Dominion Stores Ltd. v. Dep. MNR, 82 DTC 6214, [1982] CTC 235, 82 DTC 6217 (FCA)

Urie, J:—This is an appeal from a decision of the Tariff Board rendered on August 26, 1980. The appeal was heard together with a section 28 application brought by the appellant herein against the same decision of the Tariff Board under Court No A-14-81. While the appeal was argued on the record in the section 28 application, for the reasons which will hereafter appear, I propose to deal with the matter as it relates to the appeal.

The appellant in the proceeding before the Tariff Board was Loblaws Limited and it sought a declaration pursuant to section 59 of the Excise Tax Act that certain machinery and equipment used in the appellant’s meat processing operations were exempt from the sales tax imposed under the Act. The appellant in this section 28 application and in the appeal, was an intervenant in the proceeding before the Tariff Board. Neither Loblaws Limited nor the other intervenant before the Tariff Board, Steinbergs Inc, sought to set aside or appeal the Tariff Board’s declaration. The respondent agreed that the appellant has status to bring the section 28 application by virtue of the fact that it is a “party directly affected by the decision . . within the meaning of subsection 28(2) of the Federal Court Act. Similarly, it has status to bring an appeal since it is a “person who entered an Appearance ...’ within the meaning of paragraph 60(1 )(c) of the Excise Tax Act.

The parties agreed that in the course of producing finished meat products, and particularly, ground beef, the appellant uses the four pieces of equipment which are the subject matter of these proceedings. They are: a chipper-flaker, a band-saw, a grinder and a wrapper with automatic weight scales. Various grades of finished meat for human consumption are derived from the operation of such equipment. So far as ground beef is concerned, there are three grades, lean, medium and regular, all of which have a maximum allowable fat content as prescribed by regulations set by the Department of Consumer and Corporate Affairs.

Before the Tariff Board, the appellant, together with Loblaws Limited and Steinbergs Inc sought a declaration that the four pieces of equipment aforesaid were exempt from the consumption or sales tax imposed by subsection 27(1) of the Excise Tax Act (“the Act”) by virtue of subsection 29(1) and Part XIII of Schedule III, subparagraph 1 (a)(i), since, inter alia, it was equipment used directly in the manufacture or production of goods. The Tariff Board declared that the process of grinding, weighing and packaging of ground beef for retail sale is not manufacturing or producing within the meaning of Part XIII of the Act. It therefore declared that the machinery and equipment in issue were Subject to and not exempt from the tax imposed by section 27 of the Act.

The parties further agreed that at the commencement of the hearing before the Board, Counsel for the Deputy Minister of National Revenue for Customs and Excise had conceded that the appellant’s process of producing ground beef was manufacturing or producing within the meaning of Part XIII, Schedule III, subparagraph 1(a)(i) of the Act. As a result, it was argued, the only issue which the Board had to decide was whether or not the appellant was a manufacturer or producer within the meaning of those provisions. Notwithstanding this concession, the Board found that there were two issues before it which were defined as follows:

On the question of jurisdiction it is the Board’s view that the first issue to be resolved is not one of liability for the tax but the general issue — whether or not the mixing and grinding of beef trimmings and boneless beef constitute the manufacture or production of goods (hamburger) within the meaning of Schedule III, Part XIII, section 1 (i) of the Act. If it is shown that this process constitutes the manufacture or production of goods then the second issue to be resolved is whether or not the goods in issue are used directly in that process. These are issues which are within the Board’s jurisdiction under section 59 of the Excise Tax Act.

It then found that the process of grinding, weighing and packaging of ground beef for retail sale was not manufacturing or producing within the meaning of Schedule III, Part XIII, section 1 of the Excise Tax Act and the machinery and equipment in issue had not been sold to a manufacturer or producer and was, thus, not exempt from sales tax.

The relevant sections of the Act and the Schedule read as follows:

27. (1) There shall be imposed, levied and collected a consumption or sales tax of nine per cent on the sale price of all goods

(a) produced or manufactured in Canada

(i) payable, in any case other than a case mentioned in subparagraph (ii) or (iii), by the producer or manufacturer at the time when the goods are delivered to the purchaser or at the time when the property in the goods passes, whichever is the earlier.

29. (1) The tax imposed by section 27 does not apply to the sale or importation of the articles mentioned in Schedule III.

Part XIII, Schedule III

1. All the following

(a) machinery and apparatus sold to or imported by manufacturers or producers for use by them directly in

(i) the manufacture or production of goods,

From this it can be seen that in order to benefit from the exemption from sales tax on the equipment in issue, the following conditions must be satisfied:

(a) machinery or apparatus must be sold to or imported by a manufacturer or producer; and

(b) the manufacturer or producer must use the machinery directly in the manufacture or production of goods.

The issues as defined by the appellant in its memorandum of argument are as follows:

(a) Did the Tariff Board exceed its jurisdiction, in holding that the process of grinding, weighing and packaging of hamburger for retail sale is not manufacture or production within the meaning of Schedule III, Part XIII, s 1 (a)(i) of the Excise Tax Act, notwithstanding that the Respondent conceded the point?

(b) Even if the Tariff Board could properly embark on a determination of whether the Applicant’s process was one of manufacture or production, did it err in holding that the said process was not one of manufacture or production within the meaning of Schedule III, Part XIII, s 1(a) of the Act?

(c) Did the Tariff Board fail to decide the only issue before it, viz whether or not the Applicant was a manufacturer or producer within the meaning of Schedule III, Part XIII, s 1(a) of the Excise Tax Act, and does it have jurisdiction to decide whether or not the Applicant is a manufacturer or producer?

(d) Did the Tariff Board err, therefore, in declaring that the said equipment is not exempt from the sales tax imposed by s 27(1)?

During the argument it became apparent that (a) was the sole issue requiring determination in this appeal and even that issue was modified during oral argument as will hereafter appear.

Counsel for the respondent, during the course of argument, agreed that if the appellant could demonstrate that the equipment in issue was being used directly in the manufacture or production of ground beef it would by virtue of the Judgment of the Supreme Court of Canada in Royal Bank of Canada v D/MNR for Customs and Excise, [1982] CTC 183, be a manufacturer or producer and thus would be exempt from the tax imposed by section 27 of the Act. However, he also submitted, and Counsel for the respondent conceded in reply that if the Board had correctly instructed itself as to the law in interpreting the statutory items its findings that the operations performed by the appellant did not constitute manufacturing or producing were findings of fact which ought not to be disturbed by this Court.”

It was argued, therefore, that the only question which must be decided is whether or not the Tariff Board, in concluding that the process of grinding, weighing and packaging of ground beef for retail sale did not constitute manufacturing or producing ground beef, despite the concession by the respondent at the hearing that the appellant and the other parties were in the business of manufacturing or producing ground beef, constituted a denial of a principle of natural justice in that the parties had been deprived of the opportunity to adduce evidence to demonstrate that fact. In order to deter- mie the validity of that submission, it is necessary to have regard to the transcript of the proceedings before the Board.

At pages 9 and 10 of the transcript, the following exchanges between Mr Deachman, a member of the Board, and Mr Gordon, counsel for the respondent, indicate the basis for the submission that the respondent had agreed that the appellant’s ground meat processing was manufacturing and producing:

Mr Deachman-. Mr Craig, I note that in the brief of the Respondent the words, “it is agreed that the ground meat operation is manufacture or production.

Do you accept that — both parties accept that? Mr Gordon, is your position that the ground meat operation is manufacture or production?

Mr Gordon: Yes, we do. The only issue with respect to ground meat is whether the Applicant is a manufacturer or producer. There have been several cases where they have made the jurisdiction, that they have come to the conclusion that the fact that they are manufacturing or producing does not make that person a manufacturer or producer. So that will be the issue so far as the Respondent is concerned with respect to ground meat.

Mr Deachman: Very well, Mr Craig, if that is the case, if it were not for the fact that you are here to present an argument as to whether or not the Applicant is a manufacturer or a producer, we would not have a case before us, is that not so?

In other words, the only position that is to be argued before the Board is whether or not the Applicant is a manufacturer or producer. You are agreed on the question, as I understand it now.

At 44 Mr Gordon made the following comments:

Mr Gordon: No, Mr Chairman, but perhaps before we get into argument and perhaps as a result of what we heard today, I want to say that it appears that the only issue is the ground meat, and the Respondent concedes that the four pieces of equipment that have been put into issue are used directly in the manufacturing or production of goods so I think that we are realy left with only two issues: one is the jurisdiction and the other is the Applicant a manufacturer or producer.

Again at 51 Mr Gordon reiterated his position:

Mr Gordon: Perhaps I could just reply to that before I get into jurisdiction itself. I guess it depends on the angle we look at the question. It seems to me that the only issue — certainly the declaration can be framed that they are entitled to the exemption or they are not entitled to the exemption but it seems to me that the issue before the Board is whether Loblaws is a manufacturer or producer, so that — and it seems to me that on this view of the issue there is no issue as to whether the goods are — whether there is manufacturing or producing. The only issue is whether the person, the Applicant, is a manufacturer or producer. And it is on this basis that I will be arguing that the Board does not have jurisdiction.

Clearly, any concession made by the respondent cannot bind the Board. The Act confers upon the Board its jurisdiction. However, from a close perusal of the whole of the transcript, including in particular the passages therefrom cited above, I am of the opinion that the Board, as a result of the respondent’s concession, failed to provide the appellant and the other parties before the Board with an opportunity to be heard on the question as to whether or not their activities constituted manufacturing and producing of ground beef.

It will be necessary, in my opinion, to allow the appeal, to set aside the decision of the Board dated August 26, 1980 and to refer the matter back to it for a rehearing at which facts may be elicited to enable it to determine whether the equipment here in issue is being used in the manufacture and production of goods, (in this case ground beef) and whether or not the appellant uses such equipment as a manufacturer or producer. It would not be appropriate, therefore, for this Court to comment upon the Board’s other findings in the proceedings under review or on the other issues raised in this Court.

Since subsection 60(1) of the Act provides a right of appeal to this Court with leave, on a question of law, and leave having been granted, by virtue of section 29 of the Federal Court Act, the section 28 application should be dismissed.