Roto-Pak International Compactors Inc. v. Deputy Minister of National Revenue for Customs and Excise, [1989] 1 CTC 252, 89 DTC 5086

Hugessen, J.:—This is an appeal to this Court under the now repealed provisions of the Excise Tax Act [1] from a declaration of the Tariff Board dated Customs and Excise

December 6, 1982 [2] dismissing the appellant's application for a declaration that the Roto-Pak System One refuse compactor manufactured by the appellant and sold to food warehouses, supermarkets and restaurants is exempt from the consumption or sales tax imposed by subsection 27(1) of the Excise Tax Act.

In its decision the Tariff Board summarised the evidence describing the subject goods as follows:

W.J. Clarke, president of the applicant company testified that Roto-Pak compactors are placed adjacent to the user's building where access is achieved by placing a hole in the building’s exterior wall. The hole itself is lined with metal and waste materials are passed directly into the Roto-Pak’s hopper. The brochure submitted in the applicant's brief describes the goods in issue as ”. . . free standing Compactor, Container and Base Frame . . . When the material has been thrown into the hopper and the unit energized . . . crushing and compacting are continuous . . .”

An auger conveys material from the hopper to the compactor which, operating through two sets of reduction gears, crushes and compacts the material inside a pressurized container. A volumetric reduction of ten to one takes place inside the pressurized container due to the 16 tons of pressure used in the compaction cycle. When the container is full, it can be released, rolled back on wheel assemblies, discharged by the refuse truck operator, replaced and reconnected, ready for additional service.

By its original application to the Board, the appellant had sought a blanket declaration with regard to its goods but in the course of proceedings before the Board it seems [3] to have restricted itself to those cases where the goods were sold to wholesalers and retailers of food and to restaurants; on the hearing of the appeal, counsel for the appellant (not the same as before the Tariff Board) confirmed that this was the case.

As the matter came to be argued before us, counsel seriously invoked only two of the provisions of Schedule III of the statute, which, if applicable, would, by the operation of subsection 29(1), grant exemption from tax, namely, paragraphs 1 (b) and 1 (c) of Part XIII:

EXCISE TAX ACT, R.S.C., c. E-13, as amended to 1982

SCHEDULE III — PART XIII

1. All the following:

(b) machinery and apparatus sold to or imported by manufacturers or producers for use by them directly in the detection, measurement, prevention, treatment, reduction or removal of pollutants to water, soil or air attributable to the manufacture or production of goods;

(c) equipment sold to or imported by manufacturers or producers for use by them in carrying refuse or waste from machinery and apparatus used by them directly in the manufacture or production of goods or for use by them for exhausting dust and noxious fumes produced by their manufacturing or producing operations.

The Board disposed of the application solely on the basis that the persons to whom the appellant sold the subject goods were not manufacturers or producers. It said:

Although the cutting and trimming of fresh fruit and vegetables and the disposal of the resulting waste is part of the process of getting goods to market, there is no production of goods taking place.

This is clearly unsatisfactory. In so far as the goods were sold for use by food wholesalers, the Board seems to have given no consideration to the extended definition of manufacturer or producer in subsection 2(1) of the Excise Tax Act. [4] With regard to sale to and use by both wholesalers and retailers in the food distribution chain, the decision of this Court in Hobart Canada Inc. v. Deputy Minister of National Revenue for Customs and Excise, [1985] 2 C.T.C. 222; 85 D.T.C. 5440, while quite possibly distinguishable on the facts, needs to be taken into account. Sale to and use by restaurants would, of course, be governed by this Court's decision in Controlled Foods Corporation Limited v. The Queen, [1980] C.T.C. 491; 80 D.T.C. 6373.

Even though the reason given by the Board for dismissing the application is questionable, however, I have concluded, after a careful study of this record, that we would not be justified in allowing the appeal. The reason, very simply put, is that the appellant, which had the carriage of the matter before the Tariff Board, failed to make any evidence which would support a claim to exemption under either of the quoted provisions of Schedule III. This may indeed be due to the fact that, as indicated, the appellant was originally seeking a blanket exemption for its goods as a class but the fact remains that the only witness to give evidence did not testify in any detail at all as to the actual processes carried out by food wholesalers and retailers in using the subject goods. To the extent that the evidence does describe what takes place in the appellant's customers' premises, it seems to indicate more a process of culling and selection than one of cutting and trimming:

THE WITNESS: . . . These are brought in in refridgerated (sic) vans and very quickly unloaded with a fork-lift and moved into again a temperature controlled warehouse where they are then, I suppose, checked for shipment accuracies or quality and then all of this mass of stuff moving in becomes divided and then is sent out in Kelly Douglas' vehicles, out to their own retail outlets. But at the warehouse level there is a lot of waste, of course, which has occurred to this produce enroute — from California —

MEMBER DEACHMAN : That is they are culling leaves off it and that sort of thing — stems and the like?

THE WITNESS: Yes, that's right, and even thrown complete boxes, say, of peaches or whatever they happen — oranges, if they are considered as being up to quality, but they must be removed immediately from that place.

MEMBER DEACHMAN: And do they throw box, carton and all into your waste compactors?

THE WITNESS: Yes, they do.

THE WITNESS: . . . They don't do the culling in the warehouse. They are merely looking at the quality of material coming in and rejecting that which is not up to standards, and then it is automatically shipped out to the retail outlets. So it is the retail outlets who do most of the culling, that is where it is done, prior to going on the shelves.

(at pages 21, 22 and 23 of transcript).

There is not enough here to bring the activities described within even the extended definition of "manufacturer or producer" referred to earlier.

More important still, however, is the fact that, even if it were possible on the evidence to find that some of the appellant's customers qualified as manufacturers or producers within the meaning of the Excise Tax Act, there was no evidence before the Board to bring the use made by those customers of the appellant's machines within the very specific words of paragraphs 1(b) and 1(c) of Part XIII of Schedule III quoted above. To find that such use effected the reduction or removal of pollutants to water, soil or air would require more evidence than a simple affirmation. Likewise to sustain an exemption under paragraph 1(c), there would have to be an adequate description of how the machinery sold by the appellants is used by its customers to carry refuse or waste from machinery and apparatus used by them; in fact, there is not even a suggestion of what machinery or apparatus is used which produces the refuse or waste to be removed.

I repeat, it was the appellant that had the carriage of the matter before the Tariff Board. It had the burden of leading evidence that the subject goods in certain uses by certain purchasers would be exempted from tax. The evidence that it, in fact, led was incapable of supporting the findings of fact which would have been necessary for a favourable decision.

Accordingly, the result reached by the Tariff Board was the right one and the appeal should be dismissed.

Appeal dismissed.