Harris Steel Group Inc. v. MNR, 85 DTC 5140, [1985] 1CTC 181 (FCA)

MacGuigan, J:—This is an application under section 28 of the Federal Court Act pursuant to subsection 44(7.3) of the Excise Tax Act to review and set aside the decision of the Minister of National Revenue on April 12, 1984, rejecting the applicant’s application for a refund of taxes paid under the Excise Tax Act, on the sale price of bent length of reinforcing steel rods or bars (known as “rebar”) used in structures other than buildings.

Apart from the right of review created by subsection 44(7.3) of the Excise Tax Act, there would have been a serious question as to the reviewability of such a ministerial decision on a section 28 application. As it is, the fact that the applicant exercised his option to proceed directly to this Court under section 28 rather than beginning with an application to the Tariff Board under section 59 of the Act has as a consequence that the record before this Court is limited to a series of letters to and from the Department of National Revenue. Fortunately, the parties agree that all that is required is an interpretation of paragraph 26(4)(b) of the Act.

Part V of the Excise Tax Act provides in subsection 27(1) for a consumption or sales tax on the sale price of all goods purchased or manufactured in Canada at the rate for construction materials of five per cent on the sale price (subsection 27(1.4)), but the effect of section 27 is limited by subsection 26(4), which provides that in certain cases the price that is subject to the sales tax does not include the price of the labour involved in subsequent fabrication. Subsection 26(4) reads as follows:

(4) Where a person

(a) manufactures or produces a building or other structure otherwise than at the site of construction or erection thereof, in competition with persons who construct or erect similar buildings or structures not so manufactured or produced,

(b) manufactures or produces otherwise than at the site of construction or erection of a building or other structure, structural building sections for incorporation into such building or structure, in competition with persons who construct or erect buildings or other structures that incorporate similar sections not so manufactured or produced,

(c) manufactures or produces concrete or cinder building blocks, or

(d) manufactures or produces from steel that has been purchased by or manufactured or produced by that person, and in respect of which any tax under this Part has become payable, fabricated structural steel for buildings,

he shall, for the purposes of the Part, other than subsection 29(1), be deemed not to be, in relation to any such building, structure, building sections, building blocks or fabricated steel so manufactured or produced by him, the manufacturer or producer thereof.

The general effect of this subsection is to provide sales tax relief in situations where there might otherwise result serious competitive inequality between goods fabricated off and on construction sites. Hence in the case of (a) prefabricated buildings, (b) structural building sections, (c) concrete or cinder building blocks, or (d) structural steel, manufactured off-site for use on-site, in direct competition with goods like concrete poured on-site (which would not be subject to tax in so far as the labour involved would not enter into the base for sales tax), the off-site manufacturer or producer is not deemed to be a manufacturer or producer in relation to the off-site fabrication. In such cases the only sales tax would be that on the original steel or other material.

It is common ground to the parties that the bent rebar fabricated by the applicant would qualify under paragraph 26(4)(d) as “fabricated structural steel for buildings”, but by its very terms that paragraph excludes such rebar used as fabricated structural steel in structures other than buildings such as bridges, overpasses, roadways, etc. The applicant’s purpose here is to establish that rebar qualifies under paragraph 26(4)(b), which applies to structural building sections for incorporation into structures as well as into buildings, so that the applicant would have the advantage of subsection 26(4) regardless of the end use of his product.

The impugned ministerial decision was made in a letter dated April 12, 1984, from C M Geis, District Manager of Hamilton District, Excise, Department of National Revenue, whose power to make such decisions was delegated to him under the Delegation of Powers Regulations, 1983 Canada Gazette, Part II, p 606 (23/2/83). However, the most important letter in substantive terms was that of March 1, 1984, from Mr W G Clarke, Regional Chief, Tax Interpretations — Excise to Foster Business Services Ltd, which was acting for the applicant. The body of the letter is as follows:

This is further to our exchange of correspondence on the subject of reinforcing steel bar and whether it qualifies as a structural building section within the meaning given to that expression in paragraph 26(4)(b) of the Act.

We were of the opinion that reinforcing steel bar, when used to reinforce concrete building sections or concrete structures was one of the load bearing materials composing the building section or structure and that it was not a building section in itself; however, to ensure that your views received full consideration, we forwarded them to the Director of Tax Interpretations in Ottawa for further review.

We have now been informed that the Department does not regard rebar as a structural building section for purposes of paragraph 26(4)(b) and in the circumstances, we can only confirm the decisions given to your client, Harris Steel Group Inc in our letter dated November 8, 1983.

It is now settled law that there is only one principle of statutory interpretation, which might be designated as the words-in-total-context approach. As it is put by E A Driedger, Construction of Statutes, 2nd ed (1983), at 87, in language approved by the Supreme Court of Canada in Stubart Investments Ltd v The Queen, [1984] CTC 294 at 316; 84 DTC 6305 at 6323:

. . . 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, the object of the Act, and the intention of Parliament.

This contextual approach is not altered by section 8 of The Official Languages Act’. Nitrochem Inc v Deputy MNR for Customs and Excise, Federal Court of Appeal, [1984] CTC 608.

The respondent cites Addy, J in The Queen v Monarch Steelcraft Limited, [1977] 2 FC 560 at 562-3; [1977] CTC 168; 77 DTC 5154, to support his contention that a load-bearing section within paragraph 26(4)(b) must be the principal load-bearing element of the building or structure:

To constitute a section manufactured for use in a building or other structure a “structural building section”, not only must the material composing the section possess a load-bearing capacity, but the section itself must be designed and manufactured with the principal object of its being used ultimately as an integral or constitutional element of the load-bearing system or body of the building, erection or structure. To be load-bearing in this context it must necessarily be substantially load-bearing to the extent that it is commonly used for that purpose because all matter, even gaseous matter, possesses a certain strength or load-bearing capacity as it can withstand certain forces exerted on It.

An ordinary wooden door frame is not a “structural building section’’ because the material has really no substantial load-bearing capacity but more importantly because it is designed to act merely as trim and to close the space between the wall opening and a door and act as a support for and a means of properly closing the door, which itself is not a structural part of the building. [Emphasis added]

The emphasized words are relied on by the respondent to support his contention that rebar is not a load-bearing section because it does not principally or substantially bear the load, that it is only the combination of concrete and rebar which so qualifies. There is nothing in the record from which one could deduce the comparative load-bearing capacities of rebar and concrete, but the respondent’s interpretation is surely not in any event the proper meaning to be given to the words of the learned judge in Monarch Steelcraft. The point he makes is that the article in question must have as its principal object the characteristic of load-bearing, not that it must do so by itself. It is because the principal purpose of an ordinary wooden door frame is not to bear loads at all that it does not qualify under paragraph 26(4)(b), and he reaches the same conclusion with respect to the metal door frames in litigation in that case (at p 565):

Although the frames are capable of being used as forms to hold the masonry while a wall is being erected and although they do possess some load-bearing capacity, it is evident from their design, from the actual use being made of them and from their somewhat limited weight-bearing capacity that they were not designed or manufactured primarily for the purpose of resisting loads and that their primary function is not to form part of the structural components of a building but rather to fulfil the same function as ordinary wooden door frames, namely to serve as finish or trim, to fill in the space and cover any irregularities which might exist between the wall opening and the door and to provide a ready means of hanging and properly closing a door.

The applicant argues that, because of the application of paragraph 26(4)(b) of the Act, it is not a manufacturer or producer of rebar in relation to any building or structure, and that the sale price on which it should be charged the five per cent sales tax is therefore the domestic cost of bent reinforcing steel supplied for “other structures’’ rather than its actual selling price.

It submits that the words “structural building sections” in paragraph 26(4)(b) of the Act are words used in the construction trade and have a particular meaning within that trade. Although there is no evidence in the record before this Court as to the trade meaning of the words, I can nevertheless agree with the applicant that the words in question refer to the elements of a building or other structure which are load-bearing. This is evident from the French text, which utilizes the phrase, des éléments porteurs, for “structural building sections”, and also from the interpretation of Addy, J in the Monarch Steelcraft case, supra, at p 561:

In the context of paragraph (b) [ie, section 26(4)(b)] above it is clear that the word “structural’’ in the expression “structural building sections’’ does not bear its usual general meaning of “pertaining to a structure’’ as the latter word is used in the same paragraph in the expression “any . . . building or structure’’: it does not merely qualify a component as forming part of a structure or building but, much more restrictively, as being one of the components which inter-connected, ensure that a building has a certain weight or load-bearing capacity or which, in other words, contribute substantially to its strength and solidity and permit it to resist the various forces created by man and nature to which it might be subjected. Structural building sections might be contrasted with mere fixtures or other integral components, systems or elements which contribute primarily to the proper use or enjoyment of the building or structure, such as doors, windows, non weight-bearing walls, insulation, or its heating, plumbing and electrical systems, or which enhance it aesthetically, such as plaster walls, wallpaper, finished flooring and other such decorative additions. This concept of the word “structural” in the context of that paragraph was not disputed at trial but, on the contrary, it was confirmed by the expert engineers called on behalf of both parties who testified that such was the interpretation given to that word in the building trade generally as well as in the engineering profession. Furthermore the meaning of “structural building sections” becomes clear beyond any shadow of a doubt when one considers the French version of those words in the French text which reads quite simply des éléments porteurs. This expression might be literally translated as “load-bearing elements”, the word “structural” having been completely omitted from the French version.

However, this goes no further than to establish that “structural building” sections are “load-bearing” sections. It does not establish that rebar as incorporated into buildings or structures can qualify as “sections”.

“Section” is defined by the Shorter Oxford English Dictionary (3rd ed 1984) as “a part separated or divided off from the remainder; one of the portions into which a thing is cut or divided”, or again “a separable portion of any collection or aggregate of persons”, or further, “one of the component parts of something which is built up of a number of similar portions so as to admit of enlargement when necessary, or which is constructed to be taken to pieces for facility or transport”. “Section” has the connotation of a separable portion that has within itself a certain commonness and completeness on its own before being joined with other portions. Precast, prestressed concrete building parts or pillars clearly possess the characteristics of a “section”. It is hard to see how rebar which has to be embedded in concrete can possess the characteristics of a section.

A reading of paragraph (d) compels the same conclusion. It is, as I have mentioned, common ground that rebar qualifies as fabricated structural steel under that paragraph provided that it is used for buildings. It can hardly be supposed that Parliament intended to benefit exactly the same produce under paragraph (b) by the words “structural building sections” and under paragraph

(d) through the words “fabricated structural steel”. I can only conclude that Parliament had different products in mind in the two paragraphs.

The consequence is as the applicant foresaw in the last paragraph of its letter of February 17, 1975 to the Department, in reference to the amendments to the Excise Tax Act introduced on November 19, 1974:

It is unfortunate that Section 26(4)(d) was not broadened to include “other structures”. The Department’s apparent interest is to simplify the rules governing the application of taxes and to avoid the necessity of end use certificates. Only a very small proportion of our sales consist of bent rebar supplied for structures other than buildings. It would appear, however, that unless the limitation of Section 26(4)(d) to buildings only is removed, we will continue to be required to determine the end use of the material we supply.

If a remedy is to come, it can be only through the hands of Parliament.

I must therefore dismiss the application.