Superior Pre-Knit Septic Tanks Ltd. v. The Queen, 78 DTC 6263, [1978] CTC 431 (SCC)

Martland, J (concurred in by Spence, Pigeon, Dickson and Beetz, JJ):—This is an appeal from a decision of the Federal Court of Appeal which upheld a judgment of the Federal Court, Trial Division, which had dismissed with costs an action, launched by way of petition of right, for a declaration that the appellant “be deemed neither manufacturers nor producers of precast septic tanks as defined by paragraph 29(2b)(a) of the Excise Tax Act, RSC 1952, chapter 100, and amendments thereto”.

The petition of right was launched before the Revised Statutes of Canada of 1970 came into force, but the trial took place after that event, and reference has consistently been made, both in the courts below, and before this Court, to the renumbered provisions. The relevant sections are now sections 26 and 27 of the Excise Tax Act, RSC 1970, c E-13. Subsection 27(1) imposes a consumption or sales tax on the sale price of all goods “produced or manufactured in Canada” payable by the “producer or manufacturer”. Subsection 26(4) provides as follows:

26. (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 this Part, 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 appeal was argued on the common ground that the septic tanks produced by the appellants were not “buildings” within the meaning of the Act. The main issue joined by the parties was whether such a septic tank is a “structure” within the meaning of the provision.

The facts are not in dispute. The appellant Lloydminster Pre-Kast septic Tanks Ltd is now and both appellants were manufacturers licensed under the provisions of the Excise Tax Act. At all material times the appellant Lloydminster manufactured pre-cast concrete septic tanks, and the appellant Superior Pre-Kast Septic Tanks Ltd did so until or about the month of August, 1971, at which time it sold all its assets. Both appellants manufactured rectangular tanks, the typical size of which is 8’2 /4” x 3’6” x 5’7” of poured concrete reinforced with steel reinforcing rods. The tank’s weight, depending on the model, may be three or four tons. The concrete is poured into two moulds in order to form two sections which are delivered at the site and assembled.

When the two sections are put together they form what is in effect a hollow box. The upper or male section of the tank fits into the lower or female portion of the tank. There is a ridge around the upper portion of the lower or female portion of the tank which is designed to allow a seal to be formed with a sealant or caulking compound where the two sections meet. The caulking compound is typically Smeared on the top part of the bottom section before the section itself is lowered by a hydraulic rigging on a truck into a hole in the ground which has been made ready for it. The upper section is then lowered onto the bottom section, the weight of the top section thus squeezing the sealant. Workers then go inside by means of a manhole which is provided for clean out purposes, and smooth off the excess sealant with a trowel. In Alberta, because of the danger of frost, the tanks are set deeper than in British Columbia. In such instances a five-foot manhole pipe with cover would be. set into the manhole on top of the tank.

There are two plastic baffles supplied with the tank. These are sometimes bolted on at the plant, and in any event are bolted on before the tank sections are lowered. Where they supply a tank, the appellants do not dig the hole for the tank. They put the tank down the hole for the customer, seal it, put the baffles in if required, and in some cases put the manhole extensions on. The customer is responsible for connecting the sewage pipes to the building and the outlet pipes to the disposal field, and is responsible for backfilling up to six feet of earth.

Sales by the appellants were made either directly to the user who installed the tank or paid for its installation, or to a backhoe operator who in turn would contract to install the tank for the customer.

At all times the appellants paid all required sales tax with respect to the materials used in manufacture, for example, the steel reinforcing rods, and as well were assessed for sales tax on the selling price of the complete septic tank including delivery costs, cement, steel, gravel and labour.

The appellant Lloydminster has a plant at Lloydminster, Alberta, and a trading area surrounding that location in which it competes with septic tank builders who construct concrete septic tanks of a similar design and function at the place of use. Until August, 1971, when it sold its assets, the appellant Superior was in a similar situation in its location at Nanaimo, British Columbia.

The septic tanks which are in competition with those manufactured by the appellants are constructed at the site of use in the following manner. An excavation is dug in the ground into which forms are placed in a rectangular shape. Concrete is poured into the forms with reinforcing steel placed in the concrete for strength. Once the concrete has hardened, the forms are removed. A top with manhole is constructed and placed atop the concrete walls. The finished tank is then connected to the building and buried in a manner similar to the precast tanks.

At trial, the petition of the appellant Superior was dismissed on the ground that, as Superior had ceased to operate at the time of the trial, the declaration which it sought was merely academic. The trial judge appears to have assumed that this appellant was only seeking a declaration in respect of septic tanks to be sold in the future. The fact is that prior to the sale of its assets, in August 1971, Superior had been assessed for sales tax on the selling price of complete septic tanks, and therefore the declaration sought in the petition dated April 7, 1970, was of more than academic interest.

The petition of the appellant Lloydminster was dismissed on the merits. One ground of decision at trial was that to include septic tanks within “other structure’’ would involve a conflict with subsection 29(3) of the Act. That subsection reduces by one-ninth the tax imposed by section 27 in respect of articles enumerated in Schedule V. Part I of Schedule V, headed “Building Materials”, includes, in item 17:

17. Septic tanks and grease traps therefor.

I do not agree with this conclusion. The fact that septic tanks are listed generally in Schedule V does not mean that such a tank cannot be a “structure” within the meaning of an unrelated section which defines the special circumstances in which a person who has manufactured or produced such structure is deemed not to be the manufacturer or producer of it.

Another ground adopted at trial was that the application of the rule noscitur a sociis in relation to the concluding words of subsection 26(4) “any such building, structure, building sections” and the application of the ejusdem generis rule to the words “building or other structure” in paragraph (a) of the subsection requires a restriction of the meaning of “or other structure” to something in the nature of a building.

To restrict the meaning of the word “structure” in this way would mean that its use in this paragraph would serve no useful purpose. Furthermore, it is preceded by the word “other” which. certainly indicates that it-is intended to refer to something other than a building. This point was made in this Court in the case of British Columbia Forest Products Limited v The Minister of National Revenue, [1972] SCR 101; [1971] CTC 270; 71 DTC 5178. That case was concerned with the determination of capital cost allowance and one of the questions in issue was as to whether certain property of the taxpayer fell within Class 3 of the Regulations under the Income Tax Act, RSC 1952, c 148. Paragraph (a) of Class 3 referred to ‘‘a building or other structure’. At p 111 the proposition that “structure” should be construed ejusdem generis with the word “building” was rejected and it was said: “It is preceded by the word ‘other’ thus contemplating structures other than buildings”.

The question in issue is, therefore, accepting that “structure” means something other than a building, whether the type of septic tank manufactured by the appellant is a structure so as to make subsection 26(4) applicable. The Court of Appeal sustained the judgment at trial, although not for the same reasons, holding that it was not such a structure and that the appellants were not entitled to the benefit provided by that subsection.

The conclusion of the Court of Appeal is stated in the following passage from the reasons for judgment:

After considering the various authorities referred to by the learned Trial Judge and the parties concerning the meaning of the word “structure” when used in other statutes, I have concluded that it is not possible to substitute any definition for the word itself as found in the statute. In my view, a septic tank used as part of the sanitary system of a residence that is not on a sewer line is not a “structure” within the words “building or other structure” any more than a furnace or other similar fixture inside a building and forming a part thereof essential for its efficient use is such a structure. As I see it, all such equipment is essentially part of the building or an accessory to the building and in the phrase “building or structure”, as used in paragraph 26(4)(a), the word “structure” is something other than a “building”, a part of a building or an accessory to a building.

I agree that the meaning of the word “structure” must be determined in relation to its use in the paragraph in question here, but I think it is proper to consider what has been considered to be a structure in connection with other taxing statutes. In the British Columbia Forest Products case certain tanks outside the mill building built to contain and store “stock” were held to be structures. It is true that these were of substantial size ranging from 45 feet to 120 feet in height.

Reference was made in the reasons for judgment in that case to the judgment of the English Court of Appeal in Cardiff Rating Authority v Guest Keen Ltd, [1949] 1 KB 385, and also to City of London v John Labatt Limited, [1953] OR 800. In the latter case it was held that certain tuns and tanks used in the respondent’s brewery were fixtures.

In the present case I do not consider the size of the tanks in question to be determinative because the word “structure” in subsection 26(4) is used in a provision which exempts the manufacturer of a structure who manufactures it otherwise than at the site of construction in competition with persons who construct such structures on site from being subject to tax as a manufacturer. Paragraph (a) clearly contemplates prefabricated structures and cannot therefore be construed as applying only to structures of substantial size.

With respect, in my opinion the fact that a septic tank is used as a part of the sanitary system of a residence, not on a sewer line, does not make it a part of the residence building. I would consider a water tower constructed to store water for use in the residence to be a structure in itself. It is not a part of the building, though constructed for the use of the residents of the building.

The septic tanks in question here are things which are built or constructed. They are designed to be placed underground and become a part of the land in which they are installed. They are manufactured in competition with persons who construct such tanks at the site. In my opinion they are structures within the meaning of subsection 26(4) and the appellants are entitled to the exemption provided by that subsection.

In my opinion the appeals should be allowed. The appellants should be entitled to the declaration as prayed in the petition of right. The appellants should have costs in this Court and in the courts below.

Appeal allowed.