Supreme Court of Canada
Dominion
Engineering Works Limited v. The Deputy Minister of National Revenue et al.,
[1958] S.C.R. 652
Date:
1958-10-07
Dominion Engineering Works Limited Appellant;
and
The Deputy Minister of National Revenue (customs and
excise), The Canadian Association of Equipment Distributors, A. B. Wing Limited
Respondents.
1957: June 6, December 19, 1958: May 5, 6; 1958: October 7.
Present: Kerwin C.J. and Locke, Cartwright, Abbott and Nolan
JJ.
Present: Taschereau, Rand, Fauteux, Martland and Judson JJ.
ON APPEAL FROM THE EXCHEQUER COURT OF CANADA.
Revenue—Customs and excise—Importation of power shovel
with 2½ cubic yard dipper capacity—Whether of a "class or kind not made in
Canada"—Customs Tariff, R.S.C. 1952, c. 60, tariff items 427, 427a—The
Customs Act, R.S.C. 1952, c. 58.
The respondent, W. Co., imported a power shovel of a nominal
dipper capacity of 2½ cubic yards. It is undisputed that such a shovel was not
made in Canada at the date of import, but that those ranging from
[Page 653]
½ cubic yard to 2 cubic yards were made in Canada at that
time. The customs appraiser entered the shovel under tariff item 427 of the Act
and the Deputy Minister confirmed the classification. The Tariff Board reversed
the Deputy Minister's decision and classified the shovel under item 427a, which
carries a much lower rate of duty, as being of a "class or kind not made
in Canada". The appellant, a Canadian manufacturer of power shovels and
cranes and who had intervened as an interested party before the Tariff Board,
appealed to the Exchequer Court on the question whether the Tariff Board had
erred in law. The classification under item 427a was confirmed by the Exchequer
Court.
Held (Rand J. dissenting): The appeal should be
dismissed. The power shovel was properly classified under item 427a.
Per Taschereau, Fauteux, Martland and Judson JJ.: The
Board was right in coming to a conclusion that the shovel was of a class or
kind not made in Canada. There was ample evidence in support of its conclusion,
no application of any wrong principle and no failure to apply a principle that
should have been applied. It is not an error in law to reject a classification
by potential or actual competitive standards and to prefer, as the Board did, a
classification according to a generally accepted trade classification based on
size and capacity.
Section 2(2) of the Customs Act had no application to
the facts of this case.
Per Rand J., dissenting: Both the Board and the
Exchequer Court misinterpreted the legislation and ignored an element material
to their decision. Tariff items 427 and 427a, as well as many other items and
provisions in the Customs Act, establish that the purpose of the
legislation is not only to serve as a means of revenue but also to provide a
margin of protection to Canadian manufacturers. That purpose can be shown only
in one way, by the determination on evidence whether or not in Canada there is
an actual competition between any of the machines differently designated. This
purpose and its relevancy to the issue were not referred to by the Board and
were categorically rejected by the Exchequer Court. Their conclusions were
therefore vitiated by this error in law.
APPEAL from a judgment of Thorson P. in the
Exchequer Court of Canada, affirming a decision of the Tariff Board.
(Subsequent to the hearing of June 6, 1957, the Court ordered a rehearing.)
Appeal dismissed, Rand J. dissenting.
A. Forget, Q.C., and Joan Clark, for
the appellant.
R. W. McKimm, for the respondent, the Deputy
Minister of National Revenue.
G. F. Henderson, Q.C., and R. H. McKercher,
for the respondent, Canadian Association of Equipment Distributors.
J. M. Coyne, for the respondent, A. B. Wing
Limited.
[Page 654]
The judgment of Taschereau, Fauteux, Martland and Judson JJ.
was delivered by
Judson J.:—The
question in this appeal is whether a certain power shovel, described as having
a nominal dipper capacity of two and a half cubic yards, is dutiable under
tariff item 427a of schedule "A" of the Customs Tariff as
being of a class or kind not made in Canada. If it is, it is dutiable at the
rate of 7½ per cent. instead of 22½ per cent. which it would have to bear if it
came within item 427 of schedule "A". The machine was imported by the
respondent A. B. Wing Limited at Vancouver. The customs appraiser there entered
it under item 427 with a duty of 22½ per cent. This action was confirmed by the
Deputy Minister of National Revenue for Customs and Excise. The respondent A.
B. Wing Limited then appealed from the decision of the Deputy Minister to the
Tariff Board where the appellant, Dominion Engineering Works Limited, a
Canadian manufacturer of power shovels and cranes, intervened as an interested
party, as did the Canadian Association of Equipment Distributors. The Board
ruled that the power shovel was of a class or kind not made in Canada. Dominion
Engineering Works Limited then obtained leave from the Exchequer Court pursuant
to s. 45(1) of the Customs Act, R.S.C. 1952, c. 58, to appeal upon a
question which, in the opinion of that Court, was a question of law. The
question was :
Did the Tariff Board err, as a matter of law, in holding
that the crawler-mounted convertible full-revolving power shovel imported under
Vancouver Entry No. 35748 of 21st September, 1953, is properly classifiable for
Tariff purposes under Tariff Item 427a?
The Exchequer Court dismissed the appeal and confirmed the
decision of the Tariff Board. Dominion Engineering Works Limited now appeals to
this Court.
It is undisputed that power shovels with a nominal dipper
capacity of two and a half cubic yards or more were not made in Canada at the
date of import. On the other hand, power shovels with a nominal dipper capacity
ranging from one-half cubic yard to two cubic yards were being made in Canada
at that time. The Tariff Board found that a classification of power shovels by
nominal dipper capacity was generally understood and accepted by the trade in
both
[Page 655]
Canada and the United States, and was probably the most
practical single standard according to which these implements could be
classified. "Nominal dipper capacity" defines a class of power shovel
having certain specifications which indicate the work it is capable of doing.
It defines the over-all capacity and performance of a machine and implies more
than a mere difference in size. The submission made by the appellant and by the
Crown before the Board was that since machines ranging in size up to a nominal
dipper capacity of two cubic yards were made in Canada, the machine next larger
in size could not, by reason only of the difference in size, be of a different
class or kind. The Board held that where the capacities of machines are
established in clearly defined sizes, "the least arbitrary and perhaps
therefore the best line of demarcation is in accordance with those sizes which
are, in fact, made in Canada as opposed to those sizes which are not".
The Exchequer Court held that there was no error on the part
of the Tariff Board in its acceptance of the trade classification of power
shovels into different classes or kinds ; that the Board's finding was a
finding of fact; that the two and a half cubic yard shovel was different in
fact from the two cubic yard shovel and that there was material before the
Tariff Board upon which it could reasonably declare that the imported shovel
was of a class or kind not made in Canada. My opinion is the same as that of
the Exchequer Court, that the Tariff Board came to the correct conclusion.
The appellant repeats the same argument before us, namely,
that classification according to recognized trade sizes is incorrect and that
the Board and the Exchequer Court should have considered whether the imported
shovel entered into competition with domestic production; that they should have
found that the two and a half cubic yard size was competitive in some respects
with the two cubic yard size, and that if it was competitive with something
made in Canada, it could not be described as being of a class or kind not made
in Canada. It scarcely needed the evidence of experts to tell the Board that
with two power shovels so close in size, there must be a certain amount of
overlapping of possible function. The smaller machine can work in places where
the larger machine might be used, but there would not, of course, be precisely
the same performance by the two machines. To this extent it is correct to
[Page 656]
say that the two machines are competitive, but the same
theory would apply to any of these machines in varying degrees, for all
machines designed for mechanical excavation are capable of entering into competition
in some degree. I do not know how any Board called upon to classify machinery
of this type could do so by adopting the standard of potential competition. The
Board heard evidence directed to the question whether these two machines were
competitive, interchangeable or equivalent to such a degree as to outweigh the
choice of classification by size. It did not adopt the trade classification
automatically and without regard to the other evidence. It had before it
evidence of comparative capacity, the weight of the machines, the comparative
uses and performance of the two machines and the circumstances in which one
machine would be used in preference to another, and with this evidence before
it, concluded that the two and a half cubic yard shovel was of a class or kind
not made in Canada.
Where are the errors in law asserted by the appellant in
this case? I have already stated that in my opinion there was ample evidence
before the Board to justify the finding made. This is not a case of a finding
being made in the absence of evidence. Further, I am totally unable to discover
that in making this classification the Board applied the wrong principle or
failed to apply a principle that it should have applied. The task of the Board
was to classify a piece of machinery—to determine whether it was of a class or
kind not made in Canada. This is a task involving a finding of fact and nothing
more. It is not error in law to reject the classification by potential or
actual competitive standards and to prefer classification according to a
generally accepted trade classification based on size and capacity. I do not
think there is any error in the Board's decision but if there were, it could
only be one of fact.
I agree with the learned President of the Exchequer Court
that s. 2(2) of the Customs Act has no application to the facts of this
case. This is the section which provides that
All the expressions and provisions of this Act, or of any
law relating to the Customs, shall receive such fair and liberal construction and
interpretation as will best ensure the protection of the revenue and the
attainment of the purpose for which this Act or such law was made, according to
its true intent, meaning and spirit.
[Page 657]
The appellant's contention was that this section should
be applied because more revenue would be obtained and more protection afforded
to domestic manufacturers if the power shovel in question here were classified
under item 427 instead of item 427a. I can see no room for the application of
such a principle in this case. Items 427 and 427a are plain and unambiguous.
The two are to be read together. Item 427 covers all machinery composed wholly
or in part of iron or steel, n.o.p. Item 427c comprises all machinery composed
wholly or in part of iron or steel, n.o.p., of a class or kind not made in
Canada. The machine in question here must fall within one or the other of these
items according to findings of fact and it is impossible to hold that
Parliament, by virtue of s. 2(2) of the Customs Act, intends greater
weight to be given to one item than the other or to compel a classification
under item 427 in preference to item 427a.
The appellant has failed to bring his case within the
definition of error in law as formulated by this Court in Canadian Lift
Truck Co. Ltd. v. Deputy Minister of National Revenue for Customs & Excise,
and I would dismiss the appeal with costs. The order for costs should
provide for one set of costs only to be paid to the respondent A. B. Wing
Limited. The other respondents should bear their own costs.
Rand J.
(dissenting) :—The issue in this appeal is whether what is described as a
crawler-mounted, convertible, full-revolving power shovel with a nominal dipper
capacity of 2½ cubic yards, imported from the United States, is subject
to customs duty under item 427 or item 427a of the tariff. Those items are :
Item 427 All
machinery composed wholly or in part of iron or steel, n.o.p., and complete
parts thereof .................................................................................. 10
p.c. 274½ p.c.
35
p.c.
(GATT ................................................................................... 22½
p.c)
427a All
machinery composed wholly or in part of iron or steel, n.o.p., of a class or
kind not made in Canada; complete parts of the foregoing.
.................................................................................. Free
27½ p.c.
35
p.c.
(GATT ................................................................................... 7½
p.c.)
[Page 658]
The issue depends on whether a machine of a nominal dipper
capacity of 2½ cubic yards so imported and not made in Canada is of a class or
kind made in Canada vis-à-vis a 2 cubic yard machine so made.
These machines have as their primary function excavation by
means of a shovel involving digging, lifting, swinging and dumping, the
material of the soil. As can at once be foreseen, they may be built on an
ascending scale of size, weight, reach and other features, each aggregate
having an effective capacity for work depending upon the total conditions in
which it is carried on.
In the United States a Standard of categories has been set
up by the manufacturing industry and approved by the Administration of
Standards by which, for the purposes of furnishing information of the grouped
characteristics of the categories to prospective purchasers, the machines are
classified. The symbol used to distinguish the groups is the "nominal
dipper capacity" indicated in these reasons by the letters n.d.c. Nominal
capacities run, in size, from ¼ of a cubic yard to 3 cubic yards and
upwards. Those of ⅜, ½, ⅝, ¾, 1, 11/4, 1½, 2 and 2½ yards
are in the United States called the "commercial sizes" and are
included in the Standard, while those of 3 yards and over are treated as for
use in special situations or undertakings. The "nominal" figures I
take to represent the mathematical capacity of the dipper which would be
attached to a machine bought by reference to its "nominal capacity".
In other words, the mathematical capacities are used to designate machines with
an aggregate of specifications brought within more or less understood degrees
of dimensional ranges.
Each group has its ideal conditions in which the greatest
functional performance can be obtained, but obviously these optimum conditions
would seldom be met. The effective utility of the machines may be specific or
general, and their performance depends on the site of work to be done, its
nature, the kind of material to be excavated, the conditions surrounding the
excavation such as freedom of action for the boom and dipper, the extent of the
lift, the width or depth of cut, the swing required for dumping and other
features. The material may be rock, gravel, clay, light soil, etc., all more or
less significant to the performance; the excavation may be deep, shallow or
narrow, in the latter
[Page 659]
case hampering the swing and dumping. The distance for
disposing of the material and the means and conditions under which it is to be
done are likewise to be taken into account. In short, from a purely mechanical
or physical point of view the machine is that which in the whole of the
particular circumstances and conditions is most suitable for the purposes of
the person undertaking work ; its operational utility, as it is said, is then
substantially integrated with what is to be done.
These are operating considerations. Equally important are
economic factors: the cost of the machine, the expenses involved in
transportation to, from and about work, operational expense related to the rate
of performance, the number of men to be employed, the difficulties of handling
heavier machines as contrasted with those of lighter weight ; these must
likewise be brought under examination and their impact on the operating
characteristics mentioned is inevitably influential and may be controlling. For
example, the larger and heavier machine will lift a greater quantity or weight
of material in one bite of the shovel, but a cheaper machine with a smaller
dipper may take less time for each shovel swing and tend to reduce the handicap
in size. The exhibits show that for excavating moist loam or light sandy clay a
2 yds. machine with a dumping swing of 45 degrees takes 17 seconds for each
shovel cycle, against 18 for a 2½ yds. size; with 180 degrees, the
figures are 30 against 32; for common earth, at 135 degrees, 29 against 31, and
for 180 degrees, 34 against 36. The difference of 2 seconds is maintained in
excavating hard tough clay with the similar angles of swing. These items
illustrate the refinements in economic factors pertinent to the total judgment
of machine utility.
The Standard, as its principal purpose, furnishes a definite
meaning for the symbols used and those who subscribe to it voluntarily
undertake to use the terms agreed upon only with the connotations so ascribed
to them. When a person orders a 1½ yds. nominal dipper capacity machine,
he has in mind the general specifications which that symbol indicates. The
dimensions of individual parts or members of the machine in any case may, of
course, be varied, but in such a case notice of that fact is given. The
Standard has no official standing among the manufacturers in this
[Page 660]
country, and although it may be that they observe roughly
the same dimensional aggregates indicated by the symbols there is no sufficient
evidence to show that it has become such an established and understood practice
as to amount to representation that such and such characteristics of
Canadian-built machines are indicated by the particular symbol employed.
Moreover, different sizes of dippers, among other
interchangeable parts, may be used on any machine: a 2 yds. n.d.c. unit can be
equipped with a 2½ yds. capacity dipper. The standard dimensions in many
cases overlap : the length of the boom on a 2 yds. machine is from 22 feet to
25 feet, 2½ yds., from 25 feet to 26 feet; the handle on the 2 yds. runs
from 17 feet to 19 feet, on the 2½, 18 to 19 feet; the maximum cutting
height on a 2 yds. is 26 feet to 30 feet, on a 2½ yds., 28 feet to 35
feet; the maximum cutting radius 33 feet to 36 feet, against 35 feet to 38
feet. The weights parallel the increases of dipper capacity, but the
differences as factors in utility can be counterbalanced so as to overlap by
the scale of outrigging used. The figures shown are related to normally
favourable conditions of operation.
A further consideration to be taken into account is that of
continuity of use. On page 6 of the statement of the Standard the following
language is used :
Regardless of the economy of a new and modern excavator,
tailored to the correct size for Current work, sufficient work must be in sight
to pay off the capital investment, and good prospects for future work (or
resale) must be available to convert the investment into profits and return of
capital for future replacement equipment.
One machine may be most suitable for a particular case
but that case may never recur. General use means utility in more or less
continuous work or with the least idleness of the machine. Purchased by a
contractor, it will ordinarily be for his general purposes; one job which would
completely consume a machine is conceivable but would be a rare event. In
industrially and commercially advanced and complicated countries with giant
works and undertakings, such as the United States, operations may become
specialized in terms of machine dimensions and the type will vary in different
countries and in different parts of the same country. In Canada that is well
exemplified : the machines in question are convertible into cranes and, for
that purpose as well as for excavation, face the differences of physical and
[Page 661]
economic conditions from British Columbia to
Newfoundland, such as the topography and soil of the prairies and, say, of
northern Quebec. There may be a clear differentiation of ordinary and effective
use between a ⅜ yd. n.d.c. and a 2
or 2½ yds. n.d.c. machine; a contractor, confining himself to excavating
basements for moderately priced dwellings, could probably meet his requirements
most effectively and economically with a § yd. n.d.c. unit which for the general
purposes of a large scale works contractor would be of no use whatever;
conversely, the use for dwelling basement work of a 2 yds. n.d.c. machine might
be both inefficient and uneconomic. But when we come to the utility distinction
between a 2 yds. n.d.c. and one of 2½ yds. capacity a wholly different
situation may be present:
The inference from all this is that the so-called standard
classification is one in which there is no absolute functional disparateness
between some of the classes specified; as we approach those of approximate
dimensions the choice between one and another may depend on considerations
other than, or in addition to, those of ideal mechanical utility; the cost
economics may determine that choice and this question then arises: by what
means is the judgment of a purchaser on all these factors to be determined by a
tribunal?
For this we are remitted to an examination of the language
of the tariff items. The first, 427, establishes the normal duty on machinery
applicable to the machine here; it assumes that in the marketing of such
machines ordinary competitive conditions prevail. Item 427a contemplates a
different situation, that in which the machinery imported is of a "class
or kind not made in Canada". Two features of the language of these items
to be examined are the words "class or kind" and the purpose of the
legislation; and it will be convenient to consider the words first.
I can have little doubt that all of these machines from the
lowest rating to the highest are, in a broad sense, of the same
"kind". Their function is the same, the mechanical operation by which
they perform work is the same, and the different units vary only in the more or
less accidental characteristics which they embody. Their basic components are
crawler-mounting, convertibility, full revolving means, front end operating
equipment, and power operation. With
[Page 662]
these as foundation characteristics, the differences
between, say, a 2 yds. and a 2½ yds. n.d.c. machine from then on can be
said to be dimensional, not functional.
But that does not exhaust the enquiry. The word
"class" sharpens the distinction to be observed between what is made
in Canada and what not, even though of the same general kind. In the
dimensional spectrum scaled from ¼ yd. to 3 yds. n.d.c. and beyond, overlapping
in dimensions, utility and performance is not seriously in dispute. This
progressive series in immediate continuity presents no means in itself of
differentiating competitive utility so to enable us to classify the machine within
the meaning of the item. If, in the trade, these so-called nominal dipper
capacities represented distinct and discrete functional utilities either in
character or volume of performance, without practicable interchangeability in
use or of mechanical parts, and in material conditions of a society in which
high specialization in machine requirements had been reached, it would be not
unreasonable to say that a practical basis of determining the class under the
item was present which satisfied the purpose of the legislation whatever it
might be.
But that simple state of things is not present, and resort
is necessary to the purpose of the special provision of item 427a. Of that I am
bound to say I have no doubt. Reading the two items together, 427 serves not
only as a revenue means but also to provide a margin of protection to Canadian
manufactures. On no other ground does the introduction of item 427a appear to
me to make sense. Before the Tariff Board it was remarked that the purpose of
these items in juxtaposition was doubtful, to which I can only reply that if
there is any other purpose apart from revenue than protection, it has not been
mentioned nor am I able to imagine it; any benefit in a lower duty to the
Canadian consumer disappears when a similar Canadian machine is available; and
a dumping duty would be absurd if only prices to the consumer were being
considered. In fact it was argued before us that protection was the purpose and
that the Tariff Board had taken it into account; but that view of the purpose
and its relevance to the issue was
[Page 663]
categorically rejected by the President of the Exchequer
Court and there is not a syllable of reference to it in the decision of the
Board. With the greatest respect to both the Board and to the President I am
driven to hold that the customs items in question, as well as many other items
and provisions in the Customs Act, including that against dumping
foreign products into the country, establish the contrary. A court I think
shuts its eyes to realities in refusing to recognize that fact.
In the setting of all the considerations that come into play
in the purchase of these machines, that purpose can be shown only in one way,
by the determination on evidence whether or not in Canada there is an actual
competition between any of the machines differently designated. If there is,
that fact must be regarded as a material, if not a determining, factor in
allocating the machine to the one item or the other; if there is not, the issue
falls. I think both the Board and the President misinterpreted the legislation,
that they have in the circumstances ignored an element material to their
decision, and that this involved an error of law which vitiated their
conclusions.
The test to be applied may present some difficulty and
require some delicacy of judgment in its application. It may be stated in this
manner: assuming, as an inference from evidence, that a certain number of 2½
yds. units would be imported under item 427a, could 10 per cent. of that
number, by reason of effective competition if brought in under item 427, be
supplied by 2 yds. units made in Canada? To put it in another form, would the
difference between the duties under the two items, in at least 10 per cent. of
commercial transactions in which a 2½ yds. machine would be a competing unit,
be the effective factor in determining the sale of the Canadian 2 yds. product
in preference to that of the imported 2½ yds. product? If so, the
imported machine is within a "class" made in this country and is
chargeable with duty under item 427.
I would allow the appeal and remit the matter to the Tariff
Board to be reconsidered and if necessary reheard in the light of the
interpretation of the items so formulated. The appellant should have a single
set of costs in the Court
[Page 664]
of Exchequer and this Court against the respondents The
Canadian Association of Equipment Distributors and A. B. Wing Limited; apart
from that no costs should be awarded.
Appeal dismissed with costs, Rand J. dissenting.
Solicitors for the appellant: Common, Howard,
Cate, Ogilvy, Bishop & Cope, Montreal.
Solicitor for the respondent, the Deputy Minister
of National Revenue: W. R. Jackett, Ottawa.
Solicitors for the respondent, A. B. Wing Limited:
Herridge, Tolmie, Gray, Coyne & Blair, Ottawa.
Solicitors for the respondent, Canadian
Association of Equipment Distributors: Gowling, MacTavish, Osborne &
Henderson, Ottawa.
Email this Content