irrelevant where the alleged scheme or sham is a central element to the assessments.
It similarly rejected the “similar facts” argument:
[25] In my view, the Group 1 Paragraphs, taken together, do not allege that the Appellant breached the TTA and therefore there is no pleading of discreditable conduct unrelated to its obligations under the ETA. In particular, paragraphs (o) and (p) state that the Status Indians to whom the Appellant was purportedly selling tobacco were not licensed under the TTA to sell to consumers and that the Appellant made no inquires whether those individuals were licensed by the province as tobacco wholesalers. To the extent any breaches of the TTA are alleged to have occurred, the Group 1 Paragraphs suggest that they were committed by parties other than the Appellant.
[26] Even if it were alleged that the Appellant breached the TTA, I see no basis for the suggestion that the Respondent is relying on such a breach to demonstrate a propensity by the Appellant for breaching the ETA. In any event, no such argument is found in the Reply.
[27] The Reply sets out the position of the Respondent that the commercial structures in place between the Appellant and the Indian purchasers were a sham or conduit designed to give the appearance that the
Indian Act exemption applied. This therefore precludes any suggestion of propensity-based reasoning.
The next group of impugned paragraphs were as follows:
[28] The Group 2 Paragraphs consist of paragraphs (o), (p), (q), (u), (y) and (bb), which the Appellant objects to on the grounds that they contain conclusions of law or mixed fact and law. The portions of those paragraphs that the Appellant seeks to have struck are as follows:
Paragraph Extricable Wording________________________________
14(o) “were licenced by the province as tobacco wholesalers”
14(p) “had a vendor’s permit to sell tobacco products”
14(q) “was not authorized to sell its tobacco products to unlicensed individuals”
14(u) “the appellant initially mislead the CRA auditor about”
14(y) “that the purpose of the scheme was to give the false appearance”
14(bb) “manipulation or abuse of the purpose of the Indian Act tax exemption”
[29] The Appellant relies on
Canada v. Anchor Pointe Energy Ltd, 2003 FCA 294, for the proposition that legal statements or conclusions have no place in assumptions.
The taxpayer succeeded on only paragraphs (q), (bb) and the word “false” in paragraph (y):
[32] I am not convinced that these paragraphs, apart from paragraph (q), contain legal conclusions. Paragraph (o) states that the Appellant made no enquiries whether the Status Indian purchasers were licensed as wholesalers and (p) deals with whether the Status Indians held a permit to sell to consumers. Holding a licence and a failure to enquire whether such a licence was held are questions of fact, not legal conclusions. The presumption that the facts in these paragraphs are true would not extend to a presumption that the licences referred to were required under the TTA.
[33] On the other hand, paragraph (q) contains the statement that the Appellant was not authorized to sell to unlicensed individuals, which involves both fact and law, and is therefore not permissible. While paragraph (q) contains the element of the Appellant’s knowledge, the question of whether the Appellant was authorized under the TTA requires the application of the relevant statutory provisions to the facts of the Appellant’s case. The Respondent’s counsel asked that all of paragraph (q) be struck if the Court agreed with the Appellant’s position. Therefore, all of paragraph (q) will be struck.
…
[38] Regarding paragraph (u), the alleged act of misleading the auditor is a question of fact and does not require the application of a legal test. What a person does or knows is a fact.
[39] However, paragraph (bb) goes further than paragraph (u) and includes a statement concerning “manipulation or abuse of the purpose of the Indian Tax exemption”. I agree with the Appellant that, since the purpose of a statutory provision is a matter of legal interpretation, this wording is not properly pleaded as a fact. The Respondent’s counsel asked that all of paragraph (bb) be struck if the Court agreed with the Appellant’s position. Therefore, all of paragraph (bb) will be struck.
[40] In paragraph (y) the use of the words “the purpose of the scheme was to give the false appearance” is not equivalent to pleading that the arrangement was a “sham” which Rip C.J. (as he then was) struck from the Minister’s assumptions in the case of
Strother v. The Queen, 2011 TCC 251. …
[41] While I agree that the existence of a sham is determined by the application of a legal test to the facts of a taxpayer’s situation, I respectfully disagree that the existence of an intention to mislead is a legal conclusion. Both intention and purpose relate to a person’s state of mind, which are factual matters. …
[42] The question of whether the “appearance that the Appellant’s sale of tobacco products were relieved from GST/HST” was false, though, would require an analysis of the relevant portions of the
Indian Act and ETA and therefore involve a determination of law. The word “false” should be struck from paragraph (y).
The final group of impugned paragraphs were the following:
[43] The third group contains paragraphs (s), (t) and (w ). The wording that the Appellant objects to is as follows:
Paragraph Extricable Wording________________________________
14(s) “retailers not located on a reserve (the “Customers”)”
14(t) “the location of each Customer”
14(w ) “the Customer’s” and “to consumers”
[44] The Appellant takes issue with the third group of paragraphs because in its view they have not been pleaded with sufficient specificity or completeness and are based on information that is only within the Minister’s knowledge and which has not been shared with the Appellant.
The Court rejected the “specificity” argument:
[47] With respect to the Appellant’s argument concerning specificity, I would note that paragraphs (s), (t) and (u) when read together appear to indicate that the identity and location of the Appellant’s customers is determinable by means of an alphanumeric code appearing on the purchase orders for the sales in issue, and that the code was used by the Appellant. This was confirmed by the Respondent’s counsel at the hearing. To this extent, the paragraphs involve matters which would be within the knowledge of the Appellant. Therefore, while the customers are not named in those paragraphs, the identity of those customers and their location on or off-reserve would be known to the Appellant. For this reason, I am not prepared to find that the wording that the Appellant complains of should be struck from the Reply. I find there is sufficient precision in paragraphs (s), (t) and (w ) to permit the Appellant to know the case it has to meet.
[48] Even if I had been satisfied that the wording referred to by the Appellant in paragraphs (s), (t) and (w ) concerned matters outside the knowledge of the Appellant, striking that wording would not be the appropriate remedy. In such situations, it the Minister may bear the onus of proving the impugned facts, despite pleading them as assumptions relied upon by the Minister. See:
Transocean Offshore Ltd. v. Canada, 2005 FCA 104 at para 35. This, again, would be a matter that should be left to the determination of the trial judge who would have the benefit of hearing all of the evidence.
In light of the very limited success on the motion the taxpayer’s request for solicitor-client costs was denied and no costs were awarded.