Fiat Auto Canada Ltd. v. The Queen, 83 DTC 5451, [1983] CTC 432 (FCTD)

Grant, DJ:—The plaintiff is a corporation incorporated 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 division which comprised the business of acting as the Canadian distributor for Fiat Auto SPa of new motor vehicles, accessories and parts manufactured by Fiat Auto SPA 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, RSC 1970, c E-13 as follows:

26. (1) In this Act

“Duty paid value” means the value of an article as it would be determined for the purpose of calcuating an ad valorem duty the importation of such article into Canada under the laws relating to the customs and Customs Tariff whether such article is in fact subject to ad valorem or other duty or not, plus the amount of customs duty, 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 Federal 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 without radios or speakers attached thereto. The plaintiff’s predecessor had a written agreement (Exhibit 5) with Autoport Limited, a body corporate with head office at Eastern Passage in the County of Halifix, Nova Scotia, whereby all such vehicles were to be imported via Autoport who would provide a through-put 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 Limited 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 battery, 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, RSC 1970, c E-13, which defined the interpretation of the words “manufacturer or producer” as used in such Act, was amended by Bill C-57 which added, among other changes, paragraph 2(1 )(f) to the Act. Such amendment, which was effective January 1, 1981, received royal assent on July 8, 1981 and reads as follows:

2. (1) In this Act

“Manufacturer or producer” includes

(f) any person who, by himself or through another person acting for him, assembles blends, mixed, cuts to size, dilutes, bottles, packages, repackages or otherwise prepared goods for sale, other than a person who so prepares goods in a retail store for sale in that store exclusively to consumers.

The plaintiff continued paying duty on such automobiles assessed on the duty paid value thereof 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 manufacturer 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. Calculated 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% per cent 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 Autopart at the plaintiff’s instigation, constitute the plaintiff a “manufacturer or producer” within the meaning of the above-quoted section of the Excise Tax Act, RSC 1970, c E-13?”

The addition of such radios to the motor vehicles would not, in normal commercial usage, be considered either as an act of manufacture or production. 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 Frank Ltd et al v The Queen, [1974] CTC 128, 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 manufacturer or producer for the purposes of the Act.

In R v York Marble Tile and Terrazzo Ltd, [1968] CTC 44; 68 DTC 5001, the taxpayer imported slabs of raw marble in various thicknesses and sizes. The taxpayer performed extensive work thereon including matching, grouting, rodding, 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] CTC 37; 76 DTC 6033, 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 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 41 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 manufacturing 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 combinations of the motor vehicle.

In The Royal Bank of Canada and The Deputy Minister of National Revenue for Customs and Excise, [1981] CER 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 purchased and used directly in the manufacture of goods.

McIntyre, J, who delivered the judgment of the Court stated at 323:

There is no definition of manufacture or manufacturing in the act but I accept a definition given by Spence, J, in The Queen v York Marble, Tile and Terrazzo, [1968] SCR 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 SC 15 ie 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 Co v A G Canada, [1950] OR 429 McRuer, CJ held that the operation 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 movements the watch would not run.

In Controlled Foods Corporation Limited v The Queen [1980] CTC 491; 80 DTC 6373, the taxpayer, who operated a restaurant, contended that he was a manufacturer of meals as he gave new form, properties and qualities to the food he prepared. Gibson, J decided against such argument and held that he was entitled to consider the fact that, in normal usage, one would not consider that a restaurant could be so qualified. This deduction was upheld in the Federal Court of Appeal. In the present case, one would not normally consider that the installation of radios in cars before sale thereof was a manufacturing 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 is used in paragraph 2(1 )(f) of the Act.

In Citizen’s National Bank v Bucherz (1916), 71 So 82, the issue was whether a machine was “assembled” in the state of Alabama. The Alabama Court of Appeal stated at 88:

The word “assembled” 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 Alabama 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 Donna did . .. was to place these slats in the groove provided for them and place the door on its hinges . . .

We are of the opinion that the evidence fails to show that the machine was assembled in this state.

The following are some standard dictionary definitions of the word “assemble”.

1. Assemble — To bring together (things) into one place of mass, to collect.

The Oxford English Dictionary; Claredon Press, London, England.

2. Assemble — 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 in a motor vehicle) using parts already in themselves finished manufacturer 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 Co, Springfiled, Mass.

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 plaintiff’s book of documents, 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, packages, repackages” is the general phrase “or otherwise 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.

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 construction of statutes, the 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 comprehending 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) p 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 declaration 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.