Stevenson Construction Co Ltd, Burdett Construction Co Ltd, Mott Electric Limited, Fraser River Pile Driving Company Limited and Greenlees Piledriving Co LTD v. Her Majesty the Queen, [1977] CTC 65, 77 DTC 5045

Collier, J:—The plaintiffs claim refunds, totalling $39,442.50, of excise or sales tax paid, during 1969 to 1971 inclusive, to the federal Crown. They found their cause of action on subsection 44(2) of the Excise Tax Act, RSC 1970, c E-13. I think it useful to set out subsection (1) as well as subsection (2):

44. (1) A deduction from, or refund of, any of the taxes imposed by this Act may be granted

(a) where an overpayment has been made by the taxpayer;

(b) where a refund or adjustment has been made to the taxpayer by a licensed air carrier under Part Il for the taxes collected or paid on any transportation of a person by air that has not been provided or only partially provided by the air carrier or that has been collected in error by the air carrier;

(c) where the tax was paid in error;

(d) where the original sale or importation was subject to tax, but exemption is provided on subsequent sale by this Act;

(e) where goods are exported, under regulations prescribed by the Minister: or

(f) where, due to changes in statutory rates of tax or for other reasons, stamps are returned for exchange.

(2) Where goods have been purchased by Her Majesty in right of any province of Canada for any purpose other than

(a) resale;

(b) use by any board, commission, railway, public utility, university, manufactory, company or agency owned, controlled or operated by the government of the province or under the authority of the legislature or the lieutenant governor in council; or

(c) use by Her Majesty or by Her agents or servants in connection with the manufacture or production of goods or use for other commercial or mercantile purposes;

a refund of taxes paid under Part III, IV or V may be granted to Her Majesty or to the manufacturer, producer, wholesaler, jobber or other dealer as the case may require.

The plaintiffs contend:

(a) certain goods were purchased from them by the Crown in the right of the Province of British Columbia;* [1]

(b) certain amounts, represented by federal sales tax, had been paid, in respect of these goods, by them to their predecessors in title of the goods;

(c) the amounts of federal sales tax were not, in turn. charged by them to, paid by, or included in the price of the goods purchased by, the provincial Crown:

(d) the goods purchased by the provincial Crown were not purchased by it for any of the purposes described in paragraph 44(2)(a), (b) or

(c) of the statute;

(e) the plaintiffs were producers, or manufacturers, of the goods purchased by the province;

(f) the “case” here “require[sj” a refund of the taxes paid be granted to the plaintiffs.

I raised, in argument, a point that had troubled me. Assuming all of the above contentions to be correct, is an enforceable cause of action conferred, by section 44, on the plaintiffs against the Crown?* [2] Counsel for the Crown assured me that the point, if it had any validity, was not being taken in this action. He undertook, as well, that the point would not be pursued in any appeals. Accordingly, no argument was submitted on the question.

On the merits, many of the facts were admitted (see Exhibit 1). Some oral testimony was elicited on behalf of the plaintiffs.

The plaintiffs are all British Columbia companies. In the years 1969 to 1972 each of the plaintiffs entered into contracts with the provincial Crown. The Crown was represented by the Minister of Highways. The agreements provided for work and materials which added to, repaired or modified terminal facilities comprising parts of the ferry service owned by the provincial Crown. Mr Bagnall, for the plaintiffs, described the work done as new construction, replacement or major repairs in respect of ferry terminals.

It is necessary, at this point, to recount some provincial legislative history. In 1953 a Crown corporation known as the British Columbia Toll Highways and Bridges Authority was created.! [3] In the enacting legislation, toll highways were defined as follows:

2. In this Act, unless the context otherwise requires:—

(d) “Toll-highway” includes all public streets, roads, ways, trails, lanes, bridges, trestles, tunnels, ferries, ferry landings and approaches, and any other public way so designated by by-law of the Authority.

At that point in time, the Province of British Columbia operated very few ferries. Travel, for example, between Vancouver and Victoria, and between Vancouver and Nanaimo, was in the hands of private operators. In the late 1950’s and early 1960’s, the province embarked on those routes.

In 1964 the legislation was amended.:i: [4] I assume this was to take into account the expanding ferry system. The name of the Authority was changed to British Columbia Ferry Authority. The meaning of “tollhighway” remained the same.

In 1968 the British Columbia Ferry Authority (Vesting) Act, SBC 1968, c 1 was passed. This legislation transferred to and vested in the provincial Crown the undertaking and all rights and liabilities of the British Columbia Ferry Authority. The undertaking, assets and liabilities so vested in the provincial Crown were then placed under the jurisdic- tion of the Department of Highways. The Department of Highways Act was amended, by this same legislation, as follows:* [5]

7. (1) The undertaking, assets, and liabilities vested in the Crown by this Act shall come within the jurisdiction of the Department of Highways.

(2) The Department of Highways Act is amended

(a) by inserting in section 4 after the words “relating to” in the first line the words and comma “the operation of Government ferries and ferrylandings, and”, and by striking out the word and comma “ferries,” in the third line and substituting the words “ferry-landings,” so that the section reads as follows:—

“4. The Department of Highways has charge of all matters relating to the operation of Government ferries and ferry-landings, and the construction, alteration, and repair of all Government roads, bridges, ferry-landings, wharves, and other Provincial public works throughout the Province to which the Highway Act applies.’’

The Highway Act, RSBC 1960, c 172, section 2 of the province, then and now, defined “highways” as follows:

“highway” includes all public streets, roads, ways, trails, lanes, bridges, trestles, ferry landings and approaches, and any other public way.

From that legislative history it is, to my mind, clear that ferry terminals and landings were, from 1969 to 1972 inclusive, part of the provincial highway system and under the jurisdiction of the Minister of Highways and his department. The actual ferry service, and the vessels, were operated by the provincial Crown through the Department of Highways. It is quite clear, as well, the prior Authorities operated more than a ferry system. There were toll bridges as well.

I revert to the construction contracts between the plaintiffs and the provincial Crown. One was put in evidence (Exhibit 2). It was agreed this exhibit was typical of the various contracts, specified in the Statement of Claim, entered into by the plaintiffs during the relevant years. They are described in a little more detail in paragraph 3 of the admissions of fact. These contracts were lump sum contracts. They did provide, where applicable, for unit prices; sometimes the unit prices covered specific kinds of materials. To carry out the contracts the plaintiffs used goods and materials from several sources: their own inventories, purchases from others, or materials supplied by the Department of Highways. All these materials, including goods purchased from others, were “. . . integrated or otherwise consumed in the works referred to in the Contracts” (paragraph 4 of Exhibit 1).

When the plaintiffs tendered on, and were awarded, the contracts in question, the Department of Highways stipulated as follows:

14. The Department is exempt from payment of Federal Sales Tax on all materials which are used on highway projects. Materials which the Contractor purchases for use on this project will also be exempt of Federal Sales Tax. The Contractor will be required to pay the Federal Sales Tax when he purchases the materials, but he will be eligible for a refund of these taxes from the Federal Government. The Contractor’s tender should, therefore, be based on costs of materials excluding Federal Sales Tax. To be eligible for the Federal Government refund of Federal Sales Tax on materials bought by the Contractor for use of this project, the Contractor Shall attach to his tender an estimate of the cost of materials which he plans on buying for supply to this project. At the completion of the project, the Department will certify a copy of the final invoice that materials have been used on this project and return this invoice copy to the Contractor. This certified invoice, together with the Contractor’s bills for all materials which he has purchased, will allow the Contractor to receive the refund of Federal Sales Tax from the Federal Government.

Please note that the Federal Sales Tax is not the same tax as the Dominion Taxes, as referred to in Item 48(b) of the Addenda to General Conditions of Contract, in the Printed Agreement.

Purchases by the Department are subject to the British Columbia SS Tax and the unit prices bid are understood as being inclusive of such tax.

Mr Bagnall testified that in respect of his company’s contract (Exhibit 2) it supplied pilings and other materials, including fabricated steel. Generally speaking, it purchased from suppliers the pilings required for the particular job, although sometimes the company went to its own stock. The suppliers included, or added to the price charged to the plaintiffs, the appropriate amount of federal sales tax. In some cases the invoices showed the actual amount of tax charged.

The parties admitted:

a sales tax was imposed by the Excise Tax Act . . . and the Old Age Security Act . . . in respect of each item comprising such goods and was, in fact, paid in each case by the predecessor to the Plaintiffs in title to such goods, and in each case the amount of such tax paid was included within the purchase price of such goods paid by the Plaintiffs.

It was further admitted that, pursuant to the departmental stipulation earlier set out, the plaintiffs did not include the amount of the sales tax SO paid in the cost of the goods

. . . integrated or otherwise consumed in the works . . .

The final relevant admitted fact is that the goods so “integrated or consumed’’ into or by the ferry terminals or landings were not for the purposes of:

(a) re-sale, or

(b) use by any board, commission, railway, manufactory, company or agency owned, controlled or operated by the province or under the authority of the legislature or of the lieutenant governor-in-council.

That left open the problem as to whether the goods were used by a public utility” [6] owned, controlled or operated by the provincial Crown.

It was further admitted the goods in question were not used by the provincial Crown in connection with the manufacture or production of goods. That left open the problem as to whether the goods were used by the provincial Crown for “other commercial or mercantile purposes’’.! [7]

I turn now to the contentions advanced by the parties.

The defendant raises a number of defences. It is said the goods in question had not been “purchased” by the provincial Crown. In my opinion that defence fails. These materials, or goods, were part of the overall contract price paid by the province for the work performed. The plaintiffs, in their tenders, obviously calculated the cost of those goods. That cost or price was to be paid by the province. The King v Dominion Bridge Co, Ltd, [1940] SCR 487; [1940-41] CTC 99; 1 DTC 499-114, in my view, supports the plaintiffs’ position:* [8]

The contract in this case was a contract for building the superstructure of a bridge and the erection of it and the securing of it; and the contract price was an entire price for the entire job. It was not, in the ordinary sense of the words, a contract, I think, for the sale of the superstructure or for the sale of the members of the superstructure. The production, however, of the members of the superstructure for the purpose of fulfilling the contract would bring the case within section 87(d) (Special War Revenue Act, RSC 1927, c 179 and amendments).

In The King v Fraser Companies, [1931] SCR 490, four judges of this Court (Newcombe, Rinfret, Lamont and Smith JJ) expressed the view touching the application of section 87(d) to the facts of that case which, I think, applies here. In the judgment of those learned judges, delivered by Smith J, it is Said (p 493):

(€* it is not unusual for a manufacturer engaged in the production and manufacture of lumber for sale to engage at the same time in the business of a building contractor. He manufacturers his lumber for sale, and, as a general rule, would not manufacture any specific lumber for use in connection with his building contracts, but would simply take lumber for these purposes from the general stock manufactured for sale, and might thus, under the view taken in the court below, escape taxation on all lumber thus diverted from the general stock manufactured for sale.

I am of the opinion that, construing the provisions of the Act as a whole, the respondent is liable for taxes on the lumber consumed by him, as claimed.”

This passage in the reasons of my brother Smith was not part of the ratio decidendi but it was the considered opinion of the four judges who constituted the majority of the Court. They said that, if a building contractor is also a manufacturer of building material, lumber or brick for example, and uses, for the purpose of executing a building contract, brick or lumber produced by himself, that is a case within section 87(d) and the transaction is, by force of that section, deemed to be a sale and he is chargeable accordingly. In the present case the members of the bridge produced were produced specially for the purposes of the contract.

I have fully considered the able argument addressed to us by Mr Forsyth and my conclusion is that, when sections 86 and 87 are read together, this transaction falls within the category of cases described by section 87(d), and that the view expressed by my brother Smith in Fraser’s case, [1931] SCR 490. is the view which ought to govern us in the disposition of this appeal. I think, in this respect, the practice of the Department is right.

Then comes the question, the real question I think on the appeal, whether in such circumstances section 105 applies. Section 105 is in these words:

”105. A refund of the amount of taxes paid under Parts X, XI, XII and XIII of this Act may be granted to a manufacturer, producer, wholesaler, jobber or other dealer on goods sold to His Majesty in the right of the Government of any province of Canada, if the said goods are purchased by His Majesty, for any purpose other than purposes of resale or of any railway, Commission, board or public utility which is operated by or under the authority of the Legislature or the Lieutenant-Governor in Council of the province.”

The question to be decided is not without difficulty. I have come to the conclusion that “goods” are “sold” within the meaning of this section when there is a sale that is such solely by force of the statutory declaration that it shall be deemed to be a sale for the purposes of the statute. Section 105 is part of the statute and transactions within the declaration are, therefore, deemed to be sales for the purposes of the section. A transaction within section 87(2), for example, would, if the other conditions were fulfilled, be a sale within section 105.

Mr Varcoe’s argument is that here, while the transaction (the production of the goods in question for the use of the producer in fulfilling this contract) is deemed to be a sale by force of the statute, the goods produced are not “sold” to the provincial government. This argument has force and I have given it attentive consideration. The “use” of these goods for the purposes of the respondents in fulfilling the contract involves a translation of the property in them to the provincial government by force of the contract under which the entire consideration for the whole work is payable by the provincial government to the respondents.

Our duty, as Lord Hailsham said in Dominion Press v Minister of Customs, [1928] AC 340 at 342, is to ascertain whether the goods are “sold” to the provincial government within the meaning of those words as employed in the statute. I think, in view of the fact mentioned, that the “transaction” involves translation of the property in the goods to the provincial government, the proper view, when the provisions of sections 86 and 87 are taken into account as a whole, is that it falls within section 105.

The appeal should be dismissed with costs.

Sections 86 and 87 referred to in the Dominion Bridge case were, for practical purposes, identical to the relevant portions of sections 27 and 28 of the present legislation. I set those out:

27. (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

(i) payable, in any case other than a case mentioned in subparagraph (ii) or (ill), by the producer or manufacturer at the time when the goods are delivered to the purchaser or at the time when the property in the goods passes, whichever is the earlier,

28. (1) Whenever goods are manufactured or produced in Canada under such circumstances or conditions as render it difficult to determine the value thereof for the consumption or sales tax because

(d) such goods are for use by the manufacturer or producer and not for Sale;

the Minister may determine the value for the tax under this Act and all such transactions shall for the purposes of this Act be regarded as sales.

I see no real distinction between this case and the Dominion Bridge case. In my opinion, the provincial Crown purchased the goods in question.

The defendant then contends the goods, if purchased, were used by a public utility owned, controlled or operated by the provincial govern- ment; the onus is on the plaintiffs to establish the contrary. The defendant says the goods became part of the ferry terminals or ferry landings; those terminals or landings were part of the ferry system; the ferry system was, at the material times, a public utility. But as I have earlier recounted, the ferry system was then under the jurisdiction of the Department of Highways. The ferry landings and terminals were part of the general provincial highway system. I do not think it can be seriously contended the construction, maintenance and operation of highways, whether or not tolls are charged, is the operation of a public utility.

Even if one isolates the ferry system from the highway system, it is clear many of the provincial ferry services were in competition with private ferry operators, and other private concerns in the business of transporting vehicles and people. One exception was the Vancouver- Victoria foot passenger service by water. In my view, Chastain v British Columbia Hydro and Power Authority (1972), 32 DLR (3d) 443 (McIntyre, J, BCSC), is distinguishable. In that case it was conceded that, in the particular area affecting the plaintiffs, the defendant had an absolute monopoly in respect of the supply of gas and electricity. As McIntyre, J pointed out at page 453, it was clear from the empowering statute the defendant was intended to have a monopoly. That is not the situation here.

I have not overlooked the point that in the legislation prior to the British Columbia Ferry Authority (Vesting) Act of 1968, there was a Stipulation the British Columbia Ferry Authority (and its predecessor) should . . not be deemed a public utility within the interpretation of the Public Utilities Act’’;* [1] that that section was repealed in 1968 when the Authority’s undertaking was transferred to the provincial Crown. I do not think the repeal assists the defendant’s submission on the public utility defence.

The defendant next takes the point that the goods, if purchased, were used by the provincial Crown for commercial or mercantile purposes; they were used in the ferry terminals or ferry landings; the operation of the ferry system was a commercial or mercantile venture by the province. Once more the defendant submits the onus is on the plaintiffs to show otherwise. I shall deal later with the question of onus.

To my mind, the evidence is quite clear the provincial ferry service was not a commercial or mercantile venture in the sense of the words found in paragraph 44(2)(c) of the Excise Tax Act. That expression “commercial or mercantile purpose” connotes the carrying on of a business for profit. The provincial government, in the late 1950’s, started into a large-scale ferry operation in order to provide to the public a service between Vancouver and Victoria. The private operators had ceased to operate the service. The convenience and welfare of the public had been affected. The ferry fleet subsequently grew larger as more runs and routes were adopted. In the early years the ferries made some kind of profit (depending on the government accounting principles used). From 1968 on (the relevant years) the losses were heavy, and mounting. Mr Aldous, who was general manager of the system before, during, and after the years in question, stated the ferry system never indeed attempted to make a profit. It is obvious to me the intent of the provincial government was to provide a service to the public, not to carry on a ferry system for commercial or mercantile purposes. That objective did not change as the services expanded.

I now deal with the dispute as to onus. The defendant argued that paragraphs 44(2)(a), (b) and (c) are tax-exempting provisions; the onus is then the plaintiffs to bring themselves within the exemptions. Reliance was placed on the well-known line of authorities illustrated by The King v Carling Export Brewing & Malting Co Ltd, [1930] SCR 361, per Duff, J at 366. In my opinion that line of authority is not truly applicable to section 44. The cases lay down the rule that where a tax is imposed but there are exemptions, the onus is on the person alleging non-taxability to prove he comes within the exemptions. Section 44 of the present legislation is not the charging or imposition section. Subsection 27(1) is. The remaining subsections of section 27, and other sections of the Act, indeed do provide exemptions. But section 44 purports to deal with deductions and refunds of tax already imposed, levied, and paid. The plaintiffs here are not asserting the goods were exempt from tax; that they or their predecessors in title to the goods were exempt from paying or collecting the tax. They merely assert they fall within refunding, not exempting, provisions.

I do not find it necessary to come to any firm decision on this point of onus. If the onus ts on the plaintiffs to prove the goods were not used by a public utility or for commercial or mercantile purposes then, in my opinion, they have met the onus. They have, on the evidence and the law, established those facts. If the onus is (as argued by the plaintiffs) on the defendant to show the goods were used by a public utility or for commercial or mercantile purposes, then on the evidence before me, and on the law, that has not been established.

The defendant next argues that before a refund of taxes can be granted to the plaintiffs they must show they were the ones who, in fact, paid the tax to the federal Crown. It is said the predecessors in title of the goods were the ones who, by section 27 of the legislation, were required to pay, and in fact paid, the taxes. But subsection 44(2), when it refers to “a refund of taxes paid”, does not provide they must have been paid, in the first instance, by the particular person to whom the Minister may grant a refund. There is no doubt, on the facts here, the tax was first collected and paid to the Minister of National Revenue by the plaintiffs’ predecessors in title. The Excise Tax Act is, as I see it, a good example of the imposition of indirect taxation. The statute contemplates the tax will likely be passed on by the original producers or manufacturers to others.

From a practical point of view, the plaintiffs, in this case, were undoubtedly the ultimate payers of the taxes for which refund is sought. In the normal course of events, the provincial Crown, as the ultimate consumer, would have borne the final cost. But it directed it should not be so charged by the plaintiffs. The plaintiffs, in order to obtain the contracts, had no alternative but to follow that stipulation.

Subsection 44(2) of the legislation appears to give the appropriate Minister a discretion as to whom a refund may be paid. One of many reasons for the discretion may well be the precise situation that arose here. I suggest one of the purposes of the refund section seems to be to reduce the cost to provincial governments of goods used for traditional Crown purposes. The draftsman of subsection 44(2), I venture, may well have envisaged the situation that the provincial Crown might not have actually itself paid to the federal Crown the tax lawfully exigible, yet tax had been paid by someone, at some stage, on the goods used by the province. The Minister was then left with the decision as to whom, from a just and practical point of view, any refund should be granted.

In my view, that defence fails.

Finally, the defendant says: the plaintiffs are not manufacturers or producers; refunds can only be granted to those falling into the particular group or category listed in the last few lines of subsection 44(2); the plaintiffs are not among them. I do not accept this argument. There have been a series of decisions in respect of the words and expressions “produced or manufactured” and “manufacturer and producer” used in the Excise Tax Act. In The King v Dominion Press Ltd, [1927] 4 DLR 225, affirmed on appeal to the Privy Council [1928] 3 DLR 781, job printing was held to be the work of a “producer” (see [1927] 4 DLR at pp 229-30).

In The King v Vandeweghe Ltd, [1934] SCR 244 at 248; [1928-34] CTC 257 at 260; 1 DIC 265, Duff, CJ said:

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 Dominion Bridge case, already referred to, the Supreme Court proceeded on the basis, as I read the reasons, that the bridge construction company was a producer in the sense it produced the goods in question for its use in fulfilling its bridge construction contract wkh the provincial government.

In The Queen v York Marble, Tile and Terrazzo Ltd, [1968] CTC 44; 68 DTC 5001; 65 DLR (2d) 449, the respondent company installed marble in various buildings. It imported raw slabs and did work on them in its plant. The finished pieces were then built into the structures in respect of which the company had subcontracts. The Supreme Court reviewed at some length all of the earlier decisions I have referred to. The Court held the marble, as finally integrated or incorporated. into the buildings, had been manufactured, or alternatively produced, within the meaning of the Excise Tax Act.

All those cases indicate to me the words “manufactured or produced”, and their nouns, should be interpreted in a general sense. Adopting that approach, it is my view the construction carried out by the plaintiffs involved production. The plaintiffs therefore fall within the term “manufacturer” or “producer”. In my opinion, refunds can be granted to them.

There will be a declaration the plaintiffs are entitled to a refund of $39,442.50. The individual entitlements are set out in paragraph 7 of the admissions of facts.

There will be judgment accordingly, with costs.