Hobart Canada Inc v. Deputy Minister of National Revenue for Customs and Excise, [1985] 2 CTC 222, 85 DTC 5440

Mahoney, J:—This is an appeal by leave pursuant to section 60 of the Excise Tax Act, RSC 1970, c E-13, from a decision of the Tariff Board which held that bone dust removers used by Loblaws Limited in its retail butchering operations were not exempt from federal sales tax. The appellant contends that the bone dust removers are machinery or apparatus used by a manufacturer or producer directly in the manufacture or production of goods and are thus exempt from the tax imposed by section 27 of the Act by reason of subsection 29(1) and Schedule III, Part XIII, subparagraph 1(a)(i). Steinberg Inc, an intervenor, supports that position and argues further that the bone dust removers are also exempt by reason of Schedule Ill, Part V, section 3.

The Act provides:

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

The exceptions are not in play. The pertinent provisions of the Schedule are:

SCHEDULE III PART V FOODSTUFFS

1. Food and drink for human consumption (including confections, sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food and drink) except wine, spirits, beer, malt liquor or other alcoholic beverages.

3. Articles and materials for use exclusively in the manufacture or production of tax-exempt goods mentioned in sections 1 and 2 of this Part.

PART XIII

PRODUCTION EQUIPMENT, PROCESSING MATERIALS AND PLANS

1. All the following:

(a) machinery and apparatus sold to or imported by manufacturers or producers for use by them directly in

(i) the manufacture or production of goods,

The appellant says that Loblaws is a manufacturer or producer in the ordinary sense of those words and does not rely on the extended definition of paragraph 2(1 )(f) of the Act:

2. (1) In this Act

"'Manufacturer or producer includes

(f) any person who, by himself or through another person acting for him, assembles, blends, mixes, cuts to size, dilutes, bottles, packages, repackages or otherwise prepares goods for sale, other than a person who so prepares goods in a retail store for sale in that store exclusively and directly to consumers;

The respondent says that Loblaws is not a manufacturer or producer except by virtue of the extended definition and is, in the circumstances, within its exception and further says that the bone dust removers are not articles and materials within the contemplation of Part V nor used directly in the manufacture or production of goods as required by Part XIII. It is not disputed that they are machinery or apparatus or that the end product, retail cuts of meat, is goods.

The appellant says that what is manufactured or produced is cuts of meat, marketable at retail. It does not rely on the proposition that bone dust, which is collected and sold for rendering with other components of carcasses not saleable as meat for human consumption, is manufactured or produced. It perceives that the Tariff Board misapprehended its case in this regard.

The Board summarized the evidence as to the pertinent operations as follows:

The applicant’s witness was James Lovie, the meat superintendent and mer- chandizer for Loblaws Limited, Eastern and Northern Ontario regions. Mr Lovie has been employed by Loblaws Limited for 35 years. He described the layout and operations of a typical Loblaws meat room, as shown in the plans for one of the Loblaws stores (Exhibit A-5). When sides of beef, pork or lamb are taken off a delivery truck, they are placed on hooks and rollers and pushed along rails into a meat cooler. Hinds of beef, for example, are then cut by hand into primal cuts. A saw is used to slice loin into steaks, which are then put through the bone dust remover.

The bone dust remover is illustrated in the product brochure (Exhibit A-1). As steak is cut, the butcher places it onto a mesh conveyor leading to the bone dust scraper. That part of the bone dust remover has several plastic knives and rollers which remove bone dust present on both sides of the steak. At least half of the bone dust, however, is caught by the saw blade rather than the bone dust remover, the witness said. The bone dust captured by the remover falls into trays and is placed in cans and sold to meat Tenderers who also purchase a variety of scrap meat and fat from Loblaws Limited. About eight per cent of the total sales to meat renderers consist of bone dust, the witness said.

In answer to questions from the Board, Mr Lovie stated that if the bone dust is left on the steak it will darken, making the steak less marketable. After the dust is removed, the steak is brought to the cutting table for further trimming and deboning. Finally, the meat is taken to the wrapping machine, the witness concluded.

Counsel for the appellant took pains to point out that removal of the bone dust from cuts of meat was necessary to prevent rapid deterioration. With respect, the evidence sustains that proposition only if the deterioration is understood to be cosmetic, rendering the meat less appealing to the customer. The evidence does not disclose that meat with bone dust left on it deteriorates in quality; on the contrary, that was denied by the witnesses.

The Board concluded that the bone dust removers were not used as part of a manufacturing or production process.

Dealing with the appellant’s case, the first question is whether Loblaws, in carrying out the described butchering operations, is a “manufacturer” or “producer” in the ordinary sense of one or both of those words. The second question, if the first be answered in the affirmative, is whether the bone dust removers are used directly in the manufacture or production of goods.

The fact that Loblaws is primarily or mainly a retailer does not dictate a negative answer to the first question, Vide Royal Bank of Canada v D/MNR (C & E), [1981] 2 SCR 139; [1982] CTC 183. In that case McIntyre, J, for the Court, at 144 (CTC 185), concluded that the appellant bank

. . . is performing the act of manufacturing electricity by the use of the generators and, being unable to find anything in the Act to dictate otherwise, I conclude that the appellant becomes a manufacturer by producing electric current by the operation of the generators.

In The King v Vandeweghe Ltd, [1934] SCR 244 at 248; [1928-34] CTC 257 at 260, dealing with the words “‘all goods produced or manufactured in Canada”, Duff, CJ, said, in a frequently quoted passage:

The words “produced” and “manufactured” are not words of any very precise meaning and, consequently, we must look to the context for the purpose of ascertaining their meaning and application in the provisions we have to construe.

In The Queen v York Marble, Tile and Terrazzo Ltd, [1968] SCR 140 at 144- 45; [1968] CTC 44 at 47, Spence, J, for the Court, quoted with approval the judgment of Archambault, J, of the Quebec Superior Court in MNR v Dominion Shuttle Co Ltd (1933), 72 Que SC 15, which also dealt with the words “produced or manufactured in Canada”:

First, what is a manufacturer? There is no definition of the word “manufacturer” in the Act and it is practically impossible to find a definition which will be absolutely accurate, but from all the definitions contained in leading dictionaries, Corpus Juris, Encyclopedias, etc, the Court gathers that to manufacture is to fabricate; it is the act or process of making articles for use; it is the operation of making goods or wares of any kind; it is the production of articles for use from raw or prepared material by giving to these materials new forms, qualities and properties or combinations whether by hand or machinery.

Spence, J, adopted the last of these definitions without, however, disapproving the others.

In the York Marble case, the finished goods were marble slabs used as building material. What the successful appellant did was take delivery of quarry run marble slabs and, by a process of matching, grouting, gluing, grinding and polishing and, where necessary, drilling and inserting reinforcing rods, obtained slabs suitable for use as a finished and finishing building material. That is not, in essence, very different from what happens to the meat, which arrives in carcass form and leaves Loblaws butchering operation in cuts acceptable to its intended market: retail purchasers of meat. A person who wants a marble floor will not ordinarily buy quarry run marble and a person who wants a steak or a chop or some other particular cut of meat for the table will not ordinarily buy a carcass just to get it. That person wants the particular cut, not all or part of the rest of the animal. The particular cut has, in the market place, not only a form but qualities and properties different from its qualities and properties as part of a carcass. It is not merely a matter of cutting the meat to size like taking a desired length of ribbon off a reel nor merely a matter of preparing existing goods for sale as contemplated by pertinent provisions of the extended definition; it is rather, a matter of making something that the retail purchaser will buy from something he or she will not.

The York Marble case is also authority, if such be needed, for the proposition that, in the statute, “manufacture” and “production” are not synonymous. All relevant references in the statute to manufacture and manufacturer are respectively, immediately and disjunctively associated with production and producer. Spence, J, said, at 147 (CTC 50),

. if I had any doubt that the various procedures taken by the respondent in reference to the marble slabs resulted in the manufacture of a piece of marble, I would have no doubt that those procedures did result in the production of a piece of marble.

Leaving aside such processed products as hamburger and bacon, I am uncomfortable, semantically, with the idea of “manufacturing” a particular cut of meat from a carcass but I have no doubt as to its “production”. In answer to the first question, Loblaws is a producer, without recourse to the extended meaning accorded that word by paragraph 2(1 )(f), within the meaning of Schedule III, Part XIII, paragraph 1(a) of the Excise Tax Act when it is carrying out the butchering operations that derive retail cuts of meat from carcasses.

As to the second question, it is not disputed that removal of the bone dust, perhaps fairly to be compared to polishing a marble slab, is necessary to the acceptance of the meat in the ordinary operation of the retail market place. It is not mere preparation for sale in a presentational sense. Accordingly, I conclude that the bone dust removers are used directly by Loblaws in the production of retail cuts of meat.

It is not necessary to deal with Steinberg’s argument as to Schedule III, Part V. The Tariff Board erred in law in holding that the bone dust removers were not used as part of a production process within the contemplation of Schedule III, Part XIII, subparagraph 1(a)(i).

I would allow the appeal and, pursuant to subsection 60(4) of the Act make the declaration that the Board should have made, namely, that the Loblaws butchering process is production of goods and Loblaws is a producer within the meaning of Schedule III, Part XIII, subparagraph 1(a)(i) of the Excise Tax Act and the bone dust removers are machinery used directly in that production. I see no special reason, within the contemplation of Rule 1312, for ordering costs.

Appeal allowed.