Jager Industries Inc. v. Her Majesty the Queen, [1992] 1 CTC 9

Desjardins, J.A.:—This is an appeal from the judgment of the Trial Division (Addy, J.) which dismissed the appellants appeal from the denial of its application to the Minister of National Revenue (A.B. at 171) for a refund of federal consumption or sales tax in the amount of $712,531.79 paid by it and certain of its predecessors between June 16, 1982 and June 30, 1985. The claim was dismissed on the basis that the steel truss plates manufactured or produced by the appellant were not "fabricated structural steel for buildings” within the meaning of paragraph 26(4)(d) of the Excise Tax Act, R.S.C. 1970, c. E-13 ("the

Act'T. [1]

At issue before us is whether the appellant is entitled to the refund claimed on the basis that the truss plates manufactured by it were "fabricated structural steel for buildings” within the meaning of paragraph 26(4)(d) of the Act. In the affirmative, the appellant is deemed not to be, in relation to such fabricated steel, the manufacturer or producer thereof and, as a result, is not liable for the federal consumption or sales tax.

The appellant manufactures galvanized steel truss plates used in the fabrication of wooden trusses for buildings. The plates are then sold to its customers who manufacture wooden trusses for installation in buildings. The completed trusses are later sold by the appellants customers to third parties such as building contractors who incorporate the completed trusses into buildings.

The trial judge found that the truss plates manufactured by the appellant did not qualify under the terms of paragraph 26(4)(d) of the Act because, for the exemption to apply, evidence had to be brought to establish that at the date of sale or manufacture, the plates came in competition with similar materials manufactured on construction sites, and none had been brought by the appellant. To so conclude, he relied on a judgment of this Court in Harris Steel Group Inc. v. M.N.R., [1985] 1 C.T.C. 181, 85 D.T.C. 5140, at pages 182-83 (D.T.C. 5141) where MacGuigan, J.A., for the Court, said:

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 insofar 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.

The appellant argues that, in doing so, the trial judge erred. Nothing in the wording of paragraph 26(4)(d) of the Act, says the appellant, restricts the exemption provided for in that paragraph to fabricated structural steel that competes with products manufactured at the site of construction. When Parliament has intended that an exemption from taxation be restricted to products used for specific purposes and in specific places, it has so stated in clear and unequivocal language, namely in paragraphs 26(4)(a) and (b) of the Act. In paragraphs 26(4)(c) and (d), however, no reference is made to off-site fabrications in competition with others done on site. Rather, specific kinds of products used in buildings, without restrictions as to the kind of buildings, the nature or kind of competition, or the place of fabrication, are specified as exempt. The words contained in paragraph (d) are clear and unambiguous and the restriction adopted by the learned trial judge requires that words, used in other paragraphs and notable by their absence in paragraph (d), be incorporated in paragraph 26(4)(d). Moreover, says the appellant, the statement by MacGuigan, J.A. in Harris Steel Group Inc., supra, is obiter since the issue in that case related to paragraph 26(4)(b) and not to paragraph 26(4)(d).

(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, 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 respondent has pressed upon us that since the decision of the Supreme Court of Canada in Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305, at pages 314-15 (D.T.C. 6322, S.C.R. 575-76), excise tax legislation, just like income tax legislation, should be read in the light of the following statement:

Income tax legislation, such as the federal Act in our country, is no longer a simple device to raise revenue to meet the cost of governing the community. Income taxation is also employed by government to attain selected economic policy objectives. Thus, the statute is a mix of fiscal and economic policy. The economic policy element of the Act sometimes takes the form of an inducement to the taxpayer to undertake or redirect a specific activity. Without the inducement offered by the statute, the activity may not be undertaken by the taxpayer for whom the induced action would otherwise have no bona fide business purpose.

The respondent says that while the rule remains that legislative history is not admissible to show the intention of the legislature directly, a reference to Hansard may be useful in cases of ambiguity, or in order to expose and examine a mischief, evil or condition to which the legislature was directing its attention. The mischief or condition which Parliament was concerned with was explained by the then Minister of Finance, the Honourable Walter Gordon, on July 30, 1963, in the House of Commons when paragraph 26(4)(d) was added as an amendment to the proposed paragraphs 26(a), (b) and (c) introduced July 23, 1963 (Canada House of Commons Debates, session 1963, vol. Ill, July 10- Aug. 2, 1963 at page 2525). The Minister said the following (ibid. at pages 2792-93):

Perhaps before this particular amendment is moved I might also refer to the question of certain building materials that are competitive. We have tried to take into account those situations where the imposition of the sales tax on buildin materials may result in serious competitive inequality where goods fabricated on the site of construction compete directly with goods that can be constructed on the site. In line with this purpose the bill contains a provision to provide that prefabricated buildings will not be taxable on their selling price, and the manufacturers of such buildings will have to pay sales tax on the materials they purchase. Similarly the manufacturers of structural building sections such as precast, prestressed concrete building sections or pillars are not regarded as manufacturers for sales tax purposes because these products compete with concrete sections that can be poured as the building is erected. The same rule will apply for manufacturers of concrete or cinder building blocks because these compete with poured concrete walls.

It has now been brought to our attention that a similar situation exists with respect to structural steel for buildings, which of course competes directly with prestressed forms. It is usual for the steel that goes into a building to be designed and cut to size on the premises of fabricating companies and delivered to the building site ready for erection. This steel competes directly with reinforced concrete poured on the site. In the case of concrete poured on site the labour involved does not enter into the base for sales tax. In the case of steel the labour involved in fabricating does become part of the price that is subject to sales tax. It is therefore proposed that an amendment be made which will have the effect of excluding from the base for sales tax that part of the selling price of steel which arises from the fabricating work done off the building site. It will take the form of a further paragraph to the new subclause (2b) added by clause 2 on page 1. The effect of this amendment will be that fabricators of structural steel for buildings will buy steel on which the sales tax is imposed but will not have to pay sales tax on the fabricated structural steel they sell.

The respondent argues that when a person claims the benefit of an exemption from taxing legislation, the onus is on him or her to show that he or she comes within the exemption. The purpose of the provision being clear, the appellant has failed to discharge its onus since it did not tender evidence at trial that the truss plates it manufactured were in direct competition with similar goods manufactured or produced on construction sites.

It should be said first that although MacGuigan, J.A.'s statement in Harris Steel Group Inc., supra, may sound obiter because the issue related to paragraph 26(4)(b), and not 26(4)(d) of the Act, yet, his comments were addressed to subsection 26(4) as a whole, and were perfectly compatible with the Minister's statement in the House of Commons. In adopting paragraphs 26(4)(c) and (d) as is, without reference to such words as "in competition with persons who construct or erect similar buildings or structures not so manufactured or produced” (paragraph 26(4)(a)), or "in competition with persons who construct or erect buildings or other structures that incorporate similar sections not so manufactured or produced” (paragraph 26(4)(b)), Parliament has accepted that he who finds himself in the situation described in paragraphs 26(4)(c) and 26(4)(d) is in a situation of serious competitive inequality. Nothing more needs to be proven. The respondent's position, that evidence of competitive inequality is required in each case, is incompatible with the drafting of paragraph 26(4) (d) of the Act.

The trial judge was therefore in error when he concluded that paragraph 26(4)(d) was not available to the appellant because it had not shown that there was competitive inequality between the product manufactured by the appellant and similar goods actually manufactured on construction sites.

The next question, however, is whether the appellant finds itself in the situation described in paragraph 26(4)(d) of the Act, namely whether it” manufactures or produces. . . fabricated structural steel for buildings". [2]

In the earlier case of The Queen v. Monarch Steelcraft Ltd., [1977] C.T.C. 168, 77 D.T.C. 5154, Addy, J. had this to say with regard to the meaning to be given to the word “structural” in the phrase “structural building sections" found in paragraph 26(4)(b) of the Act. [3] He said at pages 168-69 (D.T.C. 5155):

In the context of sub-para, (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 [ensures] that a building has a certain weight or load-bearing capacity or which, in other words, contribute substantially to its strength and solidarity 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 weightbearingwalls, 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. [4]

[Emphasis added.]

I see no reason why the qualifier “structural” in the phrase "fabricated structural steel” of paragraph 26(4)(d) should not be given the same meaning as in paragraph 26(4)(b). Although the French version of paragraphs 26(4)(b) and (d) is [sic] at variance with one another ("éléments porteurs" and "acier de construction ouvré pour bâtiments”), the identical word “ structural” found in both paragraphs of the English version should govern the matter.

In the course of delivering judgment, in the case at bar, the trial judge commented on the load-bearing capacity of the steel truss plates in the following manner (A.B. at pages 293-94):

Various documents were filed as exhibits showing, among other things, that the plates in issue not only served to fasten the members of the truss together at the time of manufacture of the truss, but also are required to possess important load-bearing characterists [sic] in order to withstand the stresses to which trusses might be subject after installation in a building. Canadian standards for this are established and various tests are carried out and inspections made, some of them periodically and others without notice, to ensure that the plates meet the required standard. They must have the required shear strength and breaking strength as well as a gripping capacity.

Each party called an expert witness who found that the plates fulfilled a dual role: in addition to acting as fasteners in the manufacturing of trusses, they have a role to fulfill when the trusses are finally installed in a building. The fastening or gripping capacity of the plates is of some importance but when the trusses form part of a building, the load-bearing capacity of the plates becomes an important requirement. The plates are to some extent similar to nails, spikes, screws, rivets, nuts, bolts and other similar fasteners which are taxable pursuant to section 27(1.4). These fasteners must also possess a certain load-bearing capacity, although they obviously cannot be expected to have nearly the same capacity as plates to withstand the various stresses once the trusses are installed. Their main role is to act as fasteners and, generally speaking, they have been completely replaced in the manufacturing of trusses by truss plates such as those produced by the plaintiff. The plates are more efficient because of their combined load-bearing capacity, their tensile strength, shear strength and lateral resistance but they fulfill basically the same role as the other above-mentioned fasteners.

The appellant claims that the truss plates are fabricated structural steel for buildings” because of their load-bearing capacity. They meet the standards set by the Canadian Standards Association 086 Code, Engineering Design in Wood (A.B. at pages 21, 36) where the following references are made (A.B. at 60):

10.7 Truss Plates

10.7.1 General

10.7.1.1

Design requirements herein for truss plate joints are for light gauge metal plates that depend upon extended teeth or nails embedded into the wood to transfer load and conform to the requirements of Clause 10.7.1.3.

[Emphasis added.]

10.7.1.3

Truss plates shall be manufactured from galvanized sheet steel conforming to Grade A or B of ASTM Standard A446, having the following minimum properties:

	A	B
Ultimate tensile strength	310 MPa	360 MPa
Minimum yield	230 MPa	255 MPa
Elongation (at failure) in 50 mm length	20%	18%

Note: Galvanizing may be carried out before manufacture and should be 390 coating class.

The position of the Minister of National Revenue, however, based on the same code, is reflected in his notice of decision dated January 29,1988: [5]

The word “ structural” within the meaning of paragraph 26(4)(d) of the Act, as it read at the time, does not bear its usual meaning of "pertaining to a structure”, but rather it qualifies a building material as having certain load-bearing capacity or which, in other words, contributes substantially to the strength and solidarity of the building and is designed and manufactured primarily for the purpose of resisting loads.

The evidence shows that truss plates are classified by the Canadian Standards Association as fastenings and are defined by the Association as:

. . .light steel plate fastenings, intended for use in structural lumber assemblies, that may have integral teeth of various shapes and configurations.

It has been concluded from the design and manufacture of the truss plates, the use that was made of them and their classification in industry that they were designed and manufactured primarily for the purpose of serving as fastenings in the assembling and fastening of wooden roof trusses and not primarily for the purpose of resisting loads, and that their primary function cannot be seen as contributing substantially to the strength and solidarity of the building.

Accordingly, the truss plates cannot be accepted as“ fabricated structural steel for buildings" within the meaning of paragraph 26(4)(d) of the Excise Tax Act, as it read at the relevant time.

Although truss plates transfer load and therefore have some load-bearing capacity, that capacity is in the nature of fasteners of trusses. There is nothing on the record which would permit us to conclude that truss plates meet the test found in The Queen v. Monarch Steelcraft Ltd., supra, which is to ''contribute substantially to the strength and solidarity of the building and permit it to resist the various forces created by man and nature to which it might be subjected”.

I conclude that the appellant does not come within the exemption of paragraph 26(4)(d) of the Act and is therefore a manufacturer or producer liable to taxation under the Excise Tax Act.

I would dismiss the appeal with costs.

Appeal dismissed.