Cefer Designs LTD v. Deputy Minister of National Revenue for Customs and Excise, [1972] CTC 307, 72 DTC 6281

Jackett, CJ:—This is an appeal from a declaration of the Tariff Board dated December 14, 1970 dismissing an application by the appellant under section 57 of the Excise Tax Act for a declaration that sales tax does not apply to certain floating concrete docks, wharves and breakwaters made by the appellant.* [1]

The appellant, by its Notice of Appeal to this Court, asks that the declaration of the Tariff Board be set aside upon the following question of law:

Did the Tariff Board err as a matter of law in not declaring that the floating breakwaters and docks or wharves made by the Appellant are exempt from tax or that no amount of tax is payable thereon under the Excise Tax Act?

As I am of the view that the Tariff Board had no jurisdiction to entertain the application made to it by the appellant and that, for that reason, the appeal to this Court must be dismissed, it becomes necessary for me to refer to the general scheme of the Excise Tax Act, in so far as it applies to consumption or sales tax, before I outline the application made by the appellant to the Tariff Board and before I explain why I have concluded that the Board had no jurisdiction to entertain it.

Subsection 30(1) of the Excise Tax Act imposes, inter alia, a consumption or sales tax of 9 per cent on the sale price of all goods produced or manufactured in Canada payable, except in certain exceptional cases, by the producer or manufacturer at the time of delivery to the purchaser. Subsection 30(1) is, however, subject to subsection 32(1) which provides that the tax imposed by section 30 does not apply to sales of the “articles” mentioned in Schedule III, and to subsection 32(2), which provides for only 50 per cent of the tax imposed by section 30 being payable on the sale and delivery of the “articles” enumerated in Schedule IV. There are various other special provisions that vary the prima facie effect of subsection 30(1). It will be sufficient, however, for present purposes, to mention paragraph 2(1)(aa), which defines “manufacturer or producer” to include, inter alia, “any person, firm or corporation that owns, holds, claims, or uses any patent, proprietary, sales or other right to goods being manufactured . .. ,” and subsection 29(2b), which reads as follows:

(2b) 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 manufactured or produced,

(b) manufactures or produces otherwise than at the site of construction or erection of a building or other structure, structural building sections for incorporation into such building or structure, in competition with persons who construct or erect buildings or other structures that incorporate similar sections not so manufactured or produced,

(c) manufactures or produces concrete or cinder building blocks, or

(d) manufactures or produces from steel that has been purchased by or manufactured or produced by that person, and in respect of which any tax under this Part has become payable, fabricated structural steel for buildings,

he shall, for the purposes of this Part, be deemed not to be in relation to any such building, structure, building sections, building blocks or fabricated Steel so manufactured or produced by him, the manufacturer or producer thereof.

Stopping at this point, it is apparent that among the problems that may arise in determining liability for this consumption or sales tax are the following:

(a) Are the articles in question of one of the classes of articles mentioned in Schedule III so that they are, in effect, exempt from any tax by subsection 32(1)?

(b) Are the articles in question of one of the classes of articles enumerated in Schedule IV so that they are in effect subject only to half-rates by virtue of subsection 32(2)?

(c) Is the de facto manufacturer or producer of the articles in question deemed not to be the manufacturer or producer by subsection 29(2b) so that he is not liable to pay the tax imposed by subsection 30(1) in respect of such articles?

(d) Is some person who is not otherwise the manufacturer or producer of the articles in question the manufacturer or producer thereof for the purposes of consumption or sales tax by virtue of paragraph 2(1)(aa) so that he is liable to pay the tax imposed by subsection 30(1) in respect of such articles?

Returning to the provisions of the legislation, it would appear that the tax is recoverable as a debt due to the Crown in the Federal Court or in any other court of competent jurisdiction under subsection 50(1) of the Excise Tax Act; and, presumably, any dispute between a subject and the Crown concerning liability for the tax can be determined in such an action. There is, in addition, section 57 of the Excise Tax Act which is in question in this appeal and which reads, in part, as follows:

57. (1) Where any difference arises or where any doubt exists as to whether any or what rate of tax is payable on any article under this Act and there is no previous decision upon the question by any competent tribunal binding throughout Canada, the Tariff Board constituted by the Tariff Board Act may declare what amount of tax is payable thereon or that the article is exempt from tax under this Act.

(2) Before making a declaration under subsection (1) the Tariff Board shall provide for a hearing and shall publish a notice thereof in the Canada Gazette at least twenty-one days prior to the day of the hearing; and any person who, on or before that day, enters an appearance with the Secretary of the Tariff Board may be heard at the hearing.

(3) A declaration by the Tariff Board under this section is final and conclusive, subject to appeal as provided in section 58.

I turn now to the application made by the appellant to the Tariff Board. Reference should first be made to certain correspondence attached to the application. That correspondence is as follows:

(1) Letter from the appellant to the District Excise Officer dated November 25, 1968:

For approximately two years the company of letter head has been involved in the research and development of cement flotation and allied products. For some of our products the initial development stage is complete and are now being marketed. Of recent, however, it has become apparent that for one of the above mentioned product lines the application of the 12% Federal Sales Tax on the total manufactured sa/es price is not in keeping with the practice of competition. Consequently we find that, from a ‘pricing’ standpoint we are placed in a disadvantageous position. We suggest, in these instances, that Part VI, Section 29(2b) paragraph (a), (b) of the Federal Excise Tax Act should apply.

The product line in question is floating concrete docks or wharfs used in the BC Marine industry for mooring of boats and other types of vessels. The individual concrete float modules are made at our plant but when joined or coupled together at the customer’s site form a floating complex. From a product standpoint, the above mentioned type of concrete flotation is in direct competition with various other types of flotation material such as wood, fiber-glass pontoon, styra foam, and so forth. We find that, in these instances, competitors are not required to ask their customers to bear the 12% Federal Excise Tax in the total manufactured sales price. Consequently, therefore, our view is that we fall within Part VI, Section 29(2b) subpara (a), (b) which reads in part

(2B) 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 manufactured or produced,

(b) manufactures or produces otherwise than at the site of construction or erection of a building or other structure, structural building sections for incorporation into such building or structure, in competition with persons who construct or erect buildings or other structures that incorporate similar sections not so manufactured or produced,

he shall, for the purposes of this Part, be deemed not to be in relation to any such building, structure, building sections, building blocks or fabricated steel so manufactured or produced by him, the manufacturer or producer thereof.

We request your thoughts on the above matter and respectfully request a ruling as to whether our interpretation of Section 29 is a correct one.

Should you wish further details or clarification on any of the above points to assist in your decision, please call on us.

(2) Letter from the Department of National Revenue to the appellant dated December 6, 1968:

This will acknowledge your letter of November 25, 1968, concerning the application of sales tax to floating concrete docks and wharves which are manufactured by your firm.

It is understood that the individual concrete float modules are made in your plant and are subsequently joined or coupled together at the customer’s site to form a floating complex. You have indicated that your competitors, who construct floating docks at site from materials such as wood, fibre- glassed pontoons, styrafoam, etc, are required to account for tax only on materials used. Your firm, on the other hand, is required to account for tax on your full selling price less applicable allowances for transportation and installation.

In this connection, you have requested that consideration be given to application of the provisions of Section 29(2b)(a) and (b) of the Excise Tax Act with respect to the floating concrete docks of your manufacture.

Sections 29(2b)(a) and (b) deal only with “buildings” and “structures”. It is the Department’s view that floating docks and wharves are neither buildings nor structures within the terms of the Excise Tax Act and, consequently, cannot be dealt with under these Sections.

(3) Letter from the appellant to the Department of National Revenue dated May 22, 1969:

Further to my letter November 25, 1968 and in reply to your letter December 6, 1968.

Considerable thought has been given to the question concerning what we feel our position is with respect to Section 29(2b), (a) of the Excise Tax Act. In your letter December 8, 1968 you state that the concrete floats of our manufacture are not considered ‘structures’ and therefore cannot be dealt with under Section 29.

According to a recognized dictionary definition, ‘structure’ is taken to mean, among other things, . . manner in which a building or organism or other complete whole is constructed . . . thing constructed . . . complex whole”. Surely, our concrete flotation when coupled together to form one complete complex could be classed as a ‘structure’ under the foregoing definition. From your letter of December 8 it appears as if the Excise Tax Act has taken the rather limited usage of the words ‘or other structure’ as relevant to structures affixed to land only. If this is the case, the intent of Section 29(2b) appears to be legislation to preclude unfair taxation between ‘contractors’ and ‘manufacturers’ engaged in fabrication of competitive products.

Our argument is that, in some cases we are caught in the same ‘contractor’

— ‘manufacturer’ dilemma with regards to Taxation. In other words, on occasion we find ourselves in direct competition with persons who fabricate under contractors licence, ‘structures’ that are built to perform an identical function as that of our product. The tax implication on our competitive bid-pricing is self evident. Our view is that the intent of Section 29(2b)(a) should apply in situations where obvious conflict exists between ourselves and persons operating under contractor licence. It should be emphasized that it is the application of the Federal Tax that is under contention and not the 12% Tax per se.

Because we feel rather strongly as to the interpretation and application of Section 29(2b)(a) and how it applies to us under certain circumstances, for two of our more recent contracts we have acted in the capacity of ‘contractor’. The contracts in question were for two concrete breakwater complexes. In both cases our concrete breakwater was in competition with contractors offering three alternative types of breakwater, namely: rock fill, pile breakwater and/or floating log.

Accordingly, to improve our competitive position, or at least work from a common denominator, we acted as ‘contractors’ for these specific jobs and have paid Federal Tax on materials only.

This letter is submitted to amplify our previous letter of the 25 November, 1968. In the light of the foregoing we respectfully request that your department reappraise our situation with respect to Section 29(2b)(a) of the Excise Tax Act.

(4) Letter from the Department of National Revenue to the appellant dated September 30, 1969:

This will refer to previous correspondence and our meeting of Sept 25, 1969 with Mr L J Vetter regarding the application of sales tax to floatable concrete products of your manufacture.

As explained during the meeting, the Department holds that with reference to Section 29(2b)(a) & (b) of the Excise Tax Act, the persons who produce the goods concerned must be in competition with persons who construct or erect similar goods at site ie concrete in competition with concrete, or wood in competition with wood. The floatable concrete products of your manufacture cannot be said to be produced in competition with similar goods produced at site. Consequently, the floating concrete docks, wharves, or walkways of your manufacture are held to be taxable on the sale price. It was further confirmed that the floatable goods named are not considered to be structures within the meaning of Section 29(2b).

Your continued co-operation and patience is very much appreciated and it is regretted that within the framework of the legislation a favourable decision could not be given.

(5) Letter from the Department of National Revenue to the solicitors for the appellant dated December 17, 1969:

This refers to your letter of December 10, 1969 requesting our comments concerning the wording of a proposed statement of the differences existing between the Department and yourselves regarding the interpretation of Section 29(2b), (a) and (b) of the Excise Tax Act.

It is considered that the wording as shown in your draft statement correctly presents the points in issue.

The draft statement referred to in this latter letter would appear to be that which appears on page 52 of the case, which reads as follows:

THE TARIFF BOARD STATEMENT OF APPEAL

POINTS IN ISSUE:

RE: SECTION 29(2b), (a) and (b), OF “EXCISE TAX ACT’’, RSC 1952,

CHAPTER 100

(a) Whether the wording “in competition with persons who construct or erect similar buildings or structures . . is confined to “similar” material, ie, concrete in competition with concrete, or wood in competition with wood;

(b) Whether the word “structures” includes floating docks, floating wharves, and floating breakwaters.

The application to the Tariff Board as amended during the Tariff Board hearing bears date April 15, 1970 and reads in part as follows:

NOTICE OF APPLICATION

TAKE NOTICE that an application will be made by Cefer Designs Ltd to the Tariff Board for a Declaration that Floating Concrete Docks, Wharves and Breakwaters manufactured by Cefer Designs Ltd are exempt from sales tax, pursuant to the provisions of the Excise Tax Act.

STATEMENT OF FACTS

(a) Cefer Designs Ltd is a body corporate duly incorporated pursuant to the laws of the Province of British Columbia having a registered office at Suite 1410-1075 West Georgia Street, in the City of Vancouver, Province of British Columbia and having a place of business at 899 River Road, in the Municipality of Richmond, Province of British Columbia.

(b) Cefer Designs Ltd manufactures cement segments for Floating Docks,

Breakwaters and Wharves from its plant in Richmond, British Columbia.

(c) Cefer Designs Ltd manufactures or produces the said Docks, Wharves and Breakwaters otherwise than at the site of construction or erection thereof, in competition with persons who construct or erect similar buildings or sructures not so manufactured or produced.

(d) Alternatively, Cefer Designs Ltd manufactures or produces, otherwise than at the site of construction or erection of a building or other structure, the said Docks, Wharves and Breakwaters for incorporation into such building or structure, in competition with persons who construct or erect buildings or other structures that incorporate similar sections not so manufactured or produced.

DOUBT OR DIFFERENCE

(e) That the difference which exists between Cefer Designs Ltd and the Deputy Minister of National Revenue for Customs and Excise is:

(i) whether the wording “in competition with persons who construct or erect similar buildings or structures . . is confined to “similar” material, ie, concrete, or wood in competition with wood; and

(ii) whether the word “structures” includes cement Docks, Wharves and Breakwaters, or segments thereof of a size and design similar to those constructed by Cefer Designs Lid.

(h) Cefer Designs Ltd ask for a Declaration that:

1. the word “structures” used in Section 29(2b)(a) and (b) of the Excise Tax Act includes Floating Cement Wharves, Docks and Breakwaters or segments thereof, of a type constructed by Cefer Designs Ltd; and

2. that the wording “in competition with persons who construct or erect Similar buildings or structures . . .’’ used in Section 29(2b)(a) and (b) of the Excise Tax Act is not confined to “similar material; and

3. that for the purposes of Part VI of the Excise Tax Act, Cefer Designs Ltd is deemed not to be the manufacturer or producer of Floating Concrete Docks, Wharves and Breakwaters.

4. that the Floating Docks, Wharves and Breakwaters, produced by

Cefer Designs Ltd are exempt from tax under the Excise Tax Act.

The Tariff Board’s findings as to the facts read as follows:

The appellant makes long hollow parallelepipeds of concrete, though the parallelepipedal form may, at times, be somewhat varied to suit particular circumstances; in one instance cited in evidence they measured, in feet, 20 x 4 x 80. These parallelepipeds are commonly known as segments and will be thus designated.

These segments, in sizes appropriate to the particular use, are made by the appellant in its drydock; they are then floated and towed to the place where they will be used. At this place they are appropriately secured to each other to form a floating dock, wharf or breakwater. To keep the floating dock, wharf or breakwater in place various methods may be used; the outer ends of the complete device of several segments may be made fast to a piling or dolphin driven into the seabed; the device may be made fast by heavy chains with anchors; it may be made fast by stiff arms or legs, usually of wood or steel, which are fixed to the shore. These methods are intended to allow the device to rise and fall vertically with the tide, with little or no movement in the horizontal plane.

When in place, the appellant’s installations serve either as breakwaters or as docks or wharves upon which persons or vehicles may gain ready access to vessels secured alongside. They may have, upon their upper surfaces, decking made of other material than concrete such as wood or steel.

There are competitive installations of concrete and competitive installations of wood the floatation of which is maintained by wood, styrofoam, fibreglass or other means.

All these installations have different competitive advantages and disadvantages in Suitability, in capital cost, in maintenance cost and in durability or useful life.

The appellant’s installations are each built to order for the specific use of each customer and are designed for the permanent use of the customer at the place indicated by the customer.

In my view, section 57 does not confer jurisdiction on the Tariff Board in respect of the class of problems into which the problem raised by this application falls. Section 57 obviously applies to any question as to whether articles of a particular description fall within one of the classes of articles mentioned in Schedule II] so that no tax is payable with regard thereto under subsection 30(1) (subsection 32(1)) and to any question as to whether articles of a particular description fall within one of the classes enumerated in Schedule IV so that only 50 per cent of the tax imposed by subsection 30(1) is payable with regard thereto (subsection 32(2)). Any such question may be raised, provided there is a sufficiently definite description of the articles in question, as a question of general application. Such a question does not, in other words, have to be related to the goods involved in a particular transaction. Put another way, what section 57 does, when subsection 57(2) is read with subsection 57(1), is to authorize the Tariff Board to make a declaration of general application as to whether a particular class of articles is exempt or entitled to a special rate after having given all persons interested in such a declaration an opportunity to be heard.

Where, however, a question arises as to whether any person was the manufacturer or producer of certain goods, this must be decided with reference to the facts of the particular transaction. Obviously, this is so if the question raised is a pure question of fact as to whether the defendant was the manufacturer or producer of the goods in question. The Supreme Court of Canada, in Goodyear Tire & Rubber Co of Canada Ltd v T Eaton Co Ltd, [1956] SCR 610; has held that section 57 had no application where the question was whether a person was to be considered a manufacturer or producer for the purposes of sales tax by virtue of paragraph 2(1)(aa) of the Excise Tax Act (which at that time was paragraph 2(a)(ii) of the Act). In my view, essentially the same kind of problem is involved in a question arising under subsection 29(2b). Such a question must be decided in relation to each transaction. Whether the conditions of subsection 29(2b) have been complied with so that, while the appellant would otherwise be the manufacturer or producer for purposes of sales tax, that provision requires that he be deemed not to be the manufacturer or producer is of necessity a question that must be determined with respect to specific goods.

The impossibility of having a question under subsection 29(2b) decided by a proceeding involving a class of articles such as is contemplated by section 57 is illustrated by considering the complexity of the sales tax legal problems that can be involved in the erection of a wharf. Consider the following possibilities:

1. If a contractor who has a contract to erect a fixed wharf on site buys materials manufactured or produced by somebody else and incorporates them into the realty piece by piece as he builds the structure on it, he probably incurs no sales tax liability.

2. If a contractor who has a contract to erect a fixed wharf on site manufactures or produces materials or parts and incorporates them into the realty as he builds the structure, he will be deemed by paragraph 31 (1 )(d) to have sold such materials or parts and will have to pay sales tax on them. See The King v Dominion Bridge Co Ltd, [1940] SCR 487.

3. If a contractor who has a contract for a floating wharf such as the appellant contracts for manufactures or produces parts and puts them together and fixes them at the site as the appellant does, it may well be a question of fact and law, in each particular case, as to whether

(a) the wharf never becomes part of the realty so that the contractor is a manufacturer of the parts and sells them under a contract that calls for installation, or

(b) the wharf, though after installation it is floating in a fixed spot, is nevertheless a part of the realty so that liability to sales tax is dependent upon paragraph 31 (1 )(d).

The answer to the latter question could, as it seems to me, vary from particular case to particular case, and I am inclined to think that the question of whether the wharf is a “structure” might vary likewise. My view on that is that, just as an elevator or lift is ordinarily part of the realty, so a floating wharf or other similar installation that is so fixed that it is intended to stay on the same site for the duration of its economic “life”, may be a part of the realty and, if it is a part of the realty, then it seems to me that it may be a “structure” within the ordinary meaning of that word.* [2] What I have just said is, of course, obiter dicta and so is the further opinion that I am prepared to express, having regard to the unfortunate history of this affair, that a section of a concrete dock may well be “similar”, as a section of a structure, to a section made of some other material. This again, however, must be a question that has to be decided on the facts of a particular case and cannot be decided by a “class” opinion such as is contemplated by section 57.

Having expressed those tentative views, I must refrain from expressing any opinion on the correctness of the opinion contained in the Tariff Board’s declaration. Not only because, as I have indicated already, it is not a matter that can be determined apart from the facts of a particular case, but because, if the Tariff Board had no jurisdiction to make the declaration, this Court is precluded “from entering upon a consideration of the merits of the issue”,* [3] and, in my view, the Tariff Board had no jurisdiction to make the declaration applied for. The dividing line between the cases in which section 57 confers jurisdiction with reference to liability (as opposed to quantum) and the cases in which section 57 does not confer such jurisdiction is made clear in the Goodyear Tire [4] case per Fauteux, J (as he then was) delivering the judgment of the majority of the Supreme Court of Canada at page 615, where he said:

Whether or not a particular article is one in respect of which tax is imposed raises a question of general concern throughout Canada and is a matter justifying notice being given to third parties so that they may be heard if they so elect. But whether a particular person is the person liable for the payment of a tax imposed in respect of an article is an issue between that person and the Crown.

The Tariff Board dismissed the application under section 57 because it concluded that the application should be dismissed on the merits. In my view, the application was properly dismissed but for the reason that the Tariff Board had no jurisdiction to make the declaration sought.

In my view, therefore, the appeal should be dismissed because the Tariff Board’s decision was the correct decision although for the wrong reasons.

Thurlow, J:—Subsection 57(1) of the Excise Tax Act, RSC 1952, c 100, has undergone some amendment since 1956 when the Goodyear Tire case was decided but its general purview and purpose have not changed and in respect of articles of the kind here in question the class of cases that may be decided pursuant to its provisions is no broader now than it was at that time. At the time of the appellant’s application to the Tariff Board the subsection]: [5] read:

57. (1) Where any difference arises or where any doubt exists as to whether any or what rate of tax is payable on any article under this Act, the Tariff Board constituted by the Tariff Board Act may declare what rate of tax is payable thereon or that the article is exempt from tax under this Act.

Goods of the kind produced by the appellant are not exempt per se from the sales tax, nor is the question raised in this appeal one as to the rate applicable in respect of such goods. Rather the question appears to me to be one as to the liability of the appellant for tax.

By section 30 of the Act sales tax is imposed on the sale price of all goods produced or manufactured in Canada (which would include goods of the kind here in question) payable, save in certain exceptional situations, by the producer or manufacturer thereof at defined times.

What section 29, on which the appellant relies, appears to me to achieve is to render the manufacturer or producer not liable for the tax when a particular situation therein defined, exists. It accomplishes this by deeming the manufacturer or producer not to be the manufac- turer or producer. But while the result may be that no one is liable for the tax and, that in that sense the goods as well are exempted, what has been done is simply to exempt from liability in a specified situation a particular person who otherwise would be liable.

The scheme is thus not to exempt the goods but to exempt the person and the question whether the situation exists in which a particular person is exempted is no more a question of the rate applicable in respect of such goods or whether such goods are exempt than was the question raised in the Goodyear Tire case. In my opinion the decision in that case governs the present situation and leads to the conclusion that the Tariff Board did not have jurisdiction to entertain the application which resulted in the decision from which the present appeal is brought.

I would therefore dismiss the appeal. In reaching this conclusion, however, I do not wish to be taken as approving the view taken by the Tariff Board that the installations made by the appellant which are in question in these proceedings are not “structures” within the meaning of section 29 of the Excise Tax Act. As I see it that question is not before us, and I am content to leave it without an expression of opinion.