The Conservative party acknowledges in Federal Court documents that $1.3 million worth of advertising allotted to individual Tory candidates in the 2006 election was actually produced for the party's national campaign and had no bearing on candidates or local issues.

But the Conservatives, in a lawsuit mounted by candidate agents against Elections Canada, insist that federal election law allowed the party to place the ads on behalf of the candidates and to give the candidates money they then used to pay the party for the advertising.

In a final argument in the lengthy court case, the party also accuses Elections Canada of changing its interpretation of the law after the election and introducing rules that would have prevented the scheme.

The question of whether the Conservatives should have assigned the cost of the radio and television ads to their national campaign, which has spending limits under the Elections Act that are separate from the ceilings for local candidates, is central to what has been dubbed the "in and out" controversy.

Elections Canada alleges the Conservative party used the transactions to skirt its national campaign spending cap by $1.1 million.

For the first time, the party admits in its final Federal Court filing that the ads, which it placed through "regional media buys," or RMBs, were designed for the national campaign. It had initially argued that advertising promoting Harper and the party also promoted local candidates.

"The ads that ran as part of the different RMBs were ads which had been produced by or on behalf of the party," says the final statement of facts filed by party lawyer Michel Decary.

"The ads did not refer to the particular candidate(s) participating in the RMB (except for the tag line identifier referred to in the next paragraph) nor to issues particular to that region. Rather, the ads were 'national' in the sense that the ad promoted the party and its leader and the same ad could and did run anywhere across Canada (or, in the case of French language ads, throughout Quebec)."

Elections Canada changed rules after the fact, Conservatives say

The Conservatives' court argument goes on to say that each ad included "the appropriate tag line" that said it had been authorized by the official agent for a local candidate. But Elections Canada says the tag lines were not sufficient for the party to attribute the expense to the candidates.

The court submission argues that election law allows all parties to transfer money to candidates for a range of services the parties provide, including lawn signs, campaign literature, polling services and local radio or newspaper advertising.

Most of those costs, however, are normally designated as non-monetary contributions to candidates and do not qualify for reimbursements from the public treasury.

In this case, Elections Canada reimbursed part of the ad expenses to 17 candidates before one of the candidate agents told an Elections Canada auditor he believed the ads were part of the party's national campaign. A total of 67 candidates took part in the transactions.

The Conservatives maintain, in their court submission, that Elections Canada changed its interpretation of the law last year, after the dispute began, and issued a new guide saying candidate expenses and advertising must "directly promote or oppose a candidate."

The TV ads that were part of the scheme included several attack ads against then prime minister Paul Martin and the Liberal party over the sponsorship scandal and at least one ad promoting the Conservative platform.