A-456-79
The Queen (Appellant) (Defendant)
v.
British Columbia Railway Company (Respondent)
(Plaintiff)
Court of Appeal, Thurlow C.J., Heald and Urie
JJ.—Vancouver, February 5; Ottawa, March 23,
1981.
Excise tax — Sales tax — Goods prepared for use by
manufacturer and not for sale — Appeal from the decision of
the Trial Judge that the Excise Tax Act failed to specify the
time at which the consumption or sales tax was payable on the
respondent's railroad ties — Whether or not the Act specifies
the time at which consumption or sales tax is payable —
Whether any tax is payable at all — Appeal dismissed —
Excise Tax Act, R.S.C. 1970, c. E-13, ss. 27, 28.
This is an appeal from the decision of the Trial Judge that
the Excise Tax Act failed to specify the time at which the
consumption or sales tax was payable on the respondent's
railroad ties. The respondent manufactured the ties for its own
use. The Department of National Revenue assessed against the
respondent, sales and consumption tax in respect of the ties.
The respondent appealed against the assessment. The Trial
Judge found that as the Act failed to specify the time the tax
was payable no liability for tax arose. The first question is
whether or not the Act specifies the time the tax was payable.
The second question is whether the respondent is liable to pay
any tax.
Held, the appeal is dismissed. The Trial Judge did not err in
finding that because. the Act failed to specify the time at which
the sales tax was payable, no liability was imposed on the
respondent. The authorities cited are not determinative of the
question posed for determination by the Court in this appeal.
Per Thurlow C.J. dissenting: When the manufacturer of
goods uses or consumes them there is no sale within the
ordinary meaning of that term. Neither is there a delivery to a
purchaser or a passing of property in the goods to a purchaser.
The time for payment of tax on such goods thus cannot be
determined by the ordinary meaning of subparagraph
27(1)(a)(i). But Parliament has deemed by paragraph 28(1)(d)
that what occurs when a manufacturer of goods uses them for
his own purposes, is a sale for the purposes of the Act. It is not
difficult to consider the sale and its incidents of delivery and
passing of property as all occurring at the same time, that is to
say, the time of the use of the goods by the manufacturer, and
to conclude that the time for payment of the tax is fixed by the
Act as the time when the goods are so used. The Act does not
fail to specify the time at which consumption or sales tax was
payable. He is liable for tax accordingly.
R. v. Fraser Cos., Ltd. [1931] S.C.R. 490, considered.
Bank of Nova Scotia v. The King [1930] S.C.R. 174,
considered. R. v. Dominion Bridge Co. Ltd. [1940] S.C.R.
487, considered. R. v. Canadian Pacific Railway Co.
[1971] S.C.R. 821, considered. R. v. Henry K. Wampole
& Co., Ltd. [1931] S.C.R. 494, discussed.
APPEAL.
COUNSEL:
William Hohmann for appellant (defendant).
P. N. Thorsteinsson for respondent (plain-
tiff).
SOLICITORS:
Deputy Attorney General of Canada for
appellant (defendant).
Thorsteinsson, Mitchell, Little, O'Keefe &
Davidson, Vancouver, for respondent (plain-
tiff).
The following are the reasons for judgment
rendered in English by
THURLOW C.J. (dissenting): This appeal is
from a judgment of the Trial Division [[1979] 2
F.C. 122] answering a question that had been set
down for determination before trial under Rule
474. The action was brought by the respondent
seeking declarations with respect to its liability
under the Excise Tax Act, R.S.C. 1970, c. E-13,
as amended, for taxes on railroad ties, of which the
respondent was admittedly the manufacturer or
producer, manufactured or produced in Canada
and used by the respondent in the repair and
maintenance of its railroad. The question and the
answer follow:
Question One: Did the Excise Tax Act fail to specify the time
at which the consumption or sales tax was payable on the
Plaintiff's railroad ties, and if so, is there any liability on the
Plaintiff for payment of the consumption or sales tax assessed
by the Minister in this case?
Answer: The Excise Tax Act failed to specify the time at which
the consumption or sales tax was payable on the Plaintiff's
railroad ties. There is no liability on the Plaintiff for payment
of the consumption or sales tax assessed by the Minister of
National Revenue in the following assessments:
(a) Assessment dated May 13, 1971 covering the period June
14, 1963 to April 30, 1969 of the Plaintiff.
(b) Assessment dated June 17, 1971 covering the period May
1, 1969 to March 31, 1971 of the Plaintiff.
(c) Assessment dated November 29, 1973 covering the
period April 1, 1971 to June 30, 1973 of the Plaintiff.
The material statutory provisions are subpara-
graph 27(1)(a)(i) and subsection 28(1) of the
Excise Tax Act. They read:
27. (1) There shall be imposed, levied and collected a con
sumption or sales tax of twelve per cent on the sale price of all
goods
(a) produced or manufactured in Canada
(i) payable, in any case other than a case mentioned in
subparagraph (ii) or (iii), by the producer or manufacturer
at the time when the goods are delivered to the purchaser
or at the time when the property in the goods passes,
whichever is the earlier,
28. (1) Whenever goods are manufactured or produced in
Canada under such circumstances or conditions as render it
difficult to determine the value thereof for the consumption or
sales tax because
(d) such goods are for use by the manufacturer or producer
and not for sale;
the Minister may determine the value for the tax under this Act
and all such transactions shall for the purposes of this Act be
regarded as sales.
These provisions have been in the Excise Tax
Act for some fifty years without material change.
The learned Trial Judge reached his conclusion
reluctantly, after considering these and other
provisions carefully and at length. He did so not
withstanding the fact that on these same statutory
provisions the Supreme Court had held on a
number of occasions in closely similar situations
that tax was payable. In none of these cases does it
appear that the precise point which found favour
with the learned Trial Judge was raised or deter
mined but it was, in my opinion, involved in the
Court's conclusions and it appears to me that these
decisions point to the proper approach to the con
struction of the particular statutory provisions.
In The King v. Fraser Companies, Limited' the
issue was the liability of the respondent for tax in
respect of lumber manufactured as part of the
respondent's stock-in-trade for sale in the course of
its business but used by the respondent in the
construction of buildings. The Supreme Court
overruled the judgment of the President of the
Exchequer Court who, by reading what is now
paragraph 28(1)(d) narrowly and as limited to the
[1931] S.C.R. 490.
purpose of the manufacture, had held that the
lumber did not fall within the wording regardless
of the use to which the lumber had been put.
Smith J. for the majority said at pages 492-493:
The learned President of the Exchequer Court, before whom
the case was tried, dismissed the action (1), on the ground that
the lumber so consumed was produced in the ordinary course of
business for sale, and not specifically for use by the manufac
turer, within the meaning of the above quoted s. 87(d).
With great respect, I am unable to take this view of the
meaning and effect of these provisions of the Act. To so
construe them is to put a narrow and technical construction
upon the precise words used in clause (d), without taking into
consideration the meaning and intent of the statute as a whole.
It seems to me clear that the real intention was to levy a
consumption or sales tax of four per cent. on the sale price of
all goods produced or manufactured in Canada, whether the
goods so produced should be sold by the manufacturer or
consumed by himself for his own purposes.
The view taken in the court below would result in the
introduction of an exception to the general rule that all goods
produced or manufactured are to pay a tax, and would amount
to a discrimination in favour of a particular consumer. As an
example, it is not unusual for a manufacturer engaged in the
production and manufacture of lumber for sale to engage at the
same time in the business of a building contractor. He manu
factures his lumber for sale, and, as a general rule, would not
manufacture any specific lumber for use in connection with his
building contracts, but would simply take lumber for these
purposes from the general stock manufactured for sale, and
might thus, under the view taken in the court below, escape
taxation on all lumber thus diverted from the general stock
manufactured for sale.
I am of opinion that, construing the provisions of the Act as a
whole, the respondent is liable for taxes on the lumber con
sumed by him, as claimed.
In an earlier case, Bank of Nova Scotia v. The
King 2 Anglin C.J.C. said with respect to the
provision:
We cannot find anything in the statute to support the view
put forward by counsel for the appellant that its application is
confined to a manufacturer or producer whose business is
manufacturing or producing for sale. That construction of the
Act would involve the exclusion from our consideration of
clause (d) of s. 87, which, in our opinion, was introduced to
remove any doubt that the statute was intended to apply to a
case such as that at bar.
In The King v. Henry K. Wampole & Company,
Limited' Anglin C.J.C. speaking for the majority
of the Court said:
2 [1930] S.C.R. 174 at p. 179.
3 [1931] S.C.R. 494 at pp. 496-497.
I was, at the hearing of this appeal, strongly of the view that
the sample goods in question were subject to the tax sought to
be collected in this case. My construction of clause (d) of
section 87 is that the "use" by the manufacturer or producer of
goods not sold includes any use whatever that such manufactur
er or producer may make of such goods, and is wide enough to
cover their "use" for advertising purposes by the distribution of
them as free samples, as is the case here. I am, therefore, with
great respect, unable to agree in the reasons assigned by the
learned trial judge for dismissing this petition ([19311 Ex.
C.R. 7).
In The King v. Dominion Bridge Company
Limited 4 the question was whether the respondent
was entitled to a refund of tax on bridge members
manufactured by the respondent and incorporated
into a bridge under a contract for its construction
for the Crown in right of a province. Section 105
provided for such a refund of tax on goods "sold"
to the Crown.
Duff C.J.C. said [at page 490]:
The contract in this case was a contract for building the
superstructure of a bridge and the erection of it and the
securing of it; and the contract price was an entire price for the
entire job. It was not, in the ordinary sense of the words, a
contract, I think, for the sale of the superstructure or for the
sale of the members of the superstructure. The production,
however, of the members of the superstructure for the purpose
of fulfilling the contract would bring the case within section
87(d) (Special War Revenue Act, R.S.C. 1927, c. 179 and
amendments).
In The King v. Fraser Companies ([1931] S.C.R. 490), four
judges of this Court (Newcombe, Rinfret, Lamont and Smith
JJ.) expressed the view touching the application of section
87(d) to the facts of that case which, I think, applies here. In
the judgment of those learned judges, delivered by Smith J., it
is said (p. 493):
Then after citing a portion of the passage cited
above the Chief Justice continued:
This passage in the reasons of my brother Smith was not part
of the ratio decidendi but it was the considered opinion of the
four judges who constituted the majority of the Court. They
said that, if a building contractor is also a manufacturer of
building material, lumber or brick for example, and uses, for
the purpose of executing a building contract, brick or lumber
produced by himself, that is a case within section 87(d) and the
transaction is, by force of that section, deemed to be a sale and
he is chargeable accordingly. In the present case the members
of the bridge produced were produced specially for the purposes
of the contract.
I have fully considered the able argument addressed to us by
Mr. Forsyth and my conclusion is that, when sections 86 and 87
are read together, this transaction falls within the category of
4 [1 940] S.C.R. 487 at pp. 488-489.
cases described by section 87(d), and that the view expressed
by my brother Smith in Fraser's case ([1931] S.C.R. 490) is
the view which ought to govern us in the disposition of this
appeal. I think, in this respect, the practice of the Department
is right.
and after referring to and citing section 105:
The question to be decided is not without difficulty. I have
come to the conclusion that "goods" are "sold" within the
meaning of this section when there is a sale that is such solely
by force of the statutory declaration that it shall be deemed to
be a sale for the purposes of the statute. Section 105 is part of
the statute and transactions within the declaration are, there
fore, deemed to be sales for the purposes of the section. A
transaction within section 87(2), for example, would, if the
other conditions were fulfilled, be a sale within section 105.
Finally, in The Queen v. Canadian Pacific Rail
way Company', Spence J. speaking for the Court,
after citing the paragraph corresponding to the
present 28(1)(d), said:
It, therefore, matters not whether the goods are to be sold by
the producer or manufacturer or be used for the purposes of
such producer or manufacturer and in either case the goods are
taxable.
In my view it is obvious that the wording of
paragraph 28(1)(d) presents problems if one seeks
to construe it strictly in applying it to situations
such as the present one and those in the cases I
have cited. Under subparagraph 27(1)(a)(i) tax is
imposed on the price. In paragraph 28(1)(d) the
word used is "value". But this did not prevent the
Supreme Court from holding in effect that when
the goods are used or consumed by the manufac
turer the two words refer to the same thing. Nor
did the fact that in their context the words "such
goods are for use by the manufacturer or producer
and not for sale" seem to refer to the purpose of
production serve to defeat the tax when the goods,
though manufactured for sale, were turned to the
manufacturer's use. Nor does the use of the word
"transaction" appear to have raised any difficulty.
In ordinary language when the manufacturer of
goods uses or consumes them there is no sale
within the ordinary meaning of that term. Neither
is there a delivery to a purchaser or a passing of
property in the goods to a purchaser. The time for
5 [1971] S.C.R. 821 at p. 825.
payment of tax on such goods thus cannot be
determined by the ordinary meaning of subpara-
graph 27(1)(a)(i). Such wording simply does not
fit the situation where the goods are used or
consumed by the manufacturer himself. But Par
liament can deem, and, as it seems to me, it has by
paragraph 28(1)(d) deemed what occurs when a
manufacturer of goods uses them for his own
purposes, to be a sale for the purposes of the Act,
including, as it seems to me, subparagraph
27(1)(a)(i) of the Act. To make the statute work
able it seems to me to be both necessary and
permissible to treat the statutory sale as having the
ordinary features of a sale, that is to say, delivery
of the goods and transfer of title to a purchaser.
Once it is accepted that for the purposes of sub-
paragraph 27(1)(a)(i) what is not a sale is to be
regarded as a sale including a delivery and transfer
of title, it does not seem to me to be difficult or to
involve any broader interpretation of paragraph
28(1)(d) than was adopted by the Supreme Court
in the cases I have mentioned to consider the sale
and its incidents of delivery and passing of prop
erty as all occurring at the same time, that is to
say, the time of the use of the goods by the
manufacturer and to conclude that the time for
payment of the tax is fixed by the statute as the
time when the goods are so used.
I would allow the appeal with costs and return
the matter to the Trial Division for determination
on the basis that the answer to the question is: The
Excise Tax Act does not fail to specify the time at
which consumption or sales tax was payable on the
plaintiff's railway ties. The tax was payable by the
plaintiff when the ties were used or consumed by
the plaintiff by putting them to use in its railroad
and the plaintiff is liable for tax accordingly.
* * *
The following are the reasons for judgment
rendered in English by
URIE J.: I have had the opportunity of reading
the reasons for judgment of the Chief Justice but
regret that I am unable to concur with them and,
as a consequence, with his proposed disposition of
the appeal.
I am of the opinion that the learned Trial Judge
did not err in answering Question One of the
preliminary questions of law by finding that
because the Excise Tax Act failed to specify the
time at which the consumption or sales tax was
payable on the respondent's railroad ties, no liabil
ity was imposed on the respondent for the payment
of such tax notwithstanding the claim therefor by
the Minister of National Revenue by virtue of the
assessments placed in issue in this action.
I am, moreover, in substantial agreement with
his reasons for judgment dated December 8, 1978
and his supplementary reasons for judgment dated
June 29, 1979.
Appellant's counsel in his memorandum of fact
and law referred to judgments of the Supreme
Court of Canada, in The Queen v. Canadian
Pacific Railway Company [supra], Bank of Nova
Scotia v. The King [supra], The King v. Fraser
Companies, Limited [supra], and The King v.
Dominion Bridge Company Limited [supra], as
well as decisions of the Exchequer Court of
Canada, in support of his proposition that para
graph 28(1)(d) of the Act ought not to be con
strued in the manner found by the learned Trial
Judge. With respect, I do not believe that those
authorities are apposite in this case because it
appears clear from my reading of them that the
point raised in Question One was not one which
was raised or considered therein. I am, therefore,
of the view that the authorities cited are not
determinative of the question posed for determina
tion by the Court in this appeal. As a result, in my
view, the learned Trial Judge in answering Ques
tion One correctly interpreted the relevant provi
sions of the Excise Tax Act and I cannot usefully
add anything to his reasons for so deciding.
Accordingly, I would dismiss the appeal with
costs.
* * *
HEALD J.: I concur.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.