Nova Scotia Sand and Gravel Limited v. Her Majesty the Queen, [1978] CTC 279, 78 DTC 6192

Dubinsky, DJ:—This is an appeal from a decision of the Tax Review Board and from the order based thereon dated July 27, 1976, whereby it dismissed the appeal of the plaintiff herein from assessments made for the taxation years of 1972 and 1973 by the Minister of National Revenue. The assessments were made by the Minister pursuant to the provisions of the Income Tax Act, SC 1970-71-72, c 63.

Inasmuch as counsel for the plaintiff submitted much the same argument to me as he did before the Tax Review Board, it will be helpful if I set forth some excerpts from the Board’s decision. The decision stated in part as follows:

The appeal of Nova Scotia Sand and Gravel Limited in respect of the respondent’s assessments of its income for the 1972 and 1973 taxation years was heard on July 9, 1976, and one of the matters at issue is whether the appellant company’s 1973 profits qualify as “‘Canadian manufacturing and processing profits” within the meaning of section 125.1 of the new Income Tax Act and thus entitle it to a corporate tax deduction of $17,612.10 from its income for the 1973 taxation year. In other words, do the appellant’s activities fall within any of the exceptions contained in paragraph 125.1(3)(b) of the new Income Tax Act—which reads as follows:

"(b) ‘manufacturing or processing’ does not include

(i) farming or fishing,

(ii) logging,

(iii) construction,

(iv) Operating an oil or gas well,

(v) extracting minerals from a mineral resource,

(vi) processing, to the prime metal stage or its equivalent, ore from a mineral resource,

(vii) producing industrial minerals,

(viii) producing or processing electrical energy or steam, for sale,

(ix) processing gas, if such gas is processed as part of the business of selling or distributing gas in the course of operating a public utility, or

(x) any manufacturing or processing of goods for sale or lease, if, for any taxation year of a corporation in respect of which the expression is being applied, less than 10% of its gross revenue from all active businesses carried on in Canada was from

(A) the selling or leasing of goods manufactured or processed in Canada by it, and

(B) the manufacturing or processing in Canada of goods for sale or lease, other than goods for sale or lease by it.”

The appellant further claimed capital cost allowance of $13,850.50 in 1972 and $55,133.00 in 1973 in respect of property allegedly used directly or indirectly in. the manufacturing or processing of goods for sale and therefore falling within subparagraph (a)(i) of Class 29 of Schedule B of the Income Tax Regulations.

"Reasons in Support of Appeal

1. It is respectfully submitted that all of the Appellant’s operations constitute "processing” and that none of them represent ‘‘producing industrial minerals”, within the meaning of subparagraph 125.1 (3)(b)(vii) of the Income Tax Act or paragraph 1104(9)(g) of the Income Tax Regulations. It is first submitted that neither sand nor gravel is an industrial mineral within the meaning of those provisions.

2. There is no generally accepted definition of the term ‘mineral’, and its meaning is capable of expansion or restriction according to the purpose of the statute and the context in which it is used. See Canadian Gypsum Company Limited v MNR, [[1965] CTC 210 at 213] 65 DTC 5125 at page 5127 (Exchequer Court). The definition of ‘minerals’ in subsection 248(1) of the Income Tax Act provides no guidance in this respect.

3. Re McAllister and Toronto and Suburban. Railway Company, 40 OLR 252 (Supreme Court of Ontario 1917), held that ordinary stone in a quarry was not a ‘mineral’ within the meaning of the statute that was there under consideration. The mining legislation of Nova Scotia, Ontario, and British Columbia and the mining tax legislation of Ontario all exclude sand and gravel from the definition of ‘mineral’. The only. income tax case that appears to deal with the matter—Paju v MNR, [[1974] CTC 2121] 74 DTC 1087 (Tax Review Board—supports the position that sand and gravel are not ‘minerals’ within the meaning of the Income Tax Act.

4. In the alternative, it is submitted that tf sand and gravel are minerals, the Appellant is still not ‘producing industrial minerals’, since most of its product is not specifically intended or used for industrial purposes. From its product range of approximately 60 different items, only about 15 are listed by the Appellant as having an industrial use. The Appellant has no interest in or control over the use to which any of the various sand and gravel products that it sells are put by the purchasers. In many cases its products will not be used in industry.

5. In the further alternative, if sand and gravel as produced by the Appellant are found to be industrial minerals, it is further submitted that their production as industrial minerals is complete once the material has been physically separated from the ground. See Texaco Exploration Company v MNR, [[1975] CTC 404] 75 DTC 5288 (Federal Court—Trial Division) and W S Hatch Co v Public Service Commission, 277 P 2d 809, at page 813 (Supreme Court of Utah 1954). It is accordingly submitted that the production of industrial minerals ceases at the time the excavated material is loaded onto trucks, or conveyor belts, for conveyance to the Appellant’s processing plant. This is indicated by the fact that the material would be saleable at this point. If sand and gravel are industrial minerals, their character as industrial minerals is complete at this point, and nothing that the Appellant does thereafter produces industrial minerals.

6. Consequently the Appellant’s processing. operation, for purposes of the relevant provisions of the Income Tax Act and the Income Tax Regulations, would commence, under the alternative submission in paragraph 5, at the point where the production of industrial minerals ceases— that is, after the mineral has been separated from the ground. Consequently, it is submitted that the trucking, washing, sorting, separating, crushing, drying, screening, and bagging activities would qualify as ‘processing’.

7. The case law interpreting ‘manufacturing and processing’ as used in earlier provisions of the Income Tax Act has taken a quite liberal view of the meaning of these terms. See Federal Farms Limited v MNR, [[1966] CTC 62] 66 DTC 5068 (Exchequer Court); Admiral Steel Products Limited v MNR, [40 Tax ABC 322] 66 DTC 174 (Tax Appeal Board). It is submitted that the number of people that the Appellant employs and the investment that it has in machinery and equipment to process the extracted material into a more readily marketable form involve the kind of manpower, machinery, and capital that the latter case held constitutes ‘processing’.

8. Accordingly it is respectfully submitted that the Appellant has been processing goods for sale, within the meaning of the relevant provisions of the Income Tax Act and the Income Tax Regulations, either in all its operations or at least in all of its operations other than excavation, and that the reassessments of its income and tax for the 1972 and 1973 taxation years should be revised accordingly.”

It is common knowledge in the sand and gravel business that one does not produce this raw material by the simple fact of digging and carrying it. It is equally known that a company such as the appellant’s company, which proceeds the way it does, has in fact produced an industrial mineral because the raw material was being processed to render it more commercial.

Does the word “mineral” include rocks, sand and gravel? As simple as it may seem. I want to resort to three basic classifications of the earth: animal, vegetable and mineral. “Animal” includes all living creatures, “vegetables”, all growing vegetation and “mineral”, all inanimate objects. I am inclined to believe that, when Parliament enacted section 125.1 of the Act, the intent was to give the simplest meaning to the word “mineral” to identify an inanimate object which would include rocks, sand and gravel. Keeping that in mind, it is reasonable to believe . . . that the word “mineral” includes rocks, sand and gravel.

Furthermore, all the definitions given by the respondent are most eloquent, and convince the Board that, in the years under appeal, the appellant company was producing industrial minerals. Therefore, because of the exception contained in subparagraph 125.1 [(3)](b)(vii) of the Act, these activities of the appellant company and the profits therefrom are excluded from the manufacturing or processing of goods for sale by definition, and any machinery or equipment used for the purpose does not come within Class 29 of the Regulations for capital cost allowance purposes.

Consequently, for these reasons, the appeal is dismissed.

The plaintiff called but one witness, William Wallace Brown, who is the plaintiff’s general manager. Mr Brown had risen from his original position with the company of mechanical superintendent in 1967 to that of plant superintendent in 1969 and from there he went in 1971 to his present position. I found him to be a knowledgeable and credible witness. His testimony was supported throughout with relevant photographs which were all introduced as exhibits.

The plaintiff company does business at four locations in Nova Scotia but its principal place of business is Shubenacadie where its processing plant is located. Mr Brown’s evidence covered fully the work done by the plaintiff company and which is summarized very well in its statement of claim from which I quote as follows:

The first step in the processing operation is to excavate the raw material from its pits. In most cases this is done by means of front-end loaders and in a few cases blasting is required. Once separated, some of the material may be sold directly. The processing of the extracted material then continues in different ways. Material extracted from its pits outside of Shubenacadie is transported to Shubenacadie by truck and is deposited directly into the main wash plant at the Shubenacadie site. Some of the material extracted from the Shubenacadie pit is deposited directly by front-end loaders into a hopper which removes material over four inches in diameter and allows smaller material to pass through the hopper to be transported by means of an eight hundred foot conveyor belt to the main wash plant located at the site. Other material extracted from the Shubenacadie pit is directly deposited by front-end loaders into the portable wash plant located at the site. In the wash plants the material is scrubbed and washed to remove impurities and is separated according to size. The semi-processed material is then stockpiled. From this point, the material may be sold directly. Alternatively, if it is stone, it may move to the portable crusher and/or portable wash plant for crushing, re-washing and re-sizing before sale and delivery, or if it is sand, it may move to the specialty sands plant. When sand enters the specialty sands plant, it is dried and sized and then it is stockpiled in weather-proof storage bins. From the appropriate storage bin the sand is fed into the bagging machine, after which it is ready for sale and delivery. The processing process makes the sand and gravel available for use, while the result of the other foregoing processing operations is a higher quality and range of products than would be available if the plaintiff had no sophisticated washing and screening procedures.

As already intimated, Mr Brown supplemented his comprehensive testimony by charts and photographs which were very helpful to me in understanding the entire process of the plaintiff’s business. Following are some additional factors which the witness touched upon.

The number of employees is higher in the summer and lower in the winter but on the average some 45 people are employed by the plaintiff. The employees perform more than one function and not all things are done simultaneously. The plaintiff has developed its procedures to meet the requirements of its customers. The charts presented indicate the names of products commonly recognized in the trade and if the plaintiff did not have a required item, it would see to it that it was produced. In other words, the plaintiff is able to adjust its products to meet requirements and all products come into existence as a result of extensive processing to various degrees.

In 1972 and 1973, the crushing percentages were in the same range but considerable more marble was sold in the previous year. The amount of material extracted depends of course on the market demand. Exploratory work is done with the use of diamond drills aided by maps and visual examination. The drills go down through the rock, sand and other material and the samples taken indicate where the layers of deposits are and what is the quantity and quality of the material. Efforts are constantly made to produce the particular type of sand required by customers. The surge pile shown in one of the exhibits is not an inventory but rather as internal storage of material. The most important stage of the sand processing is its classifying and breaking down in various grades or particle sizes. All forms of rock raw material are reduced to the size required and once this is done, the sizes are separated. Different sizes of gravel are used for such purposes as sewerage treatment beds, architectural requirements, etc, with the smallest or pea gravel being used mostly for roofing. Anything with a particular size smaller than /4 inch is considered as sand and the larger particles constitute stone. There is no distinction between stone and gravel.

As was done before the Tax Review Board, the witness filed a document containing figures setting forth the plaintiff’s operations in dollars and in tonnage. This document was prepared under the witness’s supervision as was the case with another document showing the prices for sands and gravel fob the plant.

The witness was closely cross-examined by counsel for the defendant but my impression at the trial was that Mr Brown’s testimony was not broken down or weakened in any material respect. Subsequent close review of my notes has not led me to alter my original feeling. There was no evidence tendered by the defence and there is no question of credibility raised herein.

In short, what the plaintiff says and what its counsel, Harris, QC maintained in his comprehensive and strong submission, is that the plaintiff is manufacturing or processing the products it sells and hence it is entitled to make the deductions from corporate tax and is entitled also to capital cost allowance for the taxation years in question. If under the Income Tax Act, manufacturing and processing does not include what the plaintiff does in its operation, it must fail in this action.

To begin with, I am in agreement with the learned member of the Tax Review Board when he holds that the word “mineral” does include rock, gravel and sand. Britannica World Language Dictionary defines “mineral” as “a naturally occurring, homogeneous substance . . . having a characteristic set of physical properties, a definite range of chemical composition and molecular structure; any inorganic substance, as ore, a rock, or a fossil”. Stroud’s Judicial Dictionary (4th ed, 1973) says: “minerals . . . means primarily all substances other than the agricultural surface of the ground—which may be got for manufacturing or mercantile purposes, whether from a mine . . . or such as stone or clay, which are got by open working . . .” “Every substance which can be got from underneath the surface of the earth for the purposes of profit, including sand and gravel and clay . . .”.

I am satisfied that plaintiff’s counsel does not seriously dispute this. I am satisfied furthermore that he does not seriously assert that the expression “producing” is done by nature.

This brings me to Mr Harris’s two main submissions and I shall deal first with what I would call the lesser of the two. I have reference to his contention that if the sand and gravel produced by the plaintiff are industrial minerals, the production is complete on the spot. In other words, it is contended that the “production” takes place— and is ended with—when the material is excavated or extracted from the ground and loaded onto trucks or conveyor belts for conveyance to the plaintiff’s processing plant and that nothing that is done by the plaintiff afterwards produces industrial materials.

In support of this view, counsel has cited Texaco Exploration Co v The Queen, [1975] CTC 404; 75 DTC 5288, where Collier, J says at page 412 [5293] as follows:

In my opinion, the ‘‘production of oil [or] gas”, in this suit, means the bringing forth, or into existence and human realization, from underground, a basic substance containing gas, and at the same time, other matter. Whether it is basically oil or basically gas that is discovered and brought forth, or whether it is an oil well as distinguished from a gas well, is, I think, perhaps a matter of measurement, or the bestowing of a sensible appellation on the particular substance (be it energy, or fuel, or something else) or source, which, or from which, the substance is recovered in the largest relative volume.

. . . In Home Oil Company Ltd v MNR, [1955] SCR 733; [1955] CTC 192; 55 DTC 1148, . . . Rand, J did refer to “producing” wells in contradistinction to non-producing wells or dry holes. . . .

. . . While the language employed . . . cannot be said to be authority for the meaning of “production” which I have ventured, it lends some weight to the popular usage of “production” in the sense of bringing in a successful well, obtaining from underground pools or reservoirs commercially marketable (at some stage) oil and gas, as opposed to water or nothing.

. . . I conclude, therefore, that production of gas by Texaco ceased at the well-head, . . .

In Tedrow et al v Shaffer et al (1926), 153 NE 510, Sayre, J, speaking for the Court of Appeals of Ohio, said at page 511:

We see reason for holding that the word “found” as here used is synonymous with the word “produced” since oil in the ground cannot be said to be “found” unless brought to the surface, and when brought to the Surface is then “produced”.

In W S Hatch Co v Public Service Commission of Utah (1954), 277 P 2d 809, Crockett, J said at page 513:

It is suggested that due to the use to which this acid is put it should be considered as a “facility” for the . . . development and production of minerals. Those terms have a well defined meaning in the mining industry, which is in no way at variance with their ordinary meaning. Webster’s dictionary defines “develop” as meaning to “free from that which enfolds or envelops, to lay open by degrees or in detail, to disclose to produce or give forth accordingly, as applied to mining, it means to uncover or bring forth that which a mine produces.” “Production” has been defined as signifying to bring oil, gas or mineral to the surface. When separation from the earth has been accomplished the “production” is completed.

Having adopted the view that “production” ceases when the material is removed from the ground, Mr Harris’s next submission follows naturally. He contends that the trucking, washing, sorting, separating, crushing, drying, screening and bagging activities which Mr Brown described in detail constitute not “producing” but “processing”. In other words, what the plaintiff's employees are doing when with the machinery and equipment they turn the extracted material into a more readily marketable form, is “processing” of that material. In this connection, counsel stresses the fact that the operation does not change the material’s chemical or generic description. The generic term remains the same and if it is acknowledged that sand and gravel are indeed industrial minerals, then they are no less so while in the ground. He referred to the following case.

In Avril Holdings Limited v MNR, [1971] SCR 601; [1970] CTC 572; 70 DTC 6365, the Supreme Court of Canada dealt with the case of a company that was carrying on the business of mining, processing and selling gravel—as is being done by the plaintiff herein. Pigeon, J, speaking for the Court, said in part (pages 604-5 [574, 6368]):

While it is true that such residual value must be deducted from the cost of the property in establishing the rate of capital cost allowance, this allowance is not expressed to be granted in respect of anything but the “property”, that is an “industrial mineral mine”.

. In the context of Schedule E, it is apparent that the word “mine” is not taken in its usual meaning as applied to metal mines but in a special meaning as part of the expression ‘‘industrial mineral mine”. With respect to metal mines, it was pointed out that ‘‘a portion of the earth containing mineral deposits” was not the usual meaning of the word mine. Here, it must be noted that the word “mine” is not in common use to describe a sand or gravel pit. This is therefore a case where the word is obviously not taken in the usual sense. Everything in Schedule E indicates that it Is taken as meaning a portion of the earth containing mineral deposits. . . .

I have given this argument careful study. However, with deference to learned counsel for the plaintiff and for the authorities which he has cited, I cannot accept his point of view. As one who has lived the better part of my adult life in a coal mining area, I am prepared to agree that the excavation or extraction of the mineral was “producing” it. In Cape Breton, we have for years spoken of coal “production” when referring to the amount of coal taken from the mines. Once extracted from the mine, however, certain processes are followed, eg washing, sizing, etc whereby the coal is put into marketable form and I have never known any of these procedures or processes to be called anything other than “producing”. Here too, I cannot accept the suggestion that “producing” ceases upon the material being taken out of the ground. I am not unmindful of the fact that at this very point in the operation, some of the material may be sold. However, I did not gather from Mr Brown’s testimony that sales at that stage were significant in the plaintiff’s overall business.

It is not without some significance that the learned author of Stikeman’s Canada Tax Cases 1975 has the following to say about the Texaco decision at page 405 [Editorial Note]:

The principal issue in this appeal centred around the determination of profits reasonably attributable to production of oil or gas for the purposes of calculating depletion allowances under the pre-1972 Income Tax Act. Such profits specifically exclude profits derived from transporting or processing the oil or gas. The Court was required to determine where production ceased and processing began. [The plaintiff offered two possibilities and the Crown a third.] . . .

The Court appears to have raised, and opted for, a fourth possibility. It held that profits from production cease once the oil or gas has been extracted from the well. For all practical purposes this means that “production” ceases at the well head, prior to any separation. Production was held to mean, for the purposes of the particular regulation, ‘‘the bringing forth, or into existence and human realization, from underground, a basic substance containing gas, and at the same time, other matter”. Not overlooked, although dealt with rather summarily, was the difficulty in determining profits at that stage, since profits are made by selling oil, rather than mere production of it. This accounting problem was contemplated, said the Court, by qualifying “profits” with the words “reasonably attributable to”.

The Income Tax Act, SC 1970-71-72, c 63, section 125.1 states:

125.1 (1) There may be deducted from the tax otherwise payable under this Part by a corporation for a taxation year an amount equal to the aggregate of

(a) 9% of the lesser of

(i) the amount, if any, by which the corporation’s Canadian manufacturing and processing profits . . .

There is no definition in the Act for the words “manufacturing and processing”, but subparagraph 125.1 (3)(b)(vii) states:

(b) “manufacturing or processing” does not include

(vii) producing industrial minerals,

To show that the plaintiff does not fall within the exception to “manufacturing or processing” as set forth in subparagraph 125.1(3) (b)(vii), counsel has submitted a number of authorities and reference to some of these will now be made.

In Admiral Steel Products Limited v MNR, 40 Tax ABC 322; 66 DTC 174, and in Federal Farms Limited v MNR (No 2), [1966] CTC 62; 66 DTC 5068, the court in each instance dealt with the Income Tax Act, RSC 1952, c 148, subsections 40A(1) and (2). Those subsections State in part:

40A. (1) There may be deducted from the tax otherwise payable for a taxation year by a manufacturing and processing corporation an amount . . .

(2) In this section,

(a) “manufacturing and processing corporation” means a corporation that had net sales . . . of goods processed or manufactured in Canada . . .

In the Admiral case, the business of the appellant company consisted of buying coils of strip steel from steel producers and slitting, flattening, shearing and edging the steel in order to adapt it to the needs of its customers. The Minister disallowed the tax deduction then in effect, holding that the company was not a “manufacturing and processing corporation” because the steel strip sold by the company was not processed by it. The Tax Appeal Board Member said at pages 326-8 [177-8]:

The respondent contends that the product on leaving the appellant is the same as when received and that there is no change in the basic nature of the steel except in its size.

The product received can be subject to two changes, either in its substance or in its form. If the change is in the substance, another product is born such as the substance of milk can be changed into butter or cheese . . .

In the instant matter, there is merely a change in form. Is this change important enough or involving enough manpower, machinery and capital to say that the product is processed? . . .

It should be remembered that even if the steel is produced by a foundry in such a coil, it is not very usable as such if not processed as described above. It would be rather difficult to imagine somebody with a pair of scissors trying to cut a piece of steel. . . .

. . . Although there may not be changes as to the substance, the changes in question are such that there can be absolutely no doubt as to the processing and manufacturing character of the appellant corporation. . . .

To sum up the matter, the appellant, through different processing operations, has rendered its product more usable and, therefore, more marketable and more saleable. . . .

In the Federal Farms case, the appellant company was in the business of preparing fresh vegetables for market and selling them. The Minister refused to grant the tax credit available, ruling that the company was not a “manufacturing and processing corporation’’. In his decision, Cattanach, J described fully the appellant’s preparation and sale of carrots and potatoes. At pages 66-7 [5071-2], he said in part:

Here it is plain that Section 40A of the Income Tax Act is dealing with manufacturing and processing corporations generally and that the words, “manufacturing” and “processing” as used in subsection (2a) of Section 40A are used in their ordinary unrestricted senses. If this were not the case and the words were not intended to be used in their unrestricted senses then it was obviously unnecessary to make a specific enumeration of those types of businesses in which certain corporations are engaged as being excluded from the meaning of the words, “manufacturing and processing corporation”.

section 40A of the Income Tax Act is dealing with matters affecting manufacturing and processing corporations generally. The section is not one passed with reference to a particular trade or business from which it follows that the words in question are to be construed in their common or ordinary meaning and not as having a particular meaning as understood by persons conversant with a particular trade or business. For this reason I do not accept the definition put forward by Mr Long that processing connotes a material change being made in the texture and structure of the product.

The word “process” is defined in The Shorter Oxford English Dictionary, Third Edition, as “To treat by a special process; eg to reproduce (a drawing etc) by a mechanical or photographic process.”

In Webster's Third New International Dictionary published in 1964 the word “process” is defined as follows, “to subject to a particular method, system or technique of preparation, handling or other treatment designed to effect a particular result: put through a special process as (1) to prepare for market, manufacture or other commercial use by subjecting to some process (-ing cattle by slaughtering them) (-ed milk by pasteurizing it) (-ing grain by milling) (-ing cotton by spinning):”

The evidence of the appellant as to its operations convinces me that those operations were a process or series of processes to prepare the product for retail market. There is no doubt that quite apart from the grading of the vegetables, a clean and attractive appearance is an important factor in marketing vegetables and especially so in the present day methods of retail marketing. Although the product sold remains a vegetable, nevertheless, it is not a vegetable as it came from the ground but rather one that has been cleaned, with improved keeping qualities and thereby rendered more attractive and convenient to the consumer.

In both cases, the appellant corporation was successful and rightly so. It may be noted that the Federal Farms decision was upheld by the Supreme Court of Canada from the Bench without written reasons. Unfortunately, from the plaintiff’s point of view, the exceptions to section 40A at that time were the following corporate operations:

(i) operating a gas or oil well,

(ii) logging,

(iii) mining,

(iv) shipbuilding,

(v) construction, or

(vi) combination of two or more of the classes set out in subparagraph (i) to (v) inclusive;

In neither case was the company faced with such a Statutory impediment as is the plaintiff in the case at bar. I Cannot see where either of these cases is of any help to the plaintiff. Nor, with respect, do I find anything helpful to the plaintiff in the Supreme Court of Canada case of The Queen v York Marble, Tile and Terrazzo Lid, [1968] SCR 140; [1968] CTC 44; 68 DTC 5001.

In that case, the company installed marble walls, floors, etc in various buildings as a subcontractor. The company imported the marble and in order to fill its contracts, the company selected suitable marble slabs from its stock and subjected them to various processes including matching, grouting, rodding, gluing, grinding, rough and fine polishing, cutting and edge finishing. The Minister assessed the company to sales tax on the basis that the processed marble constituted “goods produced or manufactured in Canada” under paragraph 30(1 )(a) of the Excise Tax Act, RSC 1952, ¢ 100.

Spence, J, for the Court, said in part at pages 144-8 [47-51, 5003-5]:

In reference to the words “all goods produced or manufactured in Canada”, Duff, CJ noted in His Majesty the King v Vanderweghe Limited, [1934] SCR 244 at 248: [1928-34] CTC 257 at 260:

“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.”

For the present purposes, I wish to note and to adopt one of the definitions cited by the learned judge, ie, that “manufacture 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”. . . . If one were to apply the latter test to the question at issue in this appeal, in my view, the finished marble slabs which left the respondent’s plant had by work, both by hand and machinery, received new form, new quality and new properties. The form differed in that what had arrived were great slabs of raw marble sometimes as long as sixteen feet and of varying widths and what left were exactly shaped pieces of polished marble much smaller in size cut with precision to fit the places into which they were to be installed. As to quality, what arrived was a greyish, nondescript slab of stone and what left was a highly polished marble facing whether it was to be installed in a wall as a window sill, or as a post. As to properties, what arrived was in in many cases a piece of unfilled stone and sometimes one which would be too fragile for use and what left in most cases was a piece of marble in which the rough unevenness had been filled in by grouting and where necessary the weakness had been remedied by rodding.

To apply the same method of testing to the present situation, Schedule III to the Excise Tax Act contains a list of exemptions, including:

Building stone (exemption removed effective June 14, 1963)

Sand

Gravel

Rubble

Field Stone

Cut flowers

Straw

Forest products when produced and sold by the individual settler or farmer

Furs, raw

Logs and round unmanufactured timber

Sawdust and wood shavings

Wool not further prepared than washed

Of course, such goods as sand, gravel, rubble or field stone could not be considered either “manufactured” or “produced”. Nor in all probability would they have been imported and so taxable under Section 30(1)(b). There have been, however, some very simple operations in the production of cut flowers, straw, raw furs and wool not further prepared than washed, and yet it is apparent that these items were regarded by Parliament as being “manufactured” or “produced”.

Of course I should note that the then Excise Tax Act paragraph 30(1)(a) used the word “produced”. It stated:

30. (1) There shall be imposed, levied and collected a consumption or sales tax of eight per cent on the sale price of all goods

(a) produced or manufactured in Canada

That is why, Spence, J ended the above quoted reference with these words:

In my view, the application of this test alone would be sufficient justification to find that the marble pieces which left the respondent’s plant had been “produced” or “manufactured” there from the raw material of the rough slabs of marble which had arrived.

Similarly in Gruen Watch Company of Canada Limited et al v Attorney General of Canada, [1950] CTC 440; 4 DTC 784, a case referred to by Spence, J in the York Marble case, McRuer, CJHC in considering the same question in reference to the same statute said this at page 454:

I cannot find that the simple operation of putting a watch movement into a watch case is “manufacturing” a watch in the “ordinary, popular and natural sense” of the word, but I feel clear that the plaintiffs “produced” watches “adapted to household or personal use”.

Spence, J, added at page 146 [49, 5004]:

It is to be noted that the learned Chief Justice [McRuer] used the firmly established principle that the taxing statute must be interpreted by the consideration of the words thereof in the ordinary, proper, and natural sense, and that doing so he found himself able to distinguish between the two words “produced” and “manufactured”.

In the case at bar, if the plaintiff is in fact producing industrial minerals, its appeal herein must fail. The Excise Tax Act is a revenueproviding statute and therefore in pari materia to the Income Tax Act. Nevertheless I want to say that in determining whether or not the plaintiff's operations constitute “producing”, I do not consider myself bound by the fact that the Court in York Marble (supra) and the Court in Gruen Watch (supra) found in each instance that the taxpayer was “producing” something. In Her Majesty the Queen v Stuart House Canada Limited, [1976] CTC 37; 76 DTC 6033, the point in issue before the Court is aptly summarized in the [DTC] headnote which states:

The defendant company purchased aluminum foil in bulk rolls in widths of twelve and eighteen inches. The twelve inch width rolls were then cut by the defendant company into shorter lengths of twenty-five feet, re-rolled on cardboard tubes and packed into boxes for marketing. The boxes were also purchased by the defendant company, already printed, precreased for folding and equipped with a cutting edge. The eighteen inch width rolls were repacked into single boxes with rods inserted into them for sale to restaurants. The Crown contended that the defendant company was a manufacturer or producer and claimed excise tax and penalties of $19,974.26.

Addy, J, of the Federal Court of Canada, at page 38 [6034] referred to these two cases and said:

It has been settled that the words “produced” and “manufactured” are not words of any precise meaning and that an article may be considered as having been produced without having been manufactured.

Speaking particularly of York Marble (supra), he said at page 39 [6034]:

There is not the slightest doubt that, on the facts, the taxpayer was, at the very least, producing something quite different from the raw marble.

It will be remembered that in that case, the following operations were performed on the marble slabs by the taxpayer: book matching, grouting, rodding, gluing, grinding, rough polishing, fine polishing, cutting, and edge finishing. At page 41 [6036] Addy, J went on to say the following of the operations of the taxpayer in the case before him:

It is trite to say that a taxing statute should be strictly interpreted against the taxing authority and, although the word “produced” must be considered as having been used in its ordinary meaning, it would be, I feel, grossly violating the use of the word when employed in its usual sense to hold that in the case at Bar, the defendant is producing aluminum foil, merely because he is packaging it in smaller and handier packages which are capable of cutting it without scissors, and has thus mace the produce more marketable or more saleable to the ordinary consumer than if it were sold in the original 450-foot or 900-foot rolls weighing approximately 100 pounds.

The final case to which I wish to refer among those cited by learned counsel for the plaintiff is MNR v Bethlehem Copper Corp Ltd, [1975] 2 SCR 790; [1974] CTC 707; 74 DTC 6520. This case would seem to support his contention that producing of the minerals ceases on their excavation from the ground. The section before the Court was subsection 83(5) of the Income Tax Act, RSC 1952, c 148. A check of the new Act, SC 1970-71-72, c 63, reveals that there is no analogous provisions in the new Act. Subsection 83(5) states as follows:

83. (5) Subject to prescribed conditions, there shall not be included in computing the income of a corporation income derived from the operation of a mine during the period of 36 months commencing with the day on which the mine came into production.

The issue to be determined by the Court was whether or not the extraction only of the ore from the mine in question constituted an operation of the mine. The trial judge held that it did and his view was upheld by the Federal Court of Appeal. At page 711 [6522] there is quoted an excerpt from the judgment delivered for the Court by the Chief Justice. He said in part [[1973] CTC 345 at 348; 73 DTC 5281 at 5282]:

The position that the appellant takes, as I understood counsel, is that “mine” in subsection 83(5) means an enterprise used to extract ore “and produce copper concentrate”. This is, in effect, an integration of two business operations, namely, (a) extraction of ore, and (b) milling of concentrates. In my view, the authorities do not support such a wide ambit for the exemption in subsection 83(5). . . . [I]n a judgement delivered by CTC 264 ... ; 70 DTC 6199 . . . Pigeon, J, said at page 882 [267, 6201], “Mining itself is complete by the production and hoisting of the ore . . 39 In my view, “operation of a mine” in subsection 83(5) refers only to the extraction of ore from an ore body and does not include processing of the ore after it has been produced.

Pigeon, J in MNR v MacLean Mining Co Ltd, [1970] SCR 877,

.

; [1970]

Martland, J, speaking for the Court, said this at page 799-801 [712-13, 6523-4]:

As to the first point, I agree with the view expressed by the Federal Court of Appeal, which is in accordance with the opinions expressed in this Court in North Bay Mica Company Limited v MNR, [1958] SCR 597; [1958] CTC 208; 58 DTC 1151, and in MNR v MacLean Mining Company Limited, [1970] SCR 877; [1970] CTC 264; 70 DTC 6199.

. . It is also clear that the phrase ‘‘capable of producing ore” means that the operation of a mine refers to the extraction of ore from the ore body. It does not include the processing of the ore after production.

Referring to MNR v MacLean Mining Company Limited, [1970] SCR 877; [1970] CTC 264; 70 DTC 6199, Martland, J also quoted Pigeon, J who, as mentioned, said at page 882 [267, 6201]:

Mining itself is complete by the production and hoisting of the ore and one can well conceive of a single mill serving several mines.

It may not be out of place to mention that subsection (6) of section 83 states:

83. (6) In subsection (5),

(a) “mine” does not include an oil well, gas well, brine well, sand pit, gravel pit, clay pit, shale pit or stone quarry* [1] . . .

A couple of the cases cited on behalf of the plaintiff were also contained in the submission of learned counsel for the defendant. I have already referred to them; and of the remainder of the cases cited for the defence, I merely wish to mention one, viz, The Queen v E J Piggott Enterprises Ltd, [1973] CTC 65; 73 DTC 5013, a decision by Kerr, J of the Trial Division of the Federal Court. The section before the Court was paragraph 30(1 )(a) of the Excise Tax Act, RSC 1952, c 100, as amended which stated:

30. (1) There shall be imposed, levied and collected a consumption or sales tax of nine per cent on the sale price of all goods

(a) produced or manufactured in Canada

Kerr, J said at page 73 [5019]:

As to the Ferropak cartridges with tape in them, the evidence establishes, in my opinion, that the defendant company took the components and by hand work and the use of apparatus that has been called tape winders brought into being useful and marketable entities that had new forms, Qualities and properties or combinations. When a customer ordered a loaded Ferropak cartridge he received a readily useful unit, not a handful of unconnected articles. In my opinion, the loaded Ferropak cartridges were “produced or manufactured’’ by the company, within the meaning of those words as used in the Excise Tax Act. Also, where the company assembled and put together the components, other than the tapes [sic] for subsequent loading with tapes, it thereby brought into being useful and saleable commercial articles. that had new forms, qualities and combinations, and so “produced” such cartridges.

Thus, the learned trial judge adopted the same reasoning as the courts did in such cases The King v Vandeweghe Limited, [1934] SCR 244; [1928-34] CTC 257; 1 DTC 265, The Queen v York Marble (supra) and Gruen Watch Co of Canada Limited v Attorney General of Canada (supra)—all of which he quoted—and held that “producing” is not synonymous with “manufacturing”.

I have read and re-read all the cases cited to me by learned counsel on both sides and I cannot part with this case without expressing my appreciation of the great assistance I have had from counsel. That such authoritative and well reasoned decisions can be of considerable help to a trial judge is undoubted. Nevertheless, I am not unmindful of what the great jurist, Lord Wright said in Tidy v Battman, [1933] All ER Rep 259 at 260:

I think it is a pure question of fact . .. no one case is ever like another. . . . I think it is very unfortunate that matters that are purely matters of fact should be confused by importing into them principles of law which I am sure very properly have been applied in helping in the decision of other cases on other sets of facts.

I have in mind also a similar word of caution expressed by an equally distinguished jurist in Canada, Ritchie, J, in Minister of Transport for the Province of Ontario v Canadian General Insurance Company, [1972] SCR 234 at 238:

. . . the issue falls to be determined according to the facts of each particular case and that precedents are accordingly of little value.

Maxwell on Interpretation of Statutes (12th ed, 1969) states at page 43:

The so-called “golden rule” is really a modification of the literal rule. It was stated in this way by Parke, B (Becke v Smith (1836), 2 M & W 191 at p 195): “it is a very useful rule, in the construction of a statute, to adhere to the ordinary meaning of the words used, and to the grammatical construction, unless that is at variance with the intention of the legislature, to be collected from the statute itself . . .

Paragraph 125.1 (3)(b) of the new Income Tax Act says:

(b) ‘‘manufacturing or processing” does not include

(vii) producing industrial minerals,

Keeping in mind the above noted “golden rule” rule of construction and having reviewed carefully the operations conducted by the plaintiff as described in detail earlier in these reasons, I am satisfied with deference to contrary view, that what the plaintiff did in the taxation years in question was unquestionably “producing industrial minerals”. The plain and ordinary meaning of the words used in the statute, when applied to the operations conducted resulting in the final marketable form of the material sold, leads me to no other conclusion.

It goes without saying that my interpretation of the words in question in subparagraph 125.1 (3)(b)(vii) apply equally to the same words in Regulation 1104(9) of the Income Tax Regulations which states:

1104. (9) For the purposes of class 29 in Schedule B, “manufacturing or processing” does not include

(g) producing industrial minerals,

The plaintiff's appeal to this Court is dismissed with costs. The disallowance of the deduction from corporate tax re manufacturing and processing profits and the disallowance of capital cost allowance

—both of which items were in appeal herein—were correctly made by the Minister of National Revenue and the Tax Review Board properly dismissed the plaintiff’s appeal to it.