Westar Mining Ltd. v. Her Majesty the Queen, [1990] 2 CTC 547

McNair, J.: —

The Case

This is an appeal from the Minister of National Revenue's disallowance of the plaintiff's claim for refund of federal sales and excise taxes paid on diesel fuel purchased and used in the generation of electricity required to operate the plaintiff's ore haulers. The amount of tax refund claimed is $1,300,276, which was paid for the period from October 1, 1983 to September 30, 1987. Put shortly, the issue is whether the plaintiff's ore haulers used in its open pit mining operation for the removal of overburden and the transportation of raw ore to a conveyor belt system are "vehicles" within the meaning of the relevant provisions of the Excise Tax Act, R.S.C. 1970, c. E-13, as amended by S.C. 1986,

c. 9 (the "Act").

The Facts

The parties filed an agreed statement of facts, the substantive portions of which read as follows:

1. The Plaintiff is a corporation carrying on the business of coal mining at Sparwood, in the Province of British Columbia.

2. On November 26, 1987, the Plaintiff filed a Refund Claim with the Defendant's Department of National Revenue, Customs and Excise, . . . claiming a refund of excise and sales tax paid on diesel fuel used to generate electricity in its ore haulers that were utilized in its mining operations at Sparwood, British Columbia. The amount of the refund claim was $1,300,276.00. The refund claim relates to tax paid on diesel fuel consumed during the period from October 1, 1983 to September 30, 1987 in the ore haulers at the Sparwood coal mine.

3. The Plaintiff's mine is an open pit, strip mining operation. Ore haulers are part of the production equipment used directly in the mining operation and as such are exempt from Excise Tax when purchased. Ore haulers are of such a size and mass (from 100 to 300 tons empty) that they can only be operated in specially-designated mining areas. The ore haulers when new must be shipped to the mine site in pieces and assembled on site. They cannot be operated or used legally on any public road, highway system, railroad track or railway system. They are not licensed to operate on any public highway and could not be so licensed because of their size and mass.

4. There are currently 55 ore haulers being used at the mine site. . . . Approximately 12 of the 55 ore haulers . . . are used in the movement of ore from the point of excavation in the open pit mining operation to a conveyor belt system. The conveyor belt conveys the raw ore to a wash plant on the mine site for processing into coal. The remainder of the 55 ore haulers . . . are used in overburden removal operations which allow access to the ore body.

5. The ore haulers are an essential part of the open pit coal mining operation and are used only on the upstream side of the mine's wash plant. The ore haulers are separated from the wash plant inlet point by the ore conveyor system. Coal is produced on the downstream side of the wash plant. Coal is the saleable product. The ore haulers never carry coal as a saleable product but are at all times part of the ore production system.

6. The subject diesel fuel was consumed as fuel in diesel engines that power electrical generators in the ore haulers. Each unit has one diesel engine, one electric generator and between two and four wheel motors per unit. The electric generators are component parts of the ore haulers. The electricity generated provides the power to operate the electric motors in the ore hauler. Electric motors drive all four of the rear wheels of each ore hauler. . . .

7. By a Notice of Determination dated March 18,198[8],. . . the Deputy Minister of National Revenue, Customs and Excise, rejected the Plaintiff's above application for a refund claim of $1,300,2[7]6.00, on the grounds that:

Diesel fuel used in the generation of electricity to operate ore hauling vehicles is not exempt from federal sales and excise taxes. Such diesel fuel is excluded from exemption under Section 4, Part VI of Schedule III and Subsection 21(3.1)(c) of the Excise Tax Act respectively.

8. By a Notice of Objection dated June 10, 1988,. . .the Plaintiff filed a Notice of Objection to the above Determination. The objection was based, inter alia, on the allegation that the taxed diesel fuel was used to generate electricity and said fuel was thereby exempt from tax under Section 4, Part VI of Schedule III and Subsection 21(3.1) (c) of the Excise Tax Act, since the electricity did not operate a “vehicle”.

9. By a Notice of Decision dated March 9, 1989, . . . the Minister of National Revenue decided that the Plaintiff's objection was disallowed and the determination was confirmed. The Minister regarded an "ore hauler” as a “vehicle” within the meaning of Section 4 of Part VI of Schedule III and Subsection 21(3.1) of the Excise Tax Act, and he stated in his reasons that the electricity produced by the diesel-electric system has no primary application other than the operation of the vehicle.

10. The Plaintiff has appealed the said Determination of the Minister pursuant to Sections 51.2 and 51.31 of the Excise Tax Act, R.S.C. 197[0], c. E-13 and section 48 of the Federal Court Act.

11. The Defendant opposes the Plaintiff's appeal.

Statutory Provisions

The relevant statutory provisions of the Act relating to the imposition of federal excise and sales taxes on diesel fuel read as follows:

21.(3.1) The tax imposed by subsection (1) or by section 23 or 24 is not payable in the case of

(c) diesel fuel for use in the generation of electricity except where the electricity so generated is used primarily in the operation of a vehicle.

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

Schedule III Part VI

4. Fuel oil for use in the generation of electricity except where the electricity so generated is used primarily in the operation of a vehicle.

Modern Rule of Construction for Taxing Statutes

The Supreme Court of Canada in two relatively recent decisions marked the path for the construction of taxing statutes. In Morguard Properties Ltd. et al. v. City of Winnipeg, [1983] 2 S.C.R. 493; 3 D.L.R. (4th) 1, the issue raised by the appeal was the construction of tax legislation in derogation of taxpayers' rights. Estey, J., for the Court, said at pages 508-509:

The principles enunciated above in Partington v. Attorney-General, Tennant v. Smith and Canadian Northern Ry. Co. v. The King, supra, are even more strongly adhered to when rights of the citizen are affected. In Nicholls and Robinson v. Cumming (1977), 1 S.C.R. 395, Ritchie J. made the following statement at page 422:

When a statute derogates from a common law right and divests a party of his property, or imposes a burden on him, every provision of the statute beneficial to the party must be observed. Therefore it has been often held, that acts which impose a charge or a duty upon the subject must be construed strictly and . . . it is equally clear that no provisions for the benefit or protection of the subject can be ignored or rejected.

In more modern terminology the courts require that, in order to adversely affect a citizen’s right, whether as a taxpayer or otherwise, the Legislature must do so expressly. Truncation of such rights may be legislatively unintended or even accidental, but the courts must look for express language in the statute before concluding that these rights have been reduced. This principle of construction becomes even more important and more generally operative in modern times because the Legislature is guided and assisted by a well-staffed and ordinarily very articulate Executive. The resources at hand in the preparation and enactment of legislation are such that a court must be slow to presume oversight or inarticulate intentions when the rights of the citizen are involved. The Legislature has complete control of the process of legislation, and when it has not for any reason clearly expressed itself, it has all the resources available to correct that inadequacy of expression. This is more true today than ever before in our history of parliamentary rule.

In Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536; [1984] C.T.C. 294; 84 D.T.C. 6305, the issue was whether a corporate taxpayer could legitimately circumvent the anti-tax avoidance provision of section 137 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) by an arrangement for routing future profits through a subsidiary sister corporation in order to avail itself of the latter's loss carry-forward. Estey, J., speaking for the majority, pointed the way to the modern approach for statutory construction at pages 314-16 (D.T.C. 575-78):

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. . . .

Indeed, where Parliament is successful and a taxpayer is induced to act in a certain manner by virtue of incentives prescribed in the legislation, it is at least arguable that the taxpayer was attracted to these incentives for the valid business purpose of reducing his cash outlay for taxes to conserve his resources for other business activities. It seems more appropriate to turn to an interpretation test which would provide a means of applying the Act so as to affect only the conduct of a taxpayer which has the designed effect of defeating the expressed intention of Parliament. In short, the tax statute, by this interpretative technique, is extended to reach conduct of the taxpayer which clearly falls within "the object and spirit” of the taxing provisions. Such an approach would promote rather than interfere with the administration of the Income Tax Act, supra, in both its aspects without interference with the granting and withdrawal, according to the economic climate, of tax incentives. . . .

In all this, one must keep in mind the rules of statutory interpretation, for many years called a strict interpretation, whereby any ambiguities in the charging provisions of a tax statute were to be resolved in favour of the taxpayer; the taxing statute was classified as a penal statute. See Grover & lacobucci, Materials on Canadian Income Tax, 5th ed, (1981), pp 62-65.

At one time, the House of Lords, as interpreted by Professor John Willis, had ruled that it was "not only legal but moral to dodge the Inland Revenue" (51 Canadian Bar Review 1 at 26), referring to Levene v Inland Revenue Commissioners, [1928] AC 217, at 227. This was the high water mark reached in the application of Lord Cairns’ pronouncement in Partington v Attorney-General (1869) LR, 4 HL 100 at 122:

I am not at all sure that, in a case of this kind—a fiscal case—form is not amply sufficient; because, as I understand the principle of all fiscal legislation, it is this: If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible, in any statute, what is called an equitable construction, certainly such a construction is not admissible in a taxing statute, where you simply adhere to the words of the statute.

Cited with approval in this Court in The King v Crabbs, [1934] SCR 523 at 525.

The converse was, of course, also true. Where the taxpayer sought to rely on a specific exemption or deduction provided in the statute, the strict rule required that the taxpayer's claim fall clearly within the exempting provision, and any doubt would there be resolved in favour of the Crown. See Lumbers v MNR, [1944] CTC 67; 2 DTC 631; [1943] CTC 281; affirmed [1944] SCR 167; and WA Sheaffer Pen Co Ltd v MNR, [1953] Ex CR 251; [1953] CTC 345; 53 DTC 1223. Indeed, the introduction of exemptions and allowances was the beginning of the end of the reign of the strict rule.

Professor Willis, in his article, supra, accurately forecast the demise of the strict interpretation rule for the construction of taxing statutes. Gradually, the role of the tax statute in the community changed, as we have seen, and the application of strict construction to it receded. Courts today apply to this statute the plain meaning rule, but in the substantive sense so that if a taxpayer is within the spirit of the charge, he may be held liable. . . .

While not directing his observations exclusively to taxing statutes, the learned author of Construction of Statutes, 2nd ed., (1983), at 87, E A Driedger, put the modern rule succinctly:

Today there is only one principle or approach, namely, 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.

In Lor-Wes Contracting Ltd. v. The Queen, [1985] 2 C.T.C. 79; 85 D.T.C. 5310; [1986] 1 F.C. 346, the question before the Federal Court of Appeal was whether the taxpayer, who did not own timber or cutting rights, was nevertheless entitled to an investment tax credit on equipment used to build logging roads, pursuant to subparagraph 127(10)(c)(vii) of the Income Tax Act. The court followed the interpretive path marked by the Supreme Court in Morguard Properties Ltd. and Stubart Investments Ltd., supra, and held that he was. MacGuigan, J., delivering the court's judgment, referred to these cases at some length, and concluded at page 83 (D.T.C. 5313; F.C. 352):

It seems clear from these cases that older authorities are no longer to be absolutely relied upon. The only principle of interpretation now recognized is a words-in-total-context approach with a view to determining the object and spirit of the taxing provisions.

It follows, in my view, that the words-in-total-context principle of statutory interpretation must be applied in this instance with a view to determining whether an ore hauler is a "vehicle" within the ambit of the charging provisions of the Excise Tax Act. The Act itself contains no definition of the word.

The Arguments Pro and Con

Plaintiff's counsel submits that the word "vehicle", in its ordinary and grammatical sense, denotes transportation. He made reference to a communique issued by Revenue Canada, Customs and Excise—Excise Communique 191/T1, captioned "Diesel Fuel/Fuel Oil Used To Generate Electricity in Vehicles", which stated, inter alia:

The word “vehicle”, for the purposes of the aforementioned exemptions [the two relevant provisions], has a broad meaning referring to carriages or conveyances of all kinds which are used to carry or transport persons or goods, for example, ships, trucks, tractor-trailers, locomotives and railway rolling stock. Mobile homes and cargo containers are not considered to be vehicles.

Essentially, the argument is simply that the ore haulers in question are "mining equipment" as opposed to “transportation equipment". Counsel argues that the ore haulers are not vehicles within the ordinary meaning of the word as used by Parliament in the Excise Tax Act by reason that they do not carry either goods [the reference to "goods" is in the context that the ore haulers do not convey coal as a saleable product] or people, and do not run on roads, highways, tracks or rail. It therefore follows, in his submission, that the fuel used to generate electricity to operate the ore haulers is exempt from federal sales and excise taxes because the electricity so generated is used primarily in the operation of “mining equipment", and not primarily in the operation of a “vehicle”.

Plaintiff's counsel further submits that the use of a particular piece of equipment can determine whether or not it is a “vehicle” at a given time. He cites in support of this proposition Ruling 9140/62-1, wherein the Tariff Board, in determining whether material handling equipment qualified for sales tax exemption as production equipment, found that this entailed consideration of when production began and ended. There, the same piece of handling equipment was either taxable or not, depending on its "direct" use. Plaintiff's counsel thus contends that the ore haulers in the present case are used not only "primarily", but exclusively as an integral part of the plaintiff's mining operation. Hence, the diesel fuel used for the generation of electricity to operate the ore haulers is part and parcel of the plaintiff's mining operation, and as such is not "used primarily in the operation of a vehicle". Finally, he submits that the taxpayer ought to be given the benefit of any doubt by reason that Parliament clearly intended that the word "vehicle" would be construed according to its usual and ordinary meaning, and not given an extended or fanciful meaning.

Defendant's counsel argues, on the other hand, that a “vehicle” is a means of conveyance with wheels or runners that is used in the carriage of persons or goods, and that this connotation comprehends as well a receptacle in which anything is placed in order to be moved. He buttresses this argument with definitions of the words "carriage" and "vehicle"appearing in The Shorter Oxford Dictionary, and relies on the following statement of Rand, J. in Sugar City v. Bennett & White Ltd., [1950] S.C.R. 450; [1950] 3 D.L.R. 81 at 463 (D.L.R. 93) viz.:

The remaining question is whether any of the plant and equipment is exempt under paragraph (z) of section 5(1) as being within the expression "motor vehicles". The word “vehicle” in its original sense conveys the meaning of a structure on wheels for carrying persons or goods. We have generally distinguished carriage from haulage, and mechanical units whose chief function is to haul other units, to do other kinds of work than carrying, are not usually looked upon as vehicles. But that meaning has, no doubt, been weakened by the multiplied forms in which wheeled bodies have appeared with the common feature of self-propulsion by motor.

The object, then, of the exemption becomes important; and, quite apart from the canon that an exemption from taxation should be in precise language, it seems to me that in this case, in relevant statutory expressions that object does appear.

Defendant's counsel submits that the ore haulers are wheeled conveyances used to carry raw ore or overburden from one place to another. Accordingly, each ore hauler is a vehicle.

Defendant's counsel refers to the definition of diesel fuel and the charging provisions of the Act to support the proposition that the scheme or object of the legislation is to tax diesel fuel and fuel oil which is used in internal combustion engines. In his submission, these commodities are only exempt from sales tax and excise tax when used for heating, lighting or the production of electricity for heating and lighting. This alternative submission would seem to be somewhat at odds with the following admission or concession made by defendant's counsel in his summing-up of the evidence:

. . . it is agreed that the diesel fuel is consumed as fuel in diesel engines that power electrical generators in the ore haulers. The electricity generated provides the power to operate the electric motors in the ore haulers. The electric motors drive all four of the rear wheels of each ore hauler. I submit, My Lord, that the electricity generated is used primarily in the operation of each ore hauler, and I don't think there's any disagreement on that. These aren't hooked up to any other system, static system, and I would submit that the issue in this case is whether an ore hauler is a vehicle.

Finally, defendant's counsel submits that the plaintiff bears the full onus of establishing its right to the benefit of the exemption in the sense of having to prove that it comes clearly within the language of the exemption.

Some Interpretative Guidelines

I think it can be safely assumed that there are no longer any special rules or canons of construction for tax exemptions and that the proper principle of interpretation to be applied in this case is "a words in total context approach with a view to determining the object and spirit of the taxing provisions” (Lor- Wes, supra).

Interestingly, in Sugar City, supra, Rand, J. characterized the "motor vehicle" exemption in respect of the respondent's plant and materials used at the work site as follows, at page 463 (D.L.R. 93): "The exemption then does not include units of self-propelled equipment whose main purpose is either that of haulage or work other than conveying or vehicles running on rails as distinguished from general locomotion."

The learned judge went on to find that the respondent's four-wheeled, gasoline powered dumptors used to carry material from place to place were exempt, but that its caterpillar tractors and draglines used in the work of excavation and its locomotives and cars running on rails to carry away excavated material were not exempt.

In Farr v. Township of Moore, [1978] 2 S.C.R. 504; 81 D.L.R. (3d) 755, the issue was whether a mobile home, set on cement pillars and fully connected for services, came within the prohibited use and definition of “trailer” in a municipal by-law and the enabling provincial statute, the identical definitions of which both required that such trailer be a “vehicle”. The action of the respondent municipality for an injunction was dismissed at trial, but the Court of Appeal reversed this decision. The appellants appealed to the Supreme Court of Canada. The appeal was allowed on the ground that the mobile homes in question were not vehicles within the meaning of the applicable bylaw and statutory provisions and further by reason that the present apparatus, as it presently stood, was not suitable for being attached to a motor vehicle for the purpose of being drawn thereby. In reaching this result, Spence, J., for the Court, said at pages 507-08 (D.L.R. 757):

I turn, therefore, as Holland J. did, to the definition of “vehicle” in The Shorter Oxford Dictionary. The appropriate definition there set out would seem to be as follows:

A means of conveyance provided with wheels or runners and used for the carriage of persons or goods; a carriage, cart, wagon, sledge, etc. A receptacle in which anything is placed in order to be moved.

Before there can be any determination that the mobile home is a "trailer", the mobile home must be found to be a “vehicle”. I am of the opinion that each particular apparatus purchased and installed by each of these appellants was not a "vehicle". It was not a means of conveyance, although it was provided with wheels, and it was not used for the carriage of persons or goods.

In Ruling 7120/28, the Tariff Board held that diesel fuel used to produce electricity from diesel electric generators located on board drill ship as exempt from federal sales tax under the provisions of section 4, Part VI, Schedule III to the Excise Tax Act when used for purposes of heating and lighting and the operation of drilling equipment, but that the same exemption did not apply when the electricity was used for the purpose of moving the vessel from one location to the other or keeping it in position while drilling. The rationale of the Board's decision is thus explained:

The exempting provisions under section 4, Part VI, Schedule III to the Act excludes fuel oil to produce electricity used to operate a vehicle. The definition of a vehicle is that it is a device or contrivance for carrying or conveying persons or objects. A boat or ship is used to carry or convey persons or objects, therefore, it can be considered to be a vehicle for purposes of this section of the Act.

Conclusion

To my mind, there can be little or any doubt that the diesel fuel was used to generate electricity as the principal means of motive power and propulsion for the subject ore haulers. But that is by no means the end of the matter so far as it concerns the plaintiff's entitlement to the benefit of the exemption from excise and sales taxes under paragraph 21(3.1)(c) of the Act and section 4 of Part VI of Schedule III thereto. Each of these statutory provisions contain the selfsame exception in the case where the electricity generated by use of diesel fuel or fuel oil was "used primarily in the operation of a vehicle”. I find that to be the fact in the present case. In short, I am of the opinion that the subject ore haulers were used primarily as vehicles within the ordinary meaning of the word in moving overburden or raw ore from one place to another, and that the legislative expression employed in this instance does not permit the restriction of such vehicular activity to movement by road or rail or the carrying of coal as a finished, saleable product. In my view, any other interpretation of the language used in the taxing provisions of the Act would only serve to circumvent their object and spirit and defeat the expressed intention of Parliament. In the result, the plaintiff fails to qualify for the exemption and claim for refund.

For the foregoing reasons, the plaintiff's appeal is dismissed with costs.

Appeal dismissed.