Cae Metal Abrasive Division of Cae Industries LTD v. Deputy Minister of National Revenue for Customs and Excise, [1985] 2 CTC 63

The Chief Justice:—The issue in this appeal is whether the Tariff Board erred in law in declaring that imported steel shot and grit, when used in the cleaning and peening of castings exported, are “materials consumed in the manufacture or production” of those castings and are eligible for drawback of customs duty paid on importation.

The relevant provisions of the Customs Act and Regulations are section 275 of the Act and section 3 of the Canadian Manufactured Goods Exported Drawback Regulations. They provide:

275. (1) The Governor in Council may, under regulations made by him for that purpose,

(a) allow, on the exportation of goods which have been imported into Canada and on which a duty of customs has been paid, a drawback equal to the duty so paid with such deduction therefrom as is provided in such regulations; and

(b) allow a drawback equal to the duty paid, with such deduction therefrom as is provided in such regulations, or a specific sum in lieu of such drawback, in respect of materials used in, wrought into or attached to goods exported, or in respect of materials (not to include fuel or plant equipment) consumed in the manufacture or production of any such goods.

(2) The period within which such drawback may be allowed, after the time when the duty was paid, shall be limited in such regulations.

CANADIAN MANUFACTURED GOODS EXPORTED DRAWBACK REGULATIONS

3. Subject to these Regulations, the minister shall authorize the payment to the exporter, manufacturer or producer of goods as exported of a drawback of the Customs duty, sales and excise taxes paid on or in respect of

(a) imported parts and materials used in, wrought into or attached to goods manufactured or produced in Canada and exported therefrom;

(b) imported materials, other than fuel or plant equipment, directly consumed in the manufacture or production of goods exported; and

(c) imported parts and materials in a quantity sufficient to manufacture or produce the goods exported, where those imported parts and materials were used in the plant manufacturing or producing the goods exported during the twelve month period immediately preceding the manufacture or production of such goods and

(i) domestic parts and materials of the same class as those imported and that are so similar that they could be used interchangeably in the manufa- cure or production of goods are used in, wrought into or attached to, the goods exported, or

(ii) domestic materials, other than fuel or plant equipment, of the same class as those imported and that are so similar that they could be used interchangeably in the manufacture or production of goods are directly consumed in the manufacture or production of the goods exported.

The steel shot and grit in question are themselves goods made of steel and manufactured to very particular specifications. They are used as abrasives by projecting them forcibly against a metal surface of the casting to be cleaned or peened. In the process some of all of the shot and grit is broken or pulverized and becomes a residue which is removed. The quantity lost is replaced by the addition of shot or grit in the process.

The Tariff Board held unanimously that the shot and grit are "consumed in the manufacture or production” of the castings exported, within the meaning of paragraph 3(b) of the Regulations, and by a majority (Mr Gorman dissenting) also held that the shot and grit were "materials" within the meaning of that word in paragraph 3(b). The appellant challenges both conclusions.

With respect to the latter it was submitted that the Board erred in law in deciding that the shot and grit were not articles, as had been urged by the appellant, and had thus addressed the wrong question. In my view that portion of the reasons of the majority was a response to an argument advanced and nothing more. Earlier the Board had stated, in my view correctly, the issue which it had before it when it said:

The Board has to decide whether the goods in issue are “materials . . . directly consumed in the manufacure or production of goods exported . . .” so as to be eligible for drawback of customs duty paid pursuant to section 275(1)(b) of the Customs Act and subsection 3(b) of the Canadian Manufactured Goods Exported Drawback Regulations.

The question whether the shot and grit can in some circumstances be properly referred to as an article is, in my opinion, irrelevant to the question whether in the use to which they are put in cleaning or peening castings they are "materials" within the meaning of the Regulations. In this respect it is I think of importance to note that the regulation in paragraph

(a) contemplates materials that will be incorporated into the finished goods and that paragraph (b) deals with materials which, though consumed in the manufacturing or production operation, will not be incorporated in the finished product. Whatever may be the breadth of the meaning to be ascribed to the word "materials" in paragraph (a) it appears to me that its meaning in paragraph (b) is very broad since the draftsman has found it necessary to take the precaution of specifically excluding "plant equipment", an item that one might under any circumstance have had difficulty in considering to fall within the meaning of "materials" consumed in a manufacturing process. I am of the opinion that in its context the word "materials" in paragraph (b) is easily broad enough to include the shot and grit in question when used in cleaning or peening castings and that the majority of the Board did not err in so deciding.

The question whether the shot and grit are "consumed" in the manufacture or production of the castings, if not simply a question of fact, is one of mixed fact and law. The Board cited evidence of what is referred to as the "consumption rate" of the shot and grit in the manufacturing process as it deteriorates in use to the point where it is no longer useful in the operation. The Board also cited evidence that it would not be profitable to melt the residue down and that it had no value as scrap. In my view in so far as the Board’s finding is one of fact there is evidence to support it and I see no reason to conclude that the Board misdirected itself or otherwise erred in law in its interpretation of the word "consumed". The meaning of that word as well as of the word “materials” in paragraph (b) of section 3 is influenced and broadened by the specific exception of "plant equipment", an item which again one would have difficulty in including in what is “consumed” in a manufacturing process.

I would dismiss the appeal.

Appeal dismissed.

Marceau, J (dissenting):—I regret not to be able to agree with my colleagues.

This appeal, as I see it, does not raise a mere question of fact; a question of law is obviously involved. Before looking into the particular facts of the case in order to verify whether or not the conditions for eligibility for drawback as set out in paragraph 3(b) of the applicable Regulations are present, the Board had to determine the meaning of those conditions in view of the wording of the provisions. This is of a course a pure question of law. I readily accept all the findings of fact of the Board; what I dispute, in this respect, is the construction they put on the provision they had to apply.

The construction of paragraph 3(b) of the “Regulations respecting drawback of customs duty, sales and excise taxes paid in respect of certain goods manufacured or produced in Canada and exported”* [1] turns on the exact meaning to be given to its two keywords “material” and “consumed”. To be able to decide that the goods in issue, “the shot and grit”, which are of steel and must be of a predetermined shape and weight, were “materials” which were “consumed” in the process of manufacturing the exported goods, as required by the provision, the Board had to give to the two keywords a meaning obviously different from their respective common and ordinary meaning. I think that the normal sense of the word “material” (as it is of the French word “matière" used in the French version), is matter or substance considered as such as opposed to things made therefrom, and the normal sense of the word “consumed” (as it is of the word “consommé” in French) is destroyed, spent, used up. Is it not the most basic rule of construction that the grammatical and ordinary sense of the words be adhered to unless there is specific reason, — such as the context or the absurdity of the result arrived at — not to do so and the Board gives no reason here and indeed I see none (cf. Driedger, Construction of Statutes, p 2 et seq).

And there is more. Even if it could have been proper for the Board to give to the words some extended or secondary meanings, I do not see how they could avoid the difficulty arising from the fact that the two words are interdependent in this context and must be interpreted together, in a consistent manner. If the steel shot and grit are considered to be material rather than articles, it seems to me that it is as such, that is to say as material, that they must be consumed. It would therefore be necessary for the steel to be consumed, it would not be sufficient for the abrasive quality of the shot and grit as manufactured simply to be used up.

It is for those reasons that I would have granted the appeal.

Appeal dismissed.