Superior Pre-Kast Septic Tanks LTD and Lloydminster Pre-Kast Septic Tanks LTD v. Her Majesty the Queen, [1977] CTC 156, 77 DTC 5134

The Chief Justice (concurred in by Pratte and Urie, JJ) (judgment delivered from the Bench):—This is an appeal against a judgment of the Trial Division dismissing with costs an action, launched by way of petition of right in the Exchequer Court of Canada, for a “Declaration . . that the appellants “be deemed neither manufacturers nor producers of precast septic tanks as defined by Section 29(2b) of the Excise Tax Act, RSC 1952, chapter 100, and Amendments thereto”.

The allegations in the petition of right are:

1. THAT the suppliants manufacture at their plants located in Nanaimo, British Columbia, and Lloydminster, Alberta, respectively, structures known as precast concrete septic tanks.

2. THAT the structures manufactured as aforesaid are manufactured by pouring concrete into already manufactured moulds in various sizes.

3. THAT the suppliants maintain at their respective plants supplies of manufactured precast septic tanks and these septic tanks are delivered and placed in position by the suppliants in accordance with the requirements of the purchaser.

4. The suppliants are in competition with individuals and Companies who construct similar structures on the site where they are to be used.

5. Section 30 of the Excise Tax Act, RSC 1952, Chapter 100, and Amendments thereto, imposes a Sales Tax on the sale price of all goods produced or manufactured in Canada payable upon delivery or when the property and goods passes to the purchasers.

6. The provisions of the said Excise Tax Act, Section 29(2b)(a) provides that where a person manufactures or produces a structure otherwise than at the site of construction in competition with persons who construct them on site he shall be deemed not to be a manufacturer or producer thereof.

It is to be noted that the petition of right is, throughout, expressed in the present tense. It does not seek a declaration, in terms, with reference to the liability to pay tax in respect of septic tanks sold by the appellants during some period before the action was launched nor does it seek a declaration, in terms, with reference to septic tanks to be sold by the appellants after the action was launched. It is indeed, in my view, ambiguous as to whether what was sought was the former, the latter or a declaration applicable to septic tanks sold by the appellants during some period before the action was launched and septic tanks to be sold by the appellants after the action was launched.

The trial judge apparently read the prayer for relief as a request for a declaration in respect of septic tanks to be sold by the appellants after the action was launched and dismissed the action by the appel- lant Superior Pre-Kast Septic Tanks Ltd on the following reasoning [p 27]:

The Superior Pre-Kast Septic Tanks Ltd, one of the co-plaintiffs, was incorporated in 1969 and carried on business for three years at Nanaimo, BC and then sold to another company and the co-plaintiff. Lloydminster Pre-Kast Septic Tanks Ltd is the only company of the two now operating. The action is therefore dismissed as to the Superior Pre-Kast Septic Tanks Ltd as the declaration asked is for merely academical or hypothetical questions (Annual Practice 1973, p 212; Tindall v Wright, [1922] WN 124: Re Barnato, [1949] Ch 258 (CA)).

In so far as the other appellant is concerned, the trial judge dismissed the action on the ground that the septic tanks that it sells do not fall within the word “structure” in the provision in question.

While the petition of right was launched before the Revised Statutes of Canada of 1970 came into force, the trial took place after that event, and the trial judge refers to the relevant provision in those Statutes and the parties in this Court also refer to such provisions. There is no suggestion of any relevant change and I will refer to the same provisions.

Subsection 27(1) of the Excise Tax Act, RSC 1970, c E-13, imposes a consumption or sales tax on the sale price of all goods “produced or manufactured in Canada” (subject to certain exemptions and modifications) payable, in the typical case, by the “producer or manufacturer’. Subsection 26(4) provides, inter alia, that where a person

(a) manufactures or produces a building or other structure otherwise than at the site of construction or erection thereof, in competition with persons who construct or erect similar buildings or structures not so manufact- tured or produced,

he shall . . . be deemed not to be, in relation to any such . . . structure . . . so manufactured or produced by him, the manufacturer or producer thereof.

This appeal has been argued on the basis that it is common ground that a septic tank manufactured by an appellant is not a “building” within the meaning of the word in paragraph 26(4)(a). The only serious question between the parties arises from the appellants’ contention, which the respondent contests, that such a septic tank is a “structure” within the meaning of the provision.

The facts as stated by the appellants in their memorandum in this Court are as follows:

1. The Appellant Lloydminster Pre-Kast Septic Tanks Ltd is now and both Appellants were manufacturers licenced under the provisions of the Excise Tax Act, RSC 1970, Chapter E-13.

2. At all material times the Appellant Lloydminster Pre-Kast Septic Tanks Ltd manufactured pre-cast concrete septic tanks by pouring concrete into molds and then delivering the finished tank in pieces to the site of use.

3. The Appellant Superior Pre-Kast Septic Tanks Ltd used to manufacture pre-cast concrete septic tanks in an identical manner.

4. At the site where the tank is to be used the parts of the pre-cast tank are lowered into a hole in the ground dug especially for the purpose and assembled. After assembly the septic tank is connected to the sewer pipe servicing the building and to a disposal field.

5. After assembly and connection the septic tank is covered by up to 6 feet of earth.

6. Provision is made in the tank for a manhole in the top for cleanout purposes.

7. The construction of the tank is of reinforced concrete using steel reinforcing rods.

8. The shape of the tank is rectangular rather than square.

9. Sales by the Appellants were made in two ways:

(a) directly to the user who installed them or paid for their installation or;

(b) to a backhoe operator who in turn would contract to install the tanks for the consumer.

10. At all times the Appellants paid all required sales tax with respect to the materials, eg steel reinforcing used in the construction of the tanks.

11. The Appellant Superior Pre-Kast Septic Tanks Ltd sold its assets in or about the month of August, 1971 but prior to that time had been assessed for sales tax on the selling price of the complete septic tank including delivery costs, cement, steel, gravel and labour as had the Appellant, Lloydminster Pre-Kast Septic Tanks Ltd.

12. Both Appellants claim exemption from tax by reason of Section 25 of the Excise Tax Act and particularly Section 26(4) thereof.

13. The Appellant, Lloydminster Pre-Kast Septic Tanks Ltd has a plant at Lloydminster, Alberta and a trading area surrounding that location in which it competes with septic tank builders who construct concrete septic tanks of a similar design and function at the place of use.

14. The Appellant, Superior Pre-Kast Septic Tanks Ltd used to have a plant at Nanaimo, British Columbia and a trading area surrounding that location in which it competed with septic tank builders who construct concrete septic tanks of a similar design and function at the place of use.

15. The weight of the septic tanks manufactured by the Appellants is in excess of two tons and they are transported by vehicles with special Cranes mounted on them.

16. The septic tanks which are in competition with those manufactured by the Appellants are constructed or erected at the site of use in the following manner:

(a) an excavation is dug in the ground.

(b) forms are placed in the excavation in a rectangular shape.

(c) concrete is poured into the forms with reinforcing steel placed in the concrete for strength.

(d) when concrete walls have hardened the forms are removed.

(e) then a top with a manhole is constructed and placed on top.

(f) the tank is then connected to a building and buried in a similar manner to the pre-cast septic tanks.

(g) builders of these septic tanks pay tax only on material, ie cement and Steel only.

17. Once the septic tanks are connected to the house or other building and the disposal field they are seldom, if ever, removed, and remain buried in the ground permanently. Therefore they form part of the realty.

The respondent agrees with paragraphs 1 to 14 inclusive and paragraph 17 of the appellants’ memorandum. The respondent also agrees with paragraphs 15 and 16 but with the following qualifications:

re para. 15: The weight of the standard septic tank manufactured by the

Plaintiff is just under 3 tons. At Lloydminster a 1,000 gallon tank is manufactured which weighs just under 4 tons.

re para. 16: The Respondent denies that the septic tanks made by

competitors of the Appellants are “erected” at the site of use.

The respondent also states by its memo certain additional facts and makes certain comments with regard to the facts as stated by the appellants, viz:

A. The septic tanks manufactured or produced by the Appellant are made in two sections. When put together they form what is in effect a hollow box. One section is the lower part of the tank, the other section is the upper part of the tank.

B. The sections are so made that the upper or male section of the tank fits into the lower or female portion of the tank.

C. There is a ridge around the i >per portion of the lower or female portion of the tank which is designed to allow a seal to be formed with a sealant or Caulking compound where the two sections meet.

D. The caulking compound is smeared on the top part of the bottom section before the section is lowered into the hole made ready for it, but sometimes applied in the hole.

E. The lower section is lowered into the hole by a hydraulic rigging on a truck.

F. The upper section is then lowered onto the lower section. The weight of the top section squeezes the sealant. Workers go inside and smooth off the excess sealant with a trowel. The sealant on the outside will be smoothed also if it can be reached. In Alberta because of danger of frost the tanks are set deeper than in British Columbia. In these instances a manhole pipe with cover would be set into the manhole on top of the tank. These manhole pipes could be in the range of 5 feet in length. Positive drainage of sewage from the building into the tank is required.

G. The appellants where they supply a tank do not dig the hole for the tank. They put the tank down the hole for the customer, seal it, put the baffles in and sometimes put the manhole extensions on. The customer is responsible for connecting the sewage pipes and outlet pipes to the tank, finishing the job and backfilling.

H. There are two plastic baffles supplied with the tank. Sometimes these are bolted on at the plant and in any event they are bolted on before the tank sections are lowered.

I. The Respondent takes exception to the use of the word “assembled” and “assembly” to describe, in paragraphs 4 and 5 of the Appellant’s Statement of Facts, how the top half of the septic tanks in question are lowered into place to rest on the inner lip of the lower half which has already been lowered into place.

J. The Respondent denies there is any “assembly” or that anything is “assembled” at site of use of the tanks.

K. The process of placing the two sections of the tank into their position of final use is more correctly described as “installing” the septic tank, in the sense of putting its constituent parts in position for use.

The appellants did not by their argument in this Court take issue with the respondent’s qualifications in respect of paragraphs 15 and 16 or with the additional facts stated by the respondent. The size of a typical tank manufactured by the appellants is, according to counsel, shown by the record to be 8'2 /4" X 3'6" X 5'7".

Without describing such machinery in detail, I think it is worthy of note that there is machinery in the Excise Tax Act whereby the appellants may, if they cannot utilize subsection 26(4), obtain the materials from which they make their septic tanks free of sales tax, which machinery could not be utilized in the case of the same materials if they were used to construct such a tank in the hole. Similarly such machinery will not be available to the appellants if they are entitled to take advantage of subsection 26(4). The result is, as I see it, that the difference between subsection 26(4) applying and not applying is the difference between

(a) sales tax on the materials going into the making of a septic tank,

and

(b) sales tax on a manufactured tank which would include, in addition to the sales tax on the materials, sales tax on the labour, overhead and profits, etc. This difference represents the amount by which the sales tax burden of the appellants exceeds that of builders on site if the appellants cannot take advantage of subsection 26(4).

It is also worthy of note that, when all of subsection 26(4) is read, it is found that it applies to

(a) a building or structure manufactured or produced otherwise than at the site in competition with persons who construct or erect on the site,

(b) structural building sections for incorporation into such building or structure, in competition with persons who construct or erect on the site,

(c) concrete or cinder building blocks, and

(d) prefabricated structural steel for buildings.

Subsection 26(4) would appear, therefore, to be an attempt to define in a more or less arbitrary fashion, the principal articles that may give rise to sales tax discrimination as a result of being manufactured off the eventual site of a building or structure. There is no attempt to eliminate all such discrimination by some general provision.

After considering the various authorities referred to by the learned trial judge and the parties concerning the meaning of the word “structure” when used in other statutes, I have concluded that it is not possible to substitute any definition for the word itself as found in the statute. In my view, a septic tank used as part of the sanitary system of a residence that is not on a sewer line is not a “structure” within the words “building or other structure” any more than a furnace or other similar fixture inside a building and forming a part thereof essential for its efficient use is such a structure. As I see it, all such equipment is essentially part of the building or an accessory to the building and in the phrase “building or structure”, as used in paragraph 26(4)(a), the word “structure” is something other than a “building”, a part of a building or an accessory to a building.

For the above reasons, I am of the view that the appeal should be dismissed with costs. In so concluding I must not be taken as expressing any opinion as to whether, if I had come to the opposite conclusion, I could have found it possible to agree that this was a proper case for a declaratory judgment. This question was not argued by the parties. Having regard to the difficulty of framing a declaration if the appellants were right, and the ease with which the question at issue could have been solved in the traditional way by a test case on a set of actual facts, I cannot refrain from expressing my reservations as to whether the Court should, in such a case, exercise its discretion to grant a declaration.