BXL Bulk Explosives v. Minister of National Revenue, [1985] 2 CTC 2256, 85 DTC 579

Taylor, TCJ:— This is an appeal heard in Calgary, Alberta, on June 5, 1985, against income tax assessments, in which the Minister of National Revenue disallowed capital cost allowance in the amount of $35,261 and $61,999 for the taxation years 1978 and 1979, respectively, on the basis that the “mixing trucks” used by the appellant were reclassified from Class 22 to Class 10 of Schedule Il of the Income Tax Regulations. According to the income tax returns filed by BXL Bulk Explosives Limited (“BXL” or “the Corporation”), BXL is engaged in the “manufacture and sale of explosives”. With regard to the particular part of these business operations under review, BXL enters into contracts with mining operators — “To supply necessary explosives product (Bulk Anfo) and support services . . . By volume delivered to bore hole based on price schedule .. .”. In connection with these customers, the contracts indicate “BXL has installed the necessary on-site bulk explosives manufacturing facilities, raw materials storage and mobile equipment to service the individual bulk requirements of each of these customers”. Significant to this appeal is that such materials and services were provided to the “bore hole” of customers by a vehicle called a “mixing truck”, which was effectively a self-contained carrier and mixer of the various materials used in the preparation of the prescribed explosives, which materials were brought from a central storage place or pick-up points to the blasting site itself. The “mixing truck” was at origin a regular highway vehicle, but it had been modified and rearranged in such a manner as to provide for its specific use and functions. While capable of serving the needs of the customer at the mine site, in a very effective and efficient fashion, its modification made very difficult, arguably impossible, its use on a regular commercial roadway. Essentially it had been made “over-wide”, “over high”, and/or “over weight”, by various hoses, connections, tanks, fire fighting equipment, mixing bins, etc built onto the original chassis.

The general areas of disagreement between the parties were enunciated in the respondent's reply to notice of appeal:

In so reassessing the Appellant, the Minister of National Revenue proceeded on the basis of the following assumptions of fact, inter alia:

— that the mixing trucks are affixed in such a manner to the truck chassis that the mixing trucks and the trucks become single integrated units designed for use on streets and highways;

— that the mixing trucks had a cost substantially in excess of the cost of the truck chassis;

— that an integrated unit comprised of a truck chassis and a mixing unit is not included in prescribed machinery and equipment by virtue of paragraph 4600(2)(e) of the Income Tax Regulations;

— that an integrated unit comprising a truck chassis and a mixing unit belong to Class 10(a) of Schedule II of the Income Tax Regulations;

— that the Appellant was not engaged in manufacturing or processing explosives for sale, but rather is in the business of providing a service to its customers.

— . . . the said mixing trucks, which were attached to truck chassis, belonged to Class 10(a) of Schedule II of the Income Tax Regulations.

— .. . the mixing trucks were not used by the Appellant primarily for the purpose of manufacturing or processing goods for sale, but rather for the purpose of providing services to its customers, with the consequence that they were not “qualified property” within the meaning of subsection 127(10) of the Income Tax Act for the purposes of subsection 127(9) thereof.

— . . . the mixing trucks were not “prescribed property” within the meaning of subsection 127(9) no amount in respect thereof was deductible from the Appellant’s tax otherwise payable for the taxation years in question pursuant to subsection 127(5) of the Act.

A description of the procedure at issue was provided by the Corporation in filing the notice of appeal:

MANUFACTURING PROCESS

(A) Production of AN/FO Explosives

ANFO is a mixture comprising mainly Ammonium Nitrate and diesel fuel oil. Variations of this basic product are manufactured which contain up to 15% granular aluminum or other fuels to provide additional explosive energy. Mixing is carried out as a continuous process at the mine blast site on specialized vehicles known as ANFO mix trucks.

AN is transferred pneumatically or mechanically to elevated bins, where it is then transferred by gravity to auger into ANFO mix trucks.

Fuel Oil is stored in buried tanks of a capacity of 20,000 to 40,000 litres located at AN transfer points, and transferred to tanks on the ANFO mix trucks by means of specially approved pumps at the transfer station.

Aluminum and/or other special additives are stored in a separate approved warehouses [sic] and transferred manually or by mechanical equipment to the ANFO mix truck.

BXL mix trucks . . . comprise a hopper type body for AN with separate hoppers for carrying granular aluminum and a tank or tanks to hold sufficient process fuel oil to blend in correct proportions with the quantity of AN carried. The mixing of these ingredients is done by auger as the material is delivered into the borehole on the mine blast site.

(B) Production of Bulk Slurry Explosives

Slurry explosives are a mixture of oxidising salts and combustible materials which are partly dissolved in water. The aqueous phase is gelled and crosslinked to provide a material which is water resistant and does not permit segregation of suspended solids.

A solution comprising about /2 AN /3 Calcium Nitrate (CN) and /6 water is prepared and held in heated agitated tanks. A specific quantity of this solution is taken and added to a mixing bowl which is mounted on the Gelmaster Slurry truck. Thickeners, which are principally natural gums are added, together with stabilizers, fuel oil, additional dry AN and an optional amount of granular aluminum. The Gelmaster truck mixes this material to form an explosives [sic] slurry mixture which is pumped through a flexible hose directly into the borehole. At this stage very small quantities of reagents are added to crosslink and gas the slurry.

Plant equipment and structures used for AN in ANFO, are also used for AN in the slurry manufacturing process. Dry AN is transferred to the solution makeup tank and to the Gelmaster Slurry truck by auger. A separate facility is used to receive CN and transfer it to the solution plant.

AN, CN and additives in trace amounts, to control PH, are added to water ina makeup tank. They are dissolved by the application of heat and agitation. The solution is pumped to holding tanks after meeting quality checks. The makeup and holding tanks are located inside a dyked area, adjacent to plant processing and electrical services which include boilers, makeup tanks, pumps and quality control equipment.

The required quantities of AN/CN solution, thickeners, stabilizers, and fuel oil are added to the mix bowl. The extra dry AN and aluminum are added in sequence to the same bowl. Separate tanks on the slurry truck, carry solutions of crosslinking and gassing reagents. These are added at a metered rate as the slurry is pumped into the mine borehole. The production of explosives of the slurry type noted here is restricted to authorized manufacturers who must comply with all requirements of the Federal Explosives Act.

Raw materials and solutions required for the production of bulk explosives are located either at the solution plant site or at satellite raw material transfer stations located adjacent to the mining area.

At the conclusion of the hearing, evidence and argument, the Court left open for the parties the opportunity of filing additional submissions on specific points which appeared to be relevant, but perhaps not fully explored at the hearing. That of the appellant is as follows:

MEMORANDUM

RE: Issues to be addressed at Conclusion of

Tax Court Hearing—June 5, 1985

l. Is the Appellant a manufacturer and/or a processor?

II. Does the Appellant manufacture or process goods for sale?

III. Do the mobile manufacturing units fall within either paragraph 4600(1)(c) or (e) of the Income Tax Regulations?

1. It is the Appellant’s position that for the purposes of the determination in this appeal it is either a manufacturer or a processor or both. Pursuant to paragraph 127(10)(c)(i), the acquisition of “qualified property” will give rise to investment tax credit so long as the qualified property is used by the Appellant primarily for the purpose of manufacturing or processing of goods for sale or lease. Accordingly, while the Appellant views itself as a manufacturer of explosives for sale, if the Court is of the view that it is a processor of goods, then the Appellant still, in its view, qualifies for the investment tax credit.

The Appellant considers itself as a manufacturer in that it takes certain nonexplosive raw materials and using a mobile manufacturing plant, combines these materials in such a way as to create a new product which exhibits explosive properties. Black’s Law Dictionary defines manufacturer as "one who by labour, art, or skill, transforms raw material into some kind of finished product or article of trade”.

2. At the hearing, evidence was adduced on behalf of the Appellant that it contracted with its customers to manufacture and sell explosives of both a specified quality and quantity. In the course of carrying on its business activities the Appellant further agreed to sell an explosive product delivered and placed in bore holes prepared by the Appellant’s customers.

The evidence of the general manager for the Appellant, David Taylor, was that in order to accomplish this objective, the Appellant uses special mobile manufacturing equipment to enable it to manufacture the explosives at the customer’s bore hole. Mr Taylor further testified that it was at the time of delivery of the explosive at the customer’s bore hole that risk and title to the newly- manufactured explosive passed to the customer. Until delivery, all risk and responsibility for the timely procurement and safe-keeping of all raw materials, including materials which may, for convenience or cost consideration, be supplied by its customer, is with the Appellant.

Reference is also made to Exhibit R-1, the contract between the Appellant and Byron Creek Collieries. Pursuant to this contract, Byron Creek Collieries undertakes to pay the Appellant upon the receipt of bulk explosive products delivered to the bore hole and meeting specifications set out on pages 4 and 5 of Appendix E-1 of that contract. With the exception of payment for certain overtime, the contract does not contemplate payment by Byron Creek for anything other than an explosive product. The Appellant has ownership of all new materials and title and risk in the manufactured explosive until it is sold to the customer at the bore hole.

3. The Respondent referred to the case of Crown Tire Services Ltd v The Queen, 83 DTC 5426. It is the Appellant’s view that this case is not applicable in that the facts are clearly distinguishable.

Crown Tire was engaged in the tire retreading business wherein it received worn tires from its customers for retreading. After the old tread had been removed, a new tread was applied and secured to the tire casing and then returned directly to the customer. The Court at page 5428 found that “‘with respect to the retreading of tires owned by customers, it appears to me that the customers retain ownership throughout the process". Furthermore, the Court found that:

“Where a tire was retreaded, it would be returned to the same customer who supplied it. This suggests to me that the casing was seen throughout as being the property of the customer and the work and materials provided by Crown Tire were applied to that casing."

The Court held that this service involved essentially a contract for repairs. The material therefore could not be the subject of a contract of sale since it merged with the customer's property at the time of adhesion to it. The Court stated at page 5429 that:

“The most important factor in establishing that Crown Tire's contracts were retreading customer's tires were contracts for work and material is, in my view, the fact that the work was done to a tire casing which the customer owned throughout."

In arguing this case, the Minister took the view that the material applied to the tire casing, that is the new tread, did not pass into the ownership of a customer pursuant to a contract of sale. Instead, the Minister argued that the contract was one for work in materials to be provided by Crown Tire with the property and the materials passing to the customer by accession at the time when they were attached to the customer’s casing.

It is submitted on behalf of the Appellant, that because title to the manufactured explosive did not pass until delivery at the bore hole, any of the materials provided by the customer in the manufacture and delivery of the explosive product passed to the Appellant by accession at the time when they were used by the Appellant for the manufacture of the explosives with the materials used and provided by the Appellant in the manufacture and production of bulk explosives. Evidence adduced at the hearing indicated that the fuel oil provided by the Appellant's customers was a minor ingredient and that the title to the raw materials, including the fuel oil, passed to the Appellant and that all risk and title remained with the Appellant until delivery of the final product at the bore hole.

It is for the foregoing reasons that the Appellant submits that whether it be found to be a manufacturer or a processor, it manufactures and produces goods, ie, bulk explosives for sale, and that the mobile manufacturing units qualify for Investment Tax Credits pursuant to the Regulation 4600 in that the manufacturing units are either a property included in Class 8 in Schedule Il or, alternatively, a property included in paragraph “A" in Class 10 of Schedule II (other than a car or truck designed for use on highways or streets).

For the respondent the matter was restated as:

I. The submission merely reiterates the identical position taken at trial. The fact that an essential product, ie the fuel oil, is provided by, and owned by, the mine site is ignored in the Appellant's argument. Mr Taylor was questioned on the importance of fuel oil in the process and he agreed it was the essential ingredient with the nitrate. The Appellant merely adds ingredients to the mine owners’ fuel oil and therefore this is a contract for work and materials.

II. The Appellant referred to the ownership of the fuel oil as being left with the mine “for commercial or cost consideration”. The contracts speak for themselves and they do not specify this consideration. The speculation of Mr Taylor on this part is irrelevant. The argument of the Respondent at trial, as well as the comments in one, above, are applicable. The Appellant does not have ownership of the fuel oil and its claim of ownership of all raw materials is not evidenced in the contract.

III. The Appellant under its argument in Part III of the Memorandum attempts to distinguish Crown Tire Services Ltd v The Queen, 83 DTC 5426. This distinction really relates to the issue of whether the Appellant’s work was a “qualified activity”. Our oral argument at trial canvassed this particular claim in detail. Nothing can be added to that argument except to challenge the Appellant’s claim that “the court held that this service involved essentially a contract for repairs’’. That is the Appellant’s view on Crown Tire. The Court in Crown Tire saw the question as being whether the plaintiff was in a business of manufacturing or processing tire treads for sale as such . . . or. . . “was engaged in the manufacturing or processing of a service”.

Irrespective of the ‘‘qualified activity” argument the Appellant fails to establish either in its evidence, oral argument or written argument that these trucks are qualified property as set out in Regulation 4600(2)(c) or (e). Clearly these trucks are not structures within Class 8. The oral argument of the respondent referred to the Nova Construction Company Ltd v Her Majesty the Queen, 83 DTC 5105 and the specific comments of Mr Justice Mahoney at page 5107.

The trucks can only fall into Class 10 and Regulation 4600(2)(e) specifically excludes mobile equipment with specific exceptions, eg 4600(2)(f) logging trucks in excess of 16,000 pounds.

Therefore, even if the Appellant’s activities were “qualified activities”, a proposition which is denied, the trucks are not “qualified products” and the appeal should be dismissed.

In addition counsel for the respondent submitted the recent case of Halliburton Services Ltd v The Queen, [1985] 2 CTC 52; 85 DTC 5336, a decision of the Federal Court — Trial Division ("Halliburton”) in which that appellant (plaintiff) faced somewhat similar questions, referenced by the Federal Court as:

The Plaintiff seeks a reassessment of the income tax payable by it for the 1976 and 1977 taxation years on the ground that

(1) it is entitled to a reduction in tax payable because part of its income consists of profit arising out of the manufacturing or processing of goods for sale (paragraph 125.1 (3)(b) of the Income Tax Act, SC 1970-71-72, c 63 as amended SC 1973-74, c 29, s 1);

(2) it is entitled to an investment tax credit with respect to qualified property (ie: property described in Regulation 4600) because such property is used either for the purpose of manufacturing or processing goods for sale or for the purpose of exploring or drilling for petroleum or natural gas (subsection 127(10)(c)(i) and (v) of the Income Tax Act, SC 1970-71-72, c 63 as amended SC 1974-75-76, c 71, s 9(1)); and

(3) it is entitled to an accelerated capital cost allowance for some of its assets because they fall within class 29 of Schedule B to the act, and the Plaintiff is engaged in the manufacturing or processing of goods for sale (section 20(1)(a) of the Income Tax Act, 1970-71-72, c 63 and Income Tax Regulation 1100(1) ).

The learned justice determined these three questions as:

The Plaintiff is entitled to a reduction in tax payable pursuant to subsection 125.1 (3)(b) with respect to the profits it receives from the processing carried out of the special oil well cements, fracturing fluids, and acid blends which it produces. It is entitled to an investment tax credit with respect to that part of its self- propelled equipment which is affixed to the truck chassis or van and described above as contractor's moveable equipment. It is entitled to an investment tax credit on the laboratory part of its technical building centre.

It is not entitled to an accelerated capital cost allowance with respect to its on-site equipment.

As I read Halliburton (supra), having decided that the appellant Corporation therein did qualify under paragraph 125.1 (3)(b) of the Act (manufacturing or processing goods for sale) it was also necessary for the judge to examine if it also filled the requirements of section 127(10) of the Act with respect to certain equipment used. Had the Corporation (Halliburton) failed either of these tests the result might have been different. While the specific legislative base for the assessments may appear slightly different in this appeal from that of Halliburton (supra), it would seem to me the questions to be answered are essentially the same. In deciding for the appellant Halliburton the learned judge distinguished Halliburton from Crown Tire Services Ltd v MNR, [1983] CTC 412; 83 DTC 5426 (FCA), (“Crown Tire"") on three points, but for me, in the instant matter, the fact that "the work was done to a tire casing which the customer owned throughout", is particularly significant. In the instant appeal, the "fuel oil” — a major element in the resulting explosive mixture was owned and supplied by the customer, not by BXL.

Counsel for the appellant argued that indeed BXL “manufactured — goods for sale”, in the sense that the Company in its operations on the mine site, and particularly at the blasting hole, "manufactured", (by the mixing and blending involved) "an explosive mixture"", which then by virtue of BXL’s contract with the customer was "sold to that customer"". I have some reservations that the mixing and blending of various chemicals and compounds would stand a critical examination with respect to the term "manufacturing"", and it is quite possible that the contracts with the customers would not be a sale of the explosive mixture, but rather the sale of certain materials, and the additional services involved in delivering them to the designated bore hole site. Accordingly under this concept, if the term manufacturing is applicable, and if an explosive is the goods produced, that product is not for sale. BXL does not own the entire contents of the explosive, the fuel oil always being the property of the customer, and the very best this appellant Corporation could do as I see it, would be to provide the mixture of its own materials not the explosive "for sale"" — a difficult concept when the explosive mixture (in "slurry"" form) is all one product, at the time of delivery to the bore hole. However, the Court must then examine whether it can be said that BXL was “processing — of goods for sale"". In order for BXL to fit into this definition from section 125.1(3)(a) of the Act, one must conceive of the “blending and mixing"" as processing, and that the blended product (theoretically only the Corporation^ own materials) was "goods for sale"". We are then not thinking of the "explosive"" — since the explosive still requires as an active and essential ingredient the "fuel oil"", but some product for sale to the customer immediately prior to the addition of the "fuel oil"" (again theoretically) also a conception which is difficult to visualize. While the referenced case of Crown Tire (supra) was sufficient in my mind to rule out in this matter the “manufacture of explosives for sale"" argument of counsel for the appellant, I do not see it as so clearly ruling out the "processing"" of the appellant’s own materials into a product which is "for sale"". A very important aspect of Crown Tire (supra) was noted by the learned justice at 415 (DTC 5429):

The most important factor in establishing that Crown Tire's contracts for retreading customers' tires were contracts for work and material is, in my view, the fact that the work was done to a tire casing which the customer owned throughout. I think this distinguishes the present situation from those involved in many of the decided cases where the customer had never previously owned any part of the end product. [Emphasis mine.]

I am prepared to see in Crown Tire (supra), that the appellant therein did something to the property of the customers thereby providing the customers with a service resulting in a retreaded tire, even though in doing something to the customer's casing, Crown Tire was providing its own materials. In the instant case, I do not see as clearly that the materials belonging to BXL were used in doing something to the fuel oil owned by the customers. The learned justice noted in Crown Tire (supra), that his distinction may have been “technical and remote", and I accept that this distinction I am making in this case, may be even somewhat more exotic. Nevertheless, I am prepared to give the appellant BXL the benefit of the doubt on this aspect of the matter, and agree that the Company was “processing — goods for sale”. To that degree, one might say in passing the first hurdle, the appellant therefore may succeed in the appeal. The second part of the issue — whether the mixing truck was “qualified property" or “prescribed property", in my view constitutes a separate barrier to be overcome by this appellant.

In Halliburton (supra), the following general description of the vehicles used is given:

. . . The items of property in dispute are all truck cabs and chassis or vans to which have been bolted, welded or wired various pieces of the taxpayer's equipment. The cabs, chassis and vans are usually purchased from a manufacturer of these products and then modified or "'built-up" by the Plaintiff to adapt them to its particular uses. On occasion, the chassis themselves are altered to allow for the installation of particular tanks. In some cases the suspension is altered to provide for a more cushioned ride (in the case of the instrument vans). In all cases the vehicles while operable on the road, and indeed registered for such use, are designed also to operate off road, on rougher terrain. These vehicles are required by the Plaintiff because much of its operations takes place at the well site and equipment must be easily and quickly transportable from one site to another.

And the decision reads:

In my view the equipment in dispute properly fits within two categories. The cab and chassis parts, or van as the case may be, are obviously automotive equipment designed for use on a highway. But at the same time to allocate the equipment mounted thereto or therein to the category of automotive equipment is neither logical nor in accord with the common understanding of the function these components play. They are clearly contractor’s moveable equipment. The units as a whole perform two different functions. They provide a means of transporting the Plaintiff’s equipment from site to site and they also provide a stable base for the use of the equipment at the well site. It would be travesty of logic and common sense to classify the equipment bolted to the chassis as automotive equipment. If it had merely been placed thereon, instead of bolted thereto, as some of the skid units must be, then it would clearly be contractor’s moveable equipment . . .

The learned justice was able to view a physical separation, and thereby make the distinction, in effect, allocating the original “cab and chassis" to one category, and the “additions" to another. In the instant case I do not see that I have the same flexibility, since neither party, in my view, left the Court room for such a differentiation. I have been asked by the appellant to agree that the vehicles are “automotive equipment", not excluded by virtue of the phrase from Regulation 4600(2)(e) — “. . . (other than a car or truck designed for use on highways or streets)”. I have not been requested to examine whether that represents “contractors moveable equipment” which was the basis of the decision on the equipment in Halliburton (supra). Counsel for the appellant did argue however, that one might consider the vehicles as a “structure” portrayed under Class 8 of Schedule II of the Regulations. I am unable to see any merit at all in that position. The major assertion of counsel for the appellant, therefore was that the vehicles did come under Class 10(a) of Schedule II of the Regulations, but they were not excluded from the tax credits sought by virtue of the phrase “(other than a car or truck designed for use on highways or streets)” — found in Regulation 4600(2)(e) of the Act.

While not finding it necessary to decide the case on the point, in Halliburton (supra) the learned judge, was able to see, in effect, that the modifications to the chassis and vans, did not become an integral part of the chassis and van, but rather should be distinguished as “contractor's moveable equipment”, and conversely that such additions did not alter the original state of the chassis and van. Accordingly, the basic vehicle remained — “designed for use on highways”. The conformation of the vehicles in this appeal must be different than that in Halliburton (supra), and I am unable in this case to perceive the same distinctions. The additions to and modifications of the base vehicle in the instant case, in my view, became an integral part of the vehicle itself — and not only altered, (virtually irretrievably) that base vehicle but were an essential part of the new vehicle in order that it be capable of accomplishing its task. The new vehicle remained “automotive equipment” in my view, since I am unable to view it as anything else, (such as a “structure”), and I have not been required to examine it in the sense of “contractor's moveable equipment”. Indeed viewed as one unit (chassis, van and addition) I would have grave difficulty placing the description of “contractor's moveable equipment” thereon. Simply put, if indeed this appellant could have ordered from the factory the total mixing unit used at the mine site, it would have been barely recognizable as resembling a normal truck. In that case (factory ordered) I would not view the hopper, dumper, or tank part of a truck as “contractor's moveable equipment”, nor would I so view a crane or hoist attached to the truck in order to perform any specific function. Such additions, would be part of a vehicle — whatever that vehicle might be called, and in this case, the modifications to the vehicles are similar to those appendages added to a normal truck. As I see it, in this instance “automotive equipment” that was originally manufactured for “use on highways or streets” has been modified so that it is no longer capable of such use. The resulting vehicle (perhaps in theory alone, still capable of use on highways and streets) was bound by its size, width and weight to use on a mine site — off road. That is of course the essence of the argument of the appellant — the appellant stating the vehicle in question is not “designed for use on highways and streets”; the Minister saying it is so “designed”. In looking at this point, it is perhaps helpful to think of the basic “chassis and van” as modified by only two or three simple adjustments — any one of which would have had the result, in itself, of making it virtually “mine-bound”. For example, purchasing a regular truck body — chassis and van — and then welding thereto (for whatever reason) a solid steel pole thirty feet high, would make the resultant vehicle incapable of venturing on a “street or road” for all practical uses. The same immobility (for use on highways or streets) would result simply by welding to the body of the truck a thirty-foot wide pole, or placing thereon a weight in excess of regular highway limits. The fact that the vehicles at issue here were rendered incapable of use on highways or streets, is not a function of the particular additions and modifications made to them, but could have been accomplished by any one of several different kinds of modifications for any specialized use — off road.

As I see it, the resultant vehicle was no longer a “car or truck”, nor was it “designed for (in the sense of "intended for, or for the purpose of') use on highways or streets”. While the definition of ""designed for’’, in the sense of the original pattern or design of the cab and chassis might have relevance in some other set of circumstances, I do not find that such a view of ""designed for” should restrict its wider application in this appeal. It remained a vehicle (""automotive equipment”) yet intended for use on the mine site and not for the purpose of use on highways or streets. The purpose of the basic ""chassis and van”, no longer existed — ""for use on highways or streets”, that purpose had been subordinated to a much more important requirement. The vehicles at issue fit directly into the provisions of the Act, permitting the deductions sought — ""automotive equipment” (Class 10, Schedule II, of the Regulations), ""other than a car or truck designed for use on highways or streets” (Regulation 4600(2)e)).

The appeal is allowed and the matter referred back to the respondent for reconsideration and reassessment. The appellant is entitled to party and party costs.

Appeal allowed.