T-6154-81
Fiat Auto Canada Limited (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Grant D.J.—Toronto, October 26
and November 21, 1983.
Customs and excise — Liability for Federal sales tax —
Action for declaration plaintiff not "manufacturer or produc
er" within meaning of s. 2(1)(f) of Act in having radios
installed, in imported automobiles — Work not resulting in
product receiving "new form, qualities and properties or com
binations" — Installation of radios mere addition, not
"assembly" — Excise Tax Act, R.S.C. 1970, c. E-13, ss.
2(1)(f) (as am. by S.C. 1980-81-82-83, c. 68, s. 1(3)), 26(1),
29(1).
The plaintiff, an importer of Fiat cars and parts, has radios
and speakers installed in its cars by a throughput service
company in Nova Scotia. The question is whether that opera
tion constitutes the plaintiff a "manufacturer or producer"
within the meaning of paragraph 2(l)(/) of the Excise Tax
Act, making it liable for the payment of the Federal sales tax.
The plaintiff seeks a declaration that it is not.
Held, the action should be allowed. Since that work does not
result in the product receiving "new form, qualities and proper
ties or combinations", the plaintiff cannot be considered a
"manufacturer". The word "assembles" used in paragraph
2(1)(/) does not cover the installation of radios, which is a mere
addition. Finally, the phrase "or otherwise prepares goods for
sale" in that same paragraph must be construed ejusdem
generis with the words preceding that phrase and does not
apply to the operation performed here.
CASES JUDICIALLY CONSIDERED
APPLIED:
Myer Franks Ltd. et al. v. Her Majesty The Queen,
[1974] CTC 128 (F.C.T.D.); Her Majesty The Queen v.
York Marble, Tile and Terrazzo Limited, [1968] S.C.R.
140; [1968] C.T.C. 44; The Queen v. Stuart House
Canada Limited, [1976] 2 F.C. 421; [1976] CTC 37
(T.D.); Royal Bank of Canada v. The Deputy Minister
of National Revenue for Customs and Excise, [1981] 2
S.C.R. 139; 3 C.E.R. 320; Gruen Watch Company of
Canada Limited et al. v. The Attorney-General of
Canada, [1950] O.R. 429 (I-I.C.); Controlled Foods Cor
poration Limited v. The Queen, [1979] 2 F.C. 825;
[1979] CTC 270 (T.D.), affirmed by [1981] 2 F.C. 238;
[1980] CTC 491 (C.A.); Citizens' Nat. Bank v. Bucheit,
71 SO. 82 (Ala. C.A., 1916).
COUNSEL:
T. A. Sweeney and L. V. Tkachenko for
plaintiff.
Brian R. Evernden for defendant.
SOLICITORS:
Borden & Elliot, Toronto, for plaintiff.
Deputy Attorney General of Canada for
défendant.
The following are the reasons for judgment
rendered in English by
GRANT D.J.: The plaintiff is a corporation in
corporated under the laws of Canada. Pursuant to
an agreement dated February 19, 1981 (Tab 5 in
group of documents filed by the plaintiff) it took
over from its parent corporation, Fiat Motors of
North America, Inc., a company incorporated
under the laws of the state of New York, effective
as at the date of the close of business on February
28, 1981, the operations of its Fiat Canada divi
sion which comprised the business of acting as the
Canadian distributor for Fiat Auto S.P.A. of new
motor vehicles, accessories and parts manufac
tured by Fiat Auto S.P.A. in Turin, Italy. By such
agreement the plaintiff assumed all of the liabili
ties and obligations of Fiat Motors of North
America, Inc. in connection with the business of its
Fiat Canada division.
During 1980 and until the said date of February
28, 1981, the Fiat Canada division of Fiat Motors
of North America, Inc. purchased in Italy, and
imported into Canada for resale, motor vehicles
described as Fiat Bravas and Fiat Spiders and paid
Federal sales tax thereon assessed on the duty paid
value of the said motor vehicles.
Duty paid value is defined in the Excise Tax
Act, R.S.C. 1970, c. E-13 as follows:
26. (1) In this Part
"duty paid value" means the value of the article as it would be
determined for the purpose of calculating an ad valorem
duty upon the importation of such article into Canada under
the laws relating to the customs and the Customs Tariff
whether such article is in fact subject to ad valorem or other
duty or not, plus the amount of customs duties, if any,
payable thereon;
After the date of such takeover the plaintiff
continued the purchase of such motor vehicles in
Italy and imported them into Canada, paying Fed
eral sales tax thereon, calculated in the same
manner. At the time of such purchase, all such
motor vehicles had been completely manufactured,
assembled and ready to operate in Italy, but with
out radios or speakers attached thereto. The plain
tiff's predecessor had a written agreement (Exhibit
5) with Autoport Limited, a body corporate with
head office at Eastern Passage in the County of
Halifax, Nova Scotia, whereby all such vehicles
were to be imported via Autoport who would
provide a throughput service at a cost of $25 per
vehicle. This included storage, cleaning of the car
and other minor services in connection therewith.
During 1980 and 1981 the plaintiff's predecessors
and later the plaintiff purchased automobile radios
and speakers from Boxon Canada Limited, a
Canadian company; and engaged Autoport Lim
ited to insert the radios and speakers into such cars
as the plaintiff designated from time to time while
they were still in the possession of Boxon. Boxon
had complete control of such installation. It
involved removal and replacement of the car bat
tery, insertion of the receptacle, antenna and
speaker, an opening made in the door panel and
another in the rear fender, and the battery ground
connected.
The whole operation would not take over 25 or
30 minutes and an experienced mechanic could do
the work in 15 minutes. The fee paid by the
plaintiff for each such installation was $21.20 for
the Spider and $19.25 for the Brava.
The definition section of the Excise Tax Act,
R.S.C. 1970, c. E-13, which defined the interpre
tation of the words "manufacturer or producer" as
used in such Act, was amended by Bill C-57 [S.C.
1980-81-82-83, c. 68, s. 1(3)] which added, among
other changes, paragraph 2(1)(f) to the Act. Such
amendment, which was effective January 1, 1981
[idem, s. 125(2)], received royal assent on July 8,
1981 and reads as follows:
2. (1) In this Act
"manufacturer or producer" includes
(/) any person who, by himself or through another person
acting for him, assembles, blends, mixes, cuts to size, dilutes,
bottles, packages, repackages or otherwise prepares goods for
sale, other than a person who so prepares goods in a retail
store for sale in that store exclusively and directly to
consumers;
The plaintiff continued paying duty on such
automobiles assessed on the duty paid value there
of and the amount so paid in the year 1981
amounted to $464,011.70. On November 12, 1981,
the defendant ruled that the plaintiff was a manu
facturer under the provisions of such amended
definition and was therefore liable for payment of
Federal sales tax on all taxable sales of such motor
vehicles, based on the sale price of such vehicles to
the plaintiff's dealers from January 1, 1981. Cal
culated in such manner the total tax claimed by
the defendant from January 1, 1981 to August 31,
1982 amounted to $633,794.23 and, after giving
credit for the amount of $464,011.75 paid on the
basis of duty paid value, left a balance of
$169,782.47. The defendant also claimed a penalty
of 1 1 / 2 % compounded monthly thereon, which
amounted to a further $43,248.87 to November
30, 1982 and further penalty thereafter until paid,
calculated in the same manner.
In my opinion the only matter to be decided
herein is "Did the installation of the radios in the
plaintiff's automobiles at the province of Nova
Scotia, by Autoport at the plaintiff's instigation,
constitute the plaintiff a `manufacturer or produc
er' within the meaning of the above-quoted section
of the Excise Tax Act, R.S.C. 1970, c. E-13?"
The addition of such radios to the motor vehicles
would not, in normal commercial usage, be con
sidered either as an act of manufacture or produc
tion. Cases tried before such amendment indicate
that a taxpayer may be classed as a manufacturer
or producer of goods if his works result in the
product having "new form, qualities and properties
or combinations".
In Myer Franks Ltd. et al. v. Her Majesty The
Queen, [1974] CTC 128 (F.C.T.D.) the taxpayer
bought, claimed, reconditioned and sold used
drums. It was held that such operations gave the
drums new form, qualities and properties and
therefore the plaintiff should be classed as a manu
facturer or producer for the purposes of the Act.
In Her Majesty The Queen v. York Marble,
Tile and Terrazzo Limited, [1968] S.C.R. 140;
[1968] C.T.C. 44, the taxpayer imported slabs of
raw marble in various thicknesses and sizes. The
taxpayer performed extensive work thereon includ
ing matching, grouting, nodding, gluing, grinding,
polishing, cutting and finishing to develop a highly
polished marble facing. It was held this work was
properly described as manufacturing.
In The Queen v. Stuart House Canada Limited
[[1976] 2 F.C. 421]; [1976] CTC 37 (T.D.) the
taxpayer purchased bulk rolls of aluminum and,
after cutting it into shorter lengths and rerolling it
on to cardboard tubes, inserted it into boxes. Addy
J., at page 39, stated the taxpayer was not a
manufacturer as he did not create a new item and
the product did not receive "new form, qualities
and properties or combinations". At page 426 of
the decision, it was further stated:
... there must be some change in the form, in the qualities and
in the properties of the material or in the form, in the qualities
and in the combinations of the materials used in order to
constitute either manufacture or production in the ordinary
meaning of these words.
In our present case, the only change made to the
automobiles was a radio being added. The vehicle
would have operated just as well without it. I am
convinced it was not an assembly operation. There
was no change in the form, qualities or the combi
nations of the motor vehicle.
In The Royal Bank of Canada v. The Deputy
Minister of National Revenue for Customs and
Excise [[1981] 2 S.C.R. 139]; 3 C.E.R. 320, to be
eligible for the exemption under subsection 29(1)
of the Excise Tax Act, the bank must be found to
be a manufacturer or producer of electrical power
for use in its rented building and the generators
used to provide the same must be machinery pur
chased and used directly in the manufacture of
goods.
McIntyre J., who delivered the judgment of the
Court, stated at page 143 [Canada Supreme Court
Reports] :
There is no definition of manufacturing or manufacture in the
Act, but I accept a definition given by Spence J. in R. v. York
Marble, Tile and Terrazzo Ltd. ([1968] S.C.R. 140), where he
said, at p. 145:
For the present purposes, I wish to note and to adopt one
of the definitions cited by the learned judge, [Archambault
J. in Minister of National Revenue v. Dominion Shuttle
Company Limited (1933), 72 Que. S.C. 15] i.e., that
"manufacture is the production of articles for use from
raw or prepared materials by giving to these materials new
forms, qualities and properties or combinations whether
by hand or machinery".
It was held that the bank was performing the act
of manufacturing electricity by the use of the
generators and by reason thereof was entitled to
the exemption provided in the Act.
In Gruen Watch Company of Canada Limited
et al. v. The Attorney-General of Canada, [1950]
O.R. 429 [H.C.], McRuer C.J. held that the oper
ation of inserting watch movements into cases,
although the operation took only a few minutes
and cost only several cents per watch, amounted to
production of watches. Such decision was based on
the fact that without the insertion of such move
ments the watch would not run.
In Controlled Foods Corporation Limited v.
The Queen [[1979] 2 F.C. 825]; [1979] CTC 270
(T.D.), aff'd [[1981] 2 F.C. 238]; [1980] CTC
491 (C.A.), the taxpayer, who operated a restau
rant, contended that he was a manufacturer of
meals as he gave new form, properties and quali
ties to the food he prepared. Gibson J. decided
against such argument and held that he was en
titled to consider the fact that, in normal usage,
one would not consider that a restaurant could be
so qualified. This decision was upheld in the Fed
eral Court of Appeal. In the present case, one
would not normally consider that the installation
of radios in cars before sale thereof was a manu
facturing industry.
Counsel for the defendant submitted that the
word "assembles" used in such new definition
extends the meaning of manufacturer or producer
to cover what was done in this case; namely,
adding the radios to the automobiles. I am told by
counsel that there are no reported cases dealing
with the word as it is used in paragraph 2(1)(f) of
the Act.
In Citizens' Nat. Bank v. Bucheit, 71 SO. 82
(1916), the issue was whether a machine was
"assembled" in the state of Alabama. The Alaba-
ma Court of Appeals stated at page 88:
The word "assemble" is applied to both persons and things; and
when applied to a machine ... carries the meaning that the
parts of the machine were collected or gathered together and
placed in their proper relation to each other so as to constitute
the machine .... The undisputed evidence shows that .... The
machine was constructed in Chattanooga, and there loaded on
a car ... and shipped to New Decatur to the defendant, where
it was taken from the car by defendant and set down by him in
his place of business at its proper place. In packing the machine
for shipment, some slats that belonged to the machine and a
door to the drum were packed in the drum, and all that Downs
did ... was to place these slats in the groove provided for them
and place the door on its hinges ....
We are of opinion that this evidence fails ... to show that the
machine was assembled in this state ....
The following are some standard dictionary
definitions of the word "assemble".
2. To bring together (things) into one place or mass, to
collect;
The Oxford English Dictionary, Clarendon Press, London,
England.
2: to bring together ... to fit together various parts of so as to
make it into an operative whole ....
assembly ... the act or process of building up a complete unit
(as a motor vehicle) using parts already in themselves finished
manufactured products ... a collection of parts so assembled as
to form a complete machine, structure or unit of machine ... .
Webster's Third International Dictionary, G. & C. Merriam
Company, Springfield, Massachusetts.
The automobiles were completely operative
when they left Italy. They did not need any further
addition to make them ready for sale. A radio in a
car is only an additional convenience. Radios were
not installed in all such vehicles. This additional
service of installing a radio was provided only
"when authorized by Fiat". (See Exhibit 7 in
plaintiffs book of documents, page 3, line 6.)
It would be an error to term the installation of
the radio as an "assembly". It is properly
described as an addition to the automobile.
In such paragraph 2(1) (f) of the Excise Tax
Act, following the definite words "assembles,
blends, mixes, cuts to size, dilutes, bottles, pack
ages, repackages" is the general phrase "or other
wise prepares goods for sale". The last group of
words must be construed ejusdem generis with the
words quoted which precede such phrase. As none
of such words have any relation to the task of
connecting a radio to an automobile, they are not
helpful in bringing such operation within the
meaning of the definition.
But the general word which follows particular and specific
words of the same nature as itself takes its meaning from them
and is presumed to be restricted to the same genus as those
words. For "according to a well established rule in the con
struction of statutes, general terms following particular ones
apply only to such persons or things as are ejusdem generis
with those comprehended in the language of the Legislature."
In other words, the general expression is to be read as com
prehending only things of the same kind as that designated by
the preceding particular expressions, unless there is something
to show that a wider sense was intended ... .
Maxwell on Interpretation of Statutes, (12th) page 297.
I am of the opinion that the installation of
radios by the plaintiff on the cars which it had
imported for sale to its dealers did not constitute it
a manufacturer or producer.
The plaintiff is therefore entitled to a declara
tion that it is not a manufacturer or producer of
automobiles within the meaning of the Excise Tax
Act.
The plaintiff should have its taxed costs of this
action from the defendant.
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.