Urie,
J.A.:—This
is
an
appeal
from
a
judgment
of
the
Trial
Division
whereby
the
appeal
by
the
respondent
from
income
tax
assessments
made
by
the
Minister
of
National
Revenue
("the
Minister”)
in
respect
of
the
respondent's
1977,
1978
and
1979
taxation
years
was
allowed
with
costs.
The
Issues
The
principal
issue
before
the
Court
is
whether
the
respondent
during
its
1977,
1978
and
1979
taxation
years
manufactured
or
processed
in
Canada,
goods
for
sale
or
lease
as
a
result
of
which
it
would
have
been
entitled
to:
(a)
deduct
from
the
tax
otherwise
payable
by
it
the
manufacturing
and
processing
tax
credit
provided
by
section
125.1
of
the
Income
Tax
Act
("the
Act");
(b)
deduct
in
respect
of
property
acquired
by
it
the
investment
tax
credit
provided
by
subsection
127(10)
of
the
Act;
and
(c)
include
in
class
29
of
Schedule
B
(now
Schedule
11)
of
the
Income
Tax
Regulations
("the
Regulations”)
certain
property
acquired
by
the
respondent
during
its
1977,
1978
and
1979
taxation
years.
The
Statutory
Provisions
For
a
proper
understanding
of
what
follows
it
would
be
useful
initially
to
be
made
aware
of
the
relevant
portions
of
the
statutory
provisions
relating
to
the
manufacturing
tax
credit
deduction
permitted
by
section
125.1
of
the
Act.
The
other
statutory
provisions
relating
to
(b)
and
(c)
above
will
be
set
forth
when
the
issues
arising
therefrom
are
addressed.
SEC.
125.1.
Deduction
from
corporate
tax:
manufacturing
and
processing
profits
(1)
There
may
be
deducted
from
the
tax
otherwise
payable
under
this
Part
by
a
corporation
for
a
taxation
year
an
amount
equal
to
the
aggregate
of
(a)
9%
of
the
lesser
of
(i)
the
amount,
if
any,
by
which
the
corporation's
Canadian
manufacturing
and
processing
profits
for
the
year
exceed
the
least
of
the
amounts
determined
under
paragraphs
125(1)(a)
to
(d)
in
respect
of
the
corporation
for
the
year,
and
(3)(a)
"Canadian
manufacturing
and
processing
profits"
—
Canadian
manufacturing
and
processing
profits"
of
a
corporation
for
a
taxation
year
means
such
portion
of
the
aggregate
of
all
amounts
each
of
which
is
the
income
of
the
corporation
for
the
year
from
an
active
business
carried
on
in
Canada
as
is
determined
under
rules
prescribed
for
that
purpose
by
regulation
made
on
the
recommendation
of
the
Minister
of
Finance
to
be
applicable
to
the
manufacturing
or
processing
in
Canada
of
goods
for
sale
or
lease;
and
(b)
Manufacturing
or
processing
—
“manufacturing
or
processing"
does
not
include
(iv)
Operating
an
oil
or
gas
well,
5200.
Subject
to
section
5201,
for
the
purposes
of
paragraph
125.1(3)(a)
of
the
Act,
“Canadian
manufacturing
and
processing
profits”
of
a
corporation
for
a
taxation
year
are
hereby
prescribed
to
be
that
proportion
of
the
corporations
adjusted
business
income
for
the
year
that
(a)
the
aggregate
of
its
cost
of
manufacturing
and
processing
capital
for
the
year
and
its
cost
of
manufacturing
and
processing
labour
for
the
year,
is
of
(b)
the
aggregate
of
its
cost
of
capital
for
the
year
and
its
cost
of
labour
for
the
year.
The
Minister
in
his
reassessment
reduced
the
manufacturing
and
processing
deduction
claimed
under
section
125.1
for
the
respondent's
1977
tax
year
and
totally
disallowed
such
deductions
for
its
1978
and
1979
tax
years.
The
trial
judge
allowed
the
appeals
in
respect
of
each
of
the
years
on
the
basis
that
the
respondent's
claimed
deductions
were
properly
claimed
under
section
125.1
of
the
Act
and
section
5200
of
the
Regulations.
The
appeal
is,
in
part,
from
that
decision.
The
Facts
The
learned
trial
judge
thoroughly
reviewed
and
analyzed
the
evidence
which
he
set
out
in
great
detail
in
his
reasons
for
judgment.
Counsel
for
the
parties
did
not
in
any
substantial
way
contest
the
factual
review
so
that
I
would
think
that
it
would
suffice
for
purposes
of
these
reasons
to
highlight
only
what
I
conceive
to
be
the
key
elements
of
the
activities
performed
and
products
used
in
such
performance
by
the
respondent
for
its
customers
and
which
the
trial
judge
found
to
be
manufacturing
and
processing
within
the
meaning
of
those
terms
in
the
Act.
While
the
parties
understandably
tend
to
emphasize
different
aspects
of
the
respondent's
activities
to
buttress
their
respective
points
of
view,
basically
the
facts
to
which
I
will
allude
are
not
in
dispute,
only
the
inferences
drawn
from
those
facts.
The
respondent,
an
Alberta
corporation,
operates
as
part
of
the
oil
and
gas
industry
which,
at
least
in
Canada,
according
to
the
evidence,
is
divided
into
three
recognized
sectors:
(a)
the
operating
sector,
comprising
the
companies
which
own
the
reserves,
produce
oil
and
gas
from
the
reserves
and
sell
it;
(b)
the
supply
sector,
comprising
those
who
own
supply
stores
where
the
operator
can
purchase
the
materials,
hardware
and
equipment
required
in
the
drilling
and
production
of
gas
or
oil
wells;
and
(c)
the
service
sector,
comprising
companies
which,
inter
alia,
provide
the
operator
with
what
he
requires
at
the
well
site
during
the
drilling
and
production
of
the
well.
The
respondent's
business
is
in
the
service
sector.
It
provides
to
the
operators
a
wide
range
of
services
in
the
completion
and
stimulation
of
oil
and
gas
wells.
As
part
of
the
completion
aspect
is
the
cementing
procedure
which
involves
the
pumping
of
a
cement
slurry
to
support
and
keep
in
place
the
surface
casing
or
pipe
which
is
lowered
into
the
well
bore.
The
cement
is
pumped
through
the
casing
to
the
bottom
of
the
hole
and
back
up
the
outside
of
the
pipe
between
the
pipe
and
the
bore
hole
to
create
a
sheath
to
bond
the
casing
to
the
hole.
Further
casing
or
piping
is
lowered
through
the
surface
casing
and
is
cemented
into
place
therein
in
the
same
way
as
the
surface
cementing.
The
slurry
is
blended
by
the
respondent
from
a
mixture
of
dry
powder
cement,
water
and
various
additives,
the
amount
and
composition
of
which
varies
from
job
to
job.
Proper
placement
of
the
cement
in
the
well
bore
in
its
various
stages
depends
upon
the
respondent's
specialized
pumping
equipment
and
other
related
equipment
and
by
the
skill
of
the
respondent's
experienced
employees.
The
respondent
maintains
several
bulk
plants
to
blend
the
cement
and
additives.
Thus,
normally
blended,
it
is
transported
to
the
well
site,
mixed
with
water
to
create
the
slurry
and
pumped
into
the
well
under
pressure.
Further
blending
and
the
mixing
takes
place
in
motorized
mixing
and
pumping
equipment
at
the
well
site.
The
respondent
does
not
manufacture
cement
but
does
develop
its
own
additives.
The
respondent
rarely,
if
ever,
simply
sells
its
blends
of
cement.
Rather,
it
supplies
the
materials
so
blended
in
conjunction
with
its
placement
services
performed
at
the
well
site.
The
other
aspect
of
the
respondent's
business
is
the
provision
of
its
stimulation
services.
These
services
are
designed
to
stimulate
the
flow
of
oil
and
gas
into
the
well
bore
so
that
it
can
flow
or
be
pumped
to
the
surface.
These
services
often
require
the
respondent
to
mix
or
blend
different
materials
at
the
well
site
to
be
pumped
down
the
bore
and
circulated
into
the
formation.
The
two
major
types
of
stimulation
are
fracturing
and
acidizing.
Fracturing
involves
the
use
of
a
fluid
to
crack
or
fracture
the
rock
formation
and
the
placement
of
a
proppant
in
the
cracks
to
prop
them
open
to
create
channels
through
which
the
oil
can
flow.
Acidizing
involves
the
use
of
a
specially
blended
acid,
often
but
not
always,
hydrochloric
acid
which
either
creates
flow
channels
by
dissolving
some
of
the
formation
or
removes
debris
from
the
formation.
The
characteristics
of
the
fluid
used
are
determined
for
each
well
by
considerations
such
as
temperature,
depth
and
the
nature
of
the
rock
formation
e.g.
limestone,
sandstone
and
dolomites.
Fracturing
and
acidizing
may
be
used
independently
or
in
conjunction
with
one
another.
Nitrogen
or
carbon
dioxide
may
be
used
in
acidizing,
fracturing
and
acid
fracturings.
Proper
pressure,
rate,
volumes
and
materials
are
all
essential
to
effective
formation
treatment.
In
respect
of
both
its
cementing
and
stimulation
services,
the
respondent
normally
prepares
treatment
proposals
or
programs.
They
assist
the
respondent
in
the
solicitation
of
business.
The
proposal
prepared
in
consultation
with
the
operator
sets
out
the
intended
equipment,
materials,
blending
procedures,
safety
precautions
and
the
volumes
and
pressures
under
which
the
materials
will
be
pumped
in
an
effort
to
accomplish
the
desired
results.
However,
while
the
respondent
makes
recommendations,
it
is
the
operator
who
decides
on
the
products
and
processes
which
will
be
specified
in
the
program.
When
the
decisions
have
been
taken
and
after
the
treatment
has
been
completed
in
accordance
with
the
proposal,
a
treatment
report,
prepared
at
the
well
site,
provides
the
historical
record
of
what
transpired
during
the
treatment.
No
guarantee
as
to
results
is
given.
Finally,
in
summary,
the
respondent
in
its
memorandum
of
fact
and
law
describes
the
manner
in
which
it
carries
out
its
business
activities
in
the
following
way:
(a)
Upon
receiving
instructions
from
the
customer
to
proceed
to
the
well
site,
the
Respondent's
field
station
will
commence
assembly
of
the
necessary
raw
materials,
personnel
and
equipment
for
transportation
to
the
well
site.
Some
initial
blending
or
mixing
may
occur
at
this
stage.
(b)
At
the
well
site,
the
equipment
is
"rigged
in”
in
such
a
manner
that
it
is
made
ready
for
its
mixing,
blending
and
pumping
activities.
The
equipment
and
the
wellhead
are
interconnected.
During
“rigging-in”
there
is
often
pre-mixing
and
blending
of
raw
materials
and
additives.
(c)
Prior
to
commencement
of
the
actual
delivery
of
any
products
to
the
customer's
wellhead,
the
respondent
and
the
customer's
representative
pressure
test
the
equipment
and
interconnections
and
hold
a
meeting
of
all
persons
on
the
well
site
to
review
safety
procedures
and
the
program
to
be
followed.
(d)
Constituent
ingredients
are
combined
by
mixing
and
blending
to
create
a
specialized
fluid
which
is
then
pressurized
ana
delivered
through
the
respondent's
equipment
to
the
customer's
wellhead.
The
mixing,
blending,
pressurizing
and
delivery
of
the
respondent's
products
is
a
sophisticated,
continuous
process.
(e)
Upon
completion
of
delivery
of
the
products,
the
equipment
is
disassembled
and
made
ready
to
return
to
the
field
station.
The
customer's
representative
and
the
respondent
complete
documentation
to
record
the
activities
at
the
well
site
and
the
quantities
of
product
delivered.
The
Problem
As
earlier
stated,
there
is
one
principal
issue
before
the
Court,
namely,
did
the
respondent
during
the
1977,
1978
and
1979
tax
years,
manufacture
or
process
in
Canada,
goods
for
sale
or
lease
so
that
it
would
have
been
entitled
to
the
three
tax
benefits
with
which
I
will
now
deal,
seriatim.
Sub-Issue
I
Was
the
Respondent
entitled
to
the
manufacturing
and
processing
rate
reduction
provided
by
section
125.1
of
the
Act?
For
convenience'
sake,
I
repeat
subsection
125.1(3)(a)
of
the
Act:
(3)(a)
"Canadian
manufacturing
and
processing
profits"
—
“Canadian
manufacturing
and
processing
profits"
of
a
corporation
for
a
taxation
year
means
such
portion
of
the
aggregate
of
all
amounts
each
of
which
is
the
income
of
the
corporation
for
the
year
from
an
active
business
carried
on
in
Canada
as
is
determined
under
rules
prescribed
for
that
purpose
by
regulation
made
on
the
recommendation
of
the
Minister
of
Finance
to
be
applicable
to
the
manufacturing
or
processing
in
Canada
of
goods
for
sale
or
lease;
.
.
.
Subsection
125.1(3)(b)
excludes
from
“manufacturing
and
processing”
certain
enumerated
activities.
While
the
Act
does
not
define
either
“manufacturing”
or
"processing",
it
will
not
be
necessary
for
their
meanings
to
be
decided
in
this
appeal,
since
counsel
for
the
appellant
conceded
that
what
the
respondent
was
doing
was
either
one,
probably
processing.
His
concession
did
not
extend,
however,
to
agreeing
that
the
respondent
was
processing
"goods"
as
that
term
is
used
in
the
Act
nor
in
any
event,
was
it
processing
"goods
for
sale”
as
required
by
the
Act.
I
have
no
difficulty
in
concluding
that
the
trial
judge
correctly
held
on
the
evidence
that
what
was
being
processed
by
the
respondent
were
"goods"
within
either
the
ordinary
meaning
or
the
technical
meaning
of
that
term,
if
any.
The
difficult
question
is
were
they
"goods
for
sale”?
In
the
view
of
counsel
for
the
appellant
they
were
not
because
the
respondent
was
not
engaged
in
the
business
of
"processing
of
goods
for
sale”
but
rather
was
in
the
business
of
providing
a
service
to
oil
and
gas
well
operators
which
involved
incidentally
the
processing
and
supplying
of
materials
necessary
to
carry
out
that
service.
On
that
basis,
it
was
counsel's
contention
that
the
trial
judge
erred
in
declining
to
apply
the
common
law
distinction
between
a
contract
for
the
sale
of
goods
and
a
contract
for
work,
labour
and
materials.
The
application
of
that
distinction,
it
was
Said,
was
consistent
with
the
apparent
scheme
and
intent
of
the
Act
which
was
to
enable
Canadian
manufacturers
and
processors
to
maintain
their
competitive
positions
as
against
other
industrialized
nations
and
to
protect
Canadian
jobs.
That
protection
does
not
and
was
not
intended
to
extend,
counsel
argued,
to
service
industries
such
as
that
of
the
respondent.
In
drawing
this
distinction
counsel
relied
on
a
passage
from
Benjamin
-
Sale
of
Goods,
a
line
of
cases
from
the
Trial
Division
of
this
Court,
the
Tax
Court
of
Canada
and
one
from
the
Court
of
Appeal.
Among
those
cited
were
Canadian
Wirevision
Limited
v.
the
Queen,
Crown
Tire
Service
Ltd
v.
the
Queen,
Nova
Construction
Company
Limited
v.
M.N.R.,
and
Tenneco
Canada
Inc.
v.
the
Queen.
I
have
reviewed
each
of
those
authorities
as
well
as
others
cited
by
counsel
but
find
them
to
be
each
quite
distinguishable
on
their
facts.
I
prefer
the
reasoning
of
Reed,
J.
in
the
Trial
Division
in
the
case
of
Halliburton
Services
Ltd
v.
the
Queen,
the
appeal
from
which
was
heard
immediately
following
the
conclusion
of
argument
in
this
case.
Halliburton
was
engaged
in
the
same
type
of
business
as
Nowsco
in
this
case.
In
fact,
they
were
competitors.
As
will
be
seen
from
the
excerpt
from
the
reasons
for
judgment
at
pages
53-54
(D.T.C.
5337),
the
work
in
which
Halliburton
was
engaged
and
the
position
which
it
took
as
to
the
nature
of
its
services
is
identical
to
that
of
the
appellant
here:
The
activities
in
issue
are
all
ones
in
which
the
plaintiff
produces
a
specialized
product
for
its
customers
as
well
as
providing
certain
services
connected
there
with.
These
activities
are:
(1)
oil
and
gas
well
cementing
activities;
(2)
a
fracturing
process
which
involves
the
pumping
of
a
specialized
fluid
into
an
oil
or
gas
well,
and
(3)
an
acidizing
process
which
involves
the
pumping
of
a
specially
prepared
acid
blend
into
a
well.
The
plaintiff's
position
is
that
with
respect
to
all
three
activities,
while
a
service
may
be
provided,
it
is
also
involved
in
the
manufacture
or
processing
of
goods
for
sale
as
that
concept
is
used
in
paragraph
125.1(3)(b)
of
the
Income
Tax
Act.
While,
in
the
following
excerpt
from
her
reasons,
Reed,
J.
specifically
was
dealing
with
the
phrase
"manufacturing
or
processing"
as
it
appears
in
paragraph
125.1(3)(b)
it
is
equally
applicable
to
that
phrase
as
it
appears
in
paragraph
125.1(3)(a)
to
which
argument
was
directed
in
this
case.
She
stated,
at
pages
55-56
(D.T.C.
5338):
The
defendant
does
not
dispute
the
fact
that
in
all
three
activities
there
is
processing
carried
out.
Nor
does
she
dispute
the
fact
that
"goods"
are
produced.
What
is
disputed,
however,
is
that
there
is
a
“sale
of
a
good".
It
is
argued
that
the
plaintiff's
main
activity
is
the
provision
of
services
and
that
the
production
of
"goods"
in
connection
therewith
is
only
incidental
to
the
service
being
provided.
Therefore,
it
is
argued
there
can
be
no
“manufacturing
or
processing
of
goods
for
sale"
as
that
concept
is
used
in
paragraph
125.1
(3)(b)
of
the
Income
Tax
Act.
This
argument
is
based
on
the
well
known
distinction
between
contracts
for
the
sale
of
goods
and
contracts
for
work,
labour
and
materials,
developed
with
respect
to
sales
of
goods
legislation.
The
defendant
cites
in
support
of
its
argument
Sterling
Engine
Works
v.
Red
Deer
Lumber
Co.
(1920),
51
D.L.R.
509
(Man.
CA.),
and
Scott
Maritimes
Pulp
Ltd.
v.
B.F
Goodrich
Canada
Ltd.
et
al.
(1977),
72
D.L.R.
(3d)
680
(N.S.S.C.
App.
Div.).
It
is
argued
that
the
test
of
relative
importance
set
out
at
page
40
of
Benjamin
—Sale
of
Goods
(1974)
is
applicable,
and
that
in
the
present
case
the
services
provided
by
the
taxpayer
are
a
much
more
important
component
of
its
contract
with
its
customers
than
are
the
products
it
produces.
It
is
argued
that
the
services
and
products
are
inseparable;
that
customers
(except
with
respect
to
one
specialized
product)
do
not
purchase
the
goods
without
the
services.
The
way
the
industry
is
structured
makes
it
impractical
for
customers
to
do
so
(as
noted
above
some
of
the
processing
of
the
product
must
necessarily
be
done
at
the
well
site
immediately
before
use).
It
is
argued
that
what
the
customer
contracts
for
is
the
placing
of
the
cement
in
the
well,
the
fracturing
of
the
hydrocarbon
bearing
formation,
or
the
cleaning
of
the
well
to
free
it
from
debris,
blockage
etc.,
not
the
products
used
to
accomplish
these
results.
Also,
in
two
cases
(fracturing
and
cleaning)
the
product
is
consumed
in
the
providing
of
the
service.
I
have
considerable
difficulty
with
this
line
of
argument.
In
the
first
place,
it
is
based
on
distinctions
developed
for
purposes
of
the
sale
of
goods
legislation,
not
with
respect
to
paragraph
125.1(3)(b)
of
the
Income
Tax
Act.
I
do
not
read
paragraph
125.1
(3)(b)
as
requiring
that
a
taxpayer's
profit
has
to
arise
out
of
a
contract
for
a
sale
of
goods
as
defined
by
the
various
Sales
of
Goods
Acts.
Paragraph
125.1(3)(b)
does
not
talk
of
a
sale
of
goods.
It
talks
of
profit
arising
out
of
the
processing
of
goods
for
sale.
There
is
no
doubt
that
the
products
in
question
are
sold
to
the
plaintiff's
customers
in
the
sense
that
the
invoices
list
the
cost
of
the
various
components
which
go
into
each
product
and
the
blending
and
processing
charges
are
specifically
detailed
in
the
invoice.
Secondly,
I
do
not
find
any
requirement
that
the
contract
which
gives
rise
to
the
taxpayer's
profit
must
be
of
a
particular
nature,
eg:
one
for
the
sale
of
goods
and
not
one
of
a
more
extensive
nature
involving
work
and
labour
as
well
as
the
goods
or
material
supplied.
In
my
view
it
is
the
source
of
the
profit,
(arising
out
of
process)
that
is
important
for
the
purposes
of
paragraph
125.1
(3)(b),
not
the
nature
of
the
taxpayer's
contract
with
its
customers.
In
the
third
place,
to
adopt
the
distinction
for
which
the
defendant
argues
would
be
to
create
an
illogical
result.
As
counsel
for
the
plaintiff
pointed
out,
under
such
a
regime,
a
manufacturer
or
processor
of
a
product
(eg:
a
chemical
fertilizer)
who
also
provided
a
service
in
connection
therewith
(eg:
spreading
the
fertilizer
for
his
customers)
would
be
denied
the
processing
tax
deduction.
If
he
merely
sold
the
product
to
his
customers
he
would
be
allowed
the
deduction.
I
wholly
subscribe
to
what
the
learned
judge
said
in
the
foregoing
passage
and
I
do
not
think
that
I
could
improve
on
it
by
a
prolonged
analysis
of
it.
Suffice
it
to
say
that
to
focus
on
the
fact,
as
did
counsel
for
the
appellant
in
this
case,
relying
on
the
Crown
Tire
Service
case
for
support,
that
the
work
having
been
done
to
the
property
of
the
respondent's
customers
involving
the
use
or
affixing
of
materials
thereto
was
the
provision
of
a
service
to
the
customers,
misconstrued
the
nature
of
the
relationship
between
the
parties.
The
factual
situation
in
that
case
was
not
comparable
to
that
in
this
case.
A
brief
reference
to
the
evidence
indicates
the
reality
of
the
relationship
here.
First,
as
earlier
noted,
the
respondent,
in
consultation
with
the
operator,
its
customer,
prepares
a
treatment
proposal.
According
to
the
evidence,
it
is
the
operator
who
is
familiar
with
the
formation
through
which
the
drill
hole
is
bored
as
well
as
that
from
which
he
hopes
to
extract
the
oil
or
gas.
Consequently,
he
must
decide
on
the
type
of
cement
slurry
required
and
the
stimulation
most
likely
to
assist
in
the
extraction,
relying
on
the
advice
of
the
respondent
in
each
case
as
to
the
proper
products
to
be
used
to
achieve
the
best
results,
the
equipment
to
be
used
and
the
pressures
and
rates
utilized
for
the
best
results.
In
all
cases
it
is
the
customer
who
must
ultimately
make
the
decisions
on
each
branch
of
the
proposal.
Secondly,
as
I
understand
the
evidence,
after
the
proposal
as
amended
is
accepted,
the
respondent
proceeds
to
the
well
site
with
its
equipment
to
carry
out
its
proposal
which
involves,
on
a
carefully
orchestrated
and
integrated
basis,
the
mixing,
blending,
pressuring
and
pumping
of
the
various
materials,
additives,
acids,
proppants
and
gases
required
in
cementing
and
well
stimulation.
The
general
terms
and
conditions
of
the
contract
between
the
parties
is
found
on
the
back
of
the
form
completed
after
completion
of
the
operations
at
the
well
site,
setting
forth
the
materials
provided,
the
services
performed,
the
quantities
used,
the
prices
and
times
elapsed
for
performing
the
contract.
It
is
signed
by
the
customer's
representative
who
acknowledges
that
he
has
read
and
understood
the
terms
and
conditions
on
the
reverse
side
of
the
document.
The
first
paragraph
of
the
conditions
states:
GENERAL
TERMS
AND
CONDITIONS
OF
SERVICE
The
service
consists
of
delivery
to
the
Customer
at
the
well
of
the
Nowsco
product
requested
by
the
Customer
(hereafter
called
"the
product")
by
means
of
well
connections
furnished
by
the
Customer,
the
quantities,
pressures
and
times
of
delivery
being
subject
to
the
Customer's
directions.
The
Customer
at
all
times
has
complete
charge,
custody,
control
and
responsibility
for
all
tubing
or
other
connections
or
equipment
furnished
for
this
receipt
of
delivery
of
the
product
for
the
well,
the
conditions
within
the
well,
the
drilling
or
production
pipe
or
other
equipment
about
or
in
the
well
and
the
premises
about
the
well.
Paragraph
1
reads:
(1)
A
responsible
representative
of
the
Customer
must
be
present
at
all
times
to
designate
and
provide
the
point
of
connection
into
which
the
product
is
to
be
delivered
and
to
designate
the
quantities
of
the
product
to
be
delivered,
the
pressures
at
which
the
same
shall
be
delivered,
and
the
times
at
which
the
same
shall
be
delivered.
Paragraph
4
is
the
limited
warranty
clause
which
reads:
(4)
While
NOWSCO
will
render
the
services
contracted
for
to
the
best
of
its
ability,
it
does
not
guarantee
any
results
and,
except
in
the
case
of
gross
or
wilful
negligence
on
its
part,
shall
not
be
liable
or
responsible
for
any
damage
to
the
well
or
any
well
equipment,
any
subsurface
damage
or
surface
damage
arising
out
of
the
subsurface
damage
or
operations
or
for
any
loss
or
damage
whatsoever
including
injury
to
or
death
of
persons,
reservoir
loss
or
property
damage
growing
out
of
or
in
any
way
connected
with
its
operations
and
Customer
shall
absolve
and
hold
NOWSCO
harmless
against
all
liability
for
any
such
loss
or
damage
sustained
or
incurred
by
Customer
or
any
third
party
irrespective
of
the
cause.
Thirdly,
the
form
of
invoice
rendered
clearly
indicates
that
the
customer
is
billed
for
both
the
materials
which
it
provides
in
accordance
with
the
customer's
specifications
and
the
services
it
performs
in
utilizing
those
materials
to
achieve
the
stimulation
or
cementing
results
required
by
the
customer.
Even
a
rather
cursory
inspection
of
the
various
invoices
in
the
record,
apparently
selected
and
entered
in
evidence
on
a
random
basis,
indicates
that
in
dollar
amounts
the
division
between
materials
and
services
is
roughly
fifty-fifty.
Fourthly,
while
the
evidence
is
somewhat
sparse
there
is
on
the
record
evidence
of
an
element
of
profit
to
the
respondent
in
the
sale
of
its
material
which
on
a
gross
profit
basis,
(which
is
the
only
basis
disclosed)
is
roughly
equivalent
to
the
gross
profit
derived
from
it
by
the
supply
and
rental
of
its
equipment.
While
I
cannot
say
that
the
answer
to
the
question
as
to
whether
or
not
the
goods
are
processed
for
sale
is
entirely
free
from
doubt,
because
of
the
lack
of
precision
in
the
words
of
the
statute
as
to
the
meaning
to
be
ascribed
to
the
words,
I
am
obliged
to
be
guided
by
what
Lord
Pearce
said
in
B.P.
Australia
Ltd.
v.
Commissioner
of
Taxation
of
the
Commonwealth
of
Australia,™
although,
admittedly
in
a
different
context:
The
solution
to
the
problem
is
not
to
be
found
by
any
rigid
test
or
description.
It
has
to
be
derived
from
many
aspects
of
the
whole
set
of
circumstances
some
of
which
may
point
in
one
direction,
some
in
the
other.
One
consideration
may
point
so
clearly
that
it
dominates
other
and
vaguer
indications
in
the
contrary
direction.
It
is
a
commonsense
appreciation
of
all
the
guiding
features
which
must
provide
the
ultimate
answer.
I
am
also
guided
by
what
Estey,
J.
said
in
Johns-Manville
Canada
Inc.
v.
the
Queen:"
.
.
.
Such
a
determination
is,
furthermore,
consistent
with
another
basic
concept
in
tax
law
that
where
the
taxing
statute
is
not
explicit,
reasonable
uncertainty
or
factual
ambiguity
resulting
from
lack
of
explicitness
in
the
statute
should
be
resolved
in
favour
of
the
taxpayer.
I
am
of
the
opinion
that
a
commonsense,
realistic
and
business-like
appreciation
of
all
of
the
foregoing
indicates
that
the
respondent
does
not
enter
into
pure
service
contracts,
but,
rather
processes
goods
to
the
operator/customer's
specification
which
it
utilizes
to
perform
the
specialized
services
required
of
it
by
its
customer.
It
does
so
by
means
of
what
the
trial
judge
described
as
a
"mobile
factory"
which
utilizes
the
various
materials,
mixtures
and
blends
produced
for
delivery
to
the
well
bore
for
the
purposes
required
by
the
customer.
Contrary
to
the
argument
of
counsel
for
the
respondent,
I
believe
that
determining
the
particular
time
at
which
and
where
title
to
the
goods
passes,
is
of
little
importance,
on
the
facts
of
this
case,
in
the
determination
of
the
relationship
between
the
parties.
However,
what
is
of
some
significance,
I
think,
is
that
since
the
products
furnished
are
produced
to
the
particular
specifications
of
the
operator/customer
and
must
be
paid
for
by
it
whether
completely
used
or
not
(subject
to
some
limited
contractual
exceptions),
it
may
well
be
that
title
passes
when
the
mixing
and
blending
is
effected.
At
whatever
point
the
transfer
is
effected,
adopting
the
modern
principle
of
statutory
interpretations
that
"the
words
of
an
Act
are
to
be
read
in
their
entire
context
and
in
their
grammatical
and
ordinary
sense
harmoniously
with
the
scheme
of
the
Act,
and
the
intention
of
Parliament",
I
am
of
the
opinion
that
the
processing
activities
of
the
respondent
fall
within
the
meaning
of
processing
of
goods
for
sale
in
paragraph
125.1(3)(a)
of
the
Act.
I
am,
therefore,
of
the
opinion
that
the
trial
judge
correctly
held
that
the
respondent
was
entitled
in
the
taxation
years
in
issue,
to
the
tax
deductions
provided
by
section
125.1
of
the
Act.
Sub-Issue
II
Was
the
respondent
entitled
to
claim
investment
tax
credits
under
subsection
127(5)
of
the
Act
in
respect
of
the
cost
to
it
of
the
equipment
and
machinery
used
in
its
processing
activities?
Subsection
127(5)
reads
as
follows:
127(5)
Investment
tax
credit.
There
may
be
deducted
from
the
tax
otherwise
payable
by
a
taxpayer
under
this
Part
for
a
taxation
year
an
amount
not
exceeding
the
lesser
of
(a)
his
investment
tax
credit
at
the
end
of
the
year,
and
(b)
the
aggregate
of
(i)
$15,000,
and
(ii)
/2
the
amount,
if
any,
by
which
the
tax
otherwise
payable
by
him
under
this
Part
for
the
year
exceeds
$15,000.
"Investment
tax
credit”
is
defined
by
subsection
127(9)
of
the
Act.
To
qualify
for
an
investment
tax
credit
as
so
defined,
the
property
acquired
by
a
taxpayer
in
a
year
must
be
a
“qualified
property"
within
the
meaning
of
subsection
127(10)
of
the
Act.
To
the
extent
applicable
in
this
appeal,
that
subsection
reads:
127(10)
"Qualified
Property".
For
the
purposes
of
subsection
(9),
a
“qualified
property"
of
a
taxpayer
means
(b)
prescribed
machinery
and
equipment
acquired
by
the
taxpayer
after
June
23,
1975
and
before
July
1,
1980
that
has
not
been
used
for
any
purpose
whatever
before
it
was
acquired
by
the
taxpayer
and
that
is
(c)
to
be
used
by
him
in
Canada
primarily
for
the
purpose
of
(i)
manufacturing
or
processing
of
goods
for
sale
or
lease
[Emphasis
added.]
"Prescribed
machinery"
is
defined
by
Regulation
4600(2)(e)
reading
as
follows:
Prescribed
Property
for
the
Purposes
of
Determining
Investment
Tax
Credit
4600.
(2)
Property
is
prescribed
machinery
and
equipment
for
the
purposes
of
paragraph
127(10)(b)
of
the
Act
if
it
is
depreciable
property
of
the
taxpayer
(other
than
property
referred
to
in
subsection
(1))
that
is
(e)
a
property
included
in
paragraph
(a)
of
class
10,
or
class
22,
of
Schedule
B
(other
than
a
car
or
truck
designed
for
use
on
highways
or
streets).
It
is
the
appellant's
contention
that
the
machinery
and
equipment
at
issue
was
not
used
by
the
respondent
primarily
for
the
purpose
of
manufacturing
of
goods
for
sale
or
lease.
Alternatively,
the
respondent's
cement
trucks,
frac
pumpers
and
similar
automotive
equipment
are
cars
or
trucks
designed
for
use
on
highways
or
streets
within
the
meaning
of
paragraph
4600(1)(e)
of
the
Regulations
thus
excluding
it
from
the
category
of
“prescribed
machinery
and
equipment"
referred
to
in
section
127(10)
as
“qualified
property"
and
thus
disqualified
for
an
investment
tax
credit.
The
respondent
says
that
none
of
its
equipment
is
"automotive
equipment"
described
in
paragraph
(a)
of
Class
10
of
Schedule
B.
It
further
says
that
whether
the
respondent's
equipment
is
"automotive
equipment”
or
something
else
it
is
to
be
determined
by
reference
to
its
"primary
purpose"
which
is
to
prepare
and
deliver
the
respondent's
products
at
the
well
site.
It
is
only
because
the
well
sites
are
frequently
in
difficult,
inaccessible
locations
that
the
equipment
for
processing
at
the
site
and
delivering
there
the
goods
to
go
down
the
well
that
the
equipment
is
mobile.
The
trial
judge's
finding
on
this
aspect
of
the
case
is
found
at
page
2048
of
Vol.
11
of
the
Appeal
Book
and
reads
as
follows:
It
must
be
clear
at
this
stage
that
I
cannot
find
any
basis
on
the
evidence
and
argument
I
heard
for
deciding
that
the
plaintiff
has
front
end
and
back
end
equipment.
The
equipment
is
specially
designed
for
a
particular
job
of
work
and
requires
all
the
equipment
including
iron
trucks
that
bring
out
the
treating
iron,
bulkers
that
bring
out
cement,
liquid
gases
or
the
acids.
They
are
part
of
the
process
and
qualify
for
the
investment
tax
credit.
While
perhaps
initially
the
vehicles
used
by
the
respondent
were
“designed
for
use
on
highways
or
streets"
their
design
was
so
modified
for
purposes
of
their
utilization,
that
the
limited
design
purpose
was
of
minimal
importance.
Their
primary
purpose
was
to
become
parts
of
an
integrated
process
for
the
cementing
and/or
stimulation
of
oil
or
gas
wells.
I
agree
with
Cullen,
J.
when
he
said:
This
equipment
was
designed
and
fabricated
for
a
particular
purpose,
that
is,
functioning
equipment
at
the
job
or
well
site.
None
of
its
equipment
ought
to
be
included
in
Class
10(a).
Also,
to
divide
the
equipment
into
what
has
been
called
front
end
and
back
end
engines
fails
to
give
effect
to
the
basic
purpose
for
which
the
equipment
was
designed.
Often,
at
the
job
site,
the
machinery
is
powered
by
the
same
engine
that
moves
the
equipment
on
the
highway.
Even
when
trailers
are
used,
the
evidence
was
clear
that
the
same
trailer
is
used
with
the
same
equipment
whenever
possible.
I
also
agree
with
him
and
with
counsel
for
the
respondent
that
on
the
particular
and
somewhat
unusual
facts
of
this
case,
since
the
respondent's
property
is
not
described
in
any
other
class
in
Schedule
B,
it
is
property
which
falls
into
the
residual
Class
8(i)
as
a
"tangible
capital
asset
that
is
not
included
in
another
Class.
It
is,
therefore,
as
found
by
the
trial
judge,
equipment
and
machinery
that
falls
within
Regulation
4600(2)(c)
and
qualifies
for
the
investment
tax
credit.
Sub-Issue
III
Was
the
Respondent
entitled
to
include
the
equipment
and
machinery
used
in
its
processing
activities
in
Class
29
for
capital
cost
allowance
purposes?
The
relevant
provisions
of
Class
29
of
Schedule
B
(now
Schedule
II)
of
the
Act
are:
Property,
that
would
otherwise
be
included
in
another
class,
(a)
that
is
property
manufactured
by
the
taxpayer,
the
manufacture
of
which
was
completed
by
him
after
May
8,
1972,
or
other
property
acquired
by
the
taxpayer
after
May
8,
1972,
(i)
to
be
used
directly
or
indirectly
by
him
in
Canada
primarily
in
the
manufacturing
or
processing
of
goods
for
sale
or
lease
(b)
that
is
(i)
property
that,
but
for
this
class,
would
be
included
in
class
8,
but
not
including
railway
rolling
stock
or
a
property
described
in
paragraph
(e)
of
class
8.
For
the
reasons
which
I
have
already
given
with
respect
to
Sub-Issue
II,
the
equipment
and
machinery
in
issue
is
property
described
in
Class
8(i)
of
Schedule
B
and
is
therefore
to
be
included
in
Class
29
by
reasons
of
subparagraph
(b)(i)
thereof.
Accordingly,
for
all
of
the
foregoing
reasons
I
would
dismiss
the
appeal
with
costs.
Appeal
dismissed.
Email this Content