Deputy Minister of National Revenue for Customs & Excise v. Steel Company of Canada Limited, [1983] CTC 258, 83 DTC 5301

Heald, J:—This is an appeal on a question of law pursuant to leave granted by this Court, from a declaration of the Tariff Board dated January 13, 1982. The respondent manufactures steel at its Lake Erie Development near Nanticoke, Ontario. In that plant, overhead cranes are used in the manufacture of steel and are required for its efficient production. An overhead crane consists of a runway and moving girder with hoisting capacity. The runway is made up of steel rails, girders and steel supports (the columns in issue) on concrete foundations. The columns in issue in this appeal were purchased from manufacturers in Canada. They are made of steel plates welded by the manufacturers and assembled on site. These columns are support columns for the several cranes used by the respondent in this steel manufacturing plant. They are arranged in rows along both sides of the several buildings comprising the plant. The columns have wide bases of heavy steel box construction and narrower top portions. The crane rails run the length of each building on top to the wide portions of the columns. The narrower top portions of the columns extend upwards to provide support for the roof. The siding which forms the walls of the buildings is attached to the columns. It is thus clear that subject columns provide support for the buildings as well as supporting the cranes themselves. It was established in evidence (AB Vol III, page 285) that the major portion of the support strength of each column is required to support the cranes and not the structure overhead.

The specific issue before the Board was whether the steel columns were exempt from the sales tax imposed by section 27 of the Excise Tax Act, the Department having previously ruled that the moving girder and the crane runway were exempt from tax. The ruling of the Tariff Board reads (AB Vol III, p 295):

The Board finds that the columns in issue, according to evidence, were designed specifically as parts of the overhead crane system and thus are parts of machinery used directly in the production of goods. They were also designed to support the buildings and as such are parts of buildings. The weight of steel in each column assigned to each function is clearly set out in the tables A-7 and A-10.

The Board, therefore, declares, that the portions of the columns in issue designed to support the overhead cranes are parts of the cranes and are not subject to the sales or consumption tax imposed by section 27 of the Excise Tax Act.

Accordingly, the appeal is allowed.

Subsection 27(1) of the Excise Tax Act imposes a consumption or sales tax of nine per cent on the sale price of all goods produced or manufactured in Canada, payable, generally, at the time the “goods” are delivered to the purchaser. [1] Subsection 29(1) of the Act provides, inter alia, for an exemption to the tax imposed by subsection 27(1), supra, in respect of the “articles” mentioned in Schedule III. Part XIII, Section 1, of that Schedule includes machinery and apparatus, or parts thereof, sold to producers or manufacturers for use by them directly in the manufacture or production of goods. [2]

The appellant’s initial submission was that the columns in issue are neither “machines” nor “apparatus” nor are they parts thereof. Accordingly, in his view, they cannot be brought within the exempting words used in Part XIII, section 1, supra. This submission is directly contrary to the finding of fact made by the Board quoted, supra, to the effect that subject columns were designed specifically as parts of the overhead crane system and therefore were parts of machinery used directly in the production of goods. The Board made this finding, on the evidence before it, as a finding of fact. The appellant submits however that the Board, in so concluding, erred in law. He would construe the exemption in section 1 of Part XIII so as to include only machinery, apparatus and parts thereof which are goods at the time they are used by the respondent and contends that since the columns in issue became realty when they became part of the buildings and it was only after they became realty that they were used by the respondent in the manufacture and production of steel, they are therefore outside the exemption provided by section 1 of Part XIII, supra.

I do not agree with this interpretation. Subsection 1(a) of Part XIII uses the words “. .. imported by manufacturers or producers for use by them . ..” (emphasis added). The expression “for use’’ clearly envisages, in my view, that the question of liability for an exemption from sales tax is to be answered before the goods are utilized. I can find nothing in the provisions of the Act expressly limiting the exemption so as to exclude from it goods which subsequently became attached to realty. Furthermore, it seems clear that Revenue Canada in its practice manual [3] has adopted this interpretation. Memorandum ET 303 provides:

15. Sales tax exemption is allowable on structures or adjuncts such as catwalks, platforms and walkways purchased or imported by manufacturers or producers when for use in providing worker access to goods being manufactured or produced, e.g., for the assembling of aircraft, large generators, transformers, etc.

17. Sales tax exemption is allowable on above-ground supports for structures located on the manufacturing premises provided they can be identified as parts of production equipment.

For these reasons, I conclude that, since there was evidence to support the Board’s finding, and since the Board is the body with the expertise to assess the evidence and is charged with the responsibility for so doing, I am unable to say that it erred in making that finding. [4]

The appellants’ second submission of error is to the effect that the Board erred in law and exceeded its jurisdiction in declaring a partial exemption equal to the portion of the columns supporting the cranes. Respondent’s counsel agrees that the Board erred in this respect and thus submits that the columns in issue should be completely exempt since they “directly’’ contribute to production which, in his view, is all that is required by the terms of subsection 1(a), supra. The decision of the Supreme Court of Canada in the case of Irving Oil Ltd v The Provincial Secretary of the Province of New Brunswick [1980] 1 SCR 787, is authority for the view that “. . . the requirement of direct use is fulfilled irrespective of the percentage of use that may be ascribed to the process of manufacture as opposed to other processes such as storage and distribution.” [5]

Accordingly, it is my conclusion that while the Tariff Board did not err in law in deciding that the columns in issue are parts of the cranes and therefore not subject to the sales or consumption tax imposed by section 27 of the Excise Tax Act, it erred in declaring that only the portions of the columns designed to support the overhead cranes are exempt from the sales tax. Pursuant to section 60 of the Excise Tax Act which empowers the Court to make such order as it deems expedient, I would vary the declaration of the Tariff Board so as to exempt the entire sales price of the columns in issue from the nine per cent tax imposed by section 27 of the Excise Tax Act.