JUDSON,
J.
(all
concur)
:—This
is
a
claim
by
the
Crown
for
sales
tax
on
humidifiers
sold
by
the
manufacturer,
Shuttle
Mfg.
Co.
of
Canada
Ltd.,
to
a
number
of
manufacturers
of
furnaces.
The
claim
was
allowed
at
$42,292.51,
together
with
interest
and
penalties
of
$20,168.55.
The
period
covered
is
from
August
1,
1956
to
December
31,
1958.
During
this
period
Shuttle
carried
on
its
business
as
it
had
done
since
1945
without
collecting
sales
tax.
Its
books
had
been
audited
by
the
Revenue
Department
from
time
to
time
and
no
question
was
raised
against
the
propriety
of
this
course
until
July
of
1958,
when
the
Crown
decided
that
there
was
no
exemption.
Shuttle
had
hitherto
reported
all
the
sales
of
humidifiers
to
furnace
manufacturers
as
tax
free.
The
company’s
claim
for
exemption
is
under
Section
32(1)
of
and
Schedule
III
to
the
Excise
Tax
Act.
This
section
reads:
“32.
(1)
The
tax
imposed
by
section
30
does
not
apply
to
the
sale
or
importation
of
the
articles
mentioned
in
Schedule
III.”
Schedule
III
is
a
long
classified
list.
Furnaces
are
included
in
the
list
under
the
heading
of
certain
building
materials.
Also
included
in
this
list
are
:
"Articles
and
materials
to
be
used
exclusively
in
the
manufacture
or
production
of
the
foregoing
building
materials.’’
The
evidence
was
that
when
a
customer
bought
a
furnace
from
a
furnace
manufacturer,
the
humidifier
was
supplied
with
the
furnace
as
a
matter
of
course
and
was
included
in
the
price,
just
as
were
other
accessories
such
as
pressure
regulators,
thermostats
and
other
controls.
When
a
manufacturer
of
furnaces
ordered
humidifiers,
he
quoted
his
licence
number
and
gave
a
certificate
as
prescribed
by
the
Regulations
in
the
following
form
:
"I/We
certify
that
the
goods
ordered/imported
hereby
are
to
be
used
in,
wrought
into,
or
attached
to
taxable
goods
for
sale.
Licence
Number
(Name
of
Purchaser)
”
Before
1945
furnaces
were
subject
to
sales
tax.
After
1945
furnaces
and
articles
and
materials
to
be
used
exclusively
in
the
manufacture
or
production
of
furnaces
were
exempted
from
sales
tax
by
inclusion
in
Schedule
III
to
the
Excise
Tax
Act
(1945,
c.
30,
Section
8).
After
1945,
this
manufacturer
of
humidifiers
continued
as
before
to
accept
the
above
quoted
certificate.
I
think
that
it
was
authorized
to
do
this
under
the
Regulations,
the
particular
one
reading
as
follows:
“(b)
À
licensed
manufacturer
shall
not
quote
his
licence
number
nor
give
the
certificate
as
above
when
purchasing
or
importing
goods
to
be
used
in,
wrought
into,
or
attached
to
articles
specified
as
exempt
from
the
Consumption
or
Sales
Tax.
(Note.—Except
in
respect
of
goods
conditionally
exempted
according
to
use.)
”
These
humidifiers
were,
in
my
opinion
and
evidently
in
the
opinion
of
the
Department
until
July
of
1958,
goods
conditionally
exempted
according
to
use.
In
July
of
1958,
when
the
Department
first
raised
the
question,
its
only
ground
for
saying
that
the
humidifiers
were
not
exempt
from
sales
tax
was
that
they
were
not
part
of
the
furnace
but
part
of
the
duct
work.
This,
I
think,
it
is
impossible
to
accept.
These
humidifiers
had
to
be
placed
in
the
furnace
close
to
the
heating
distributor
if
they
were
to
function
at
all.
Sometimes
the
humidifier
was
placed
in
that
part
of
the
furnace
which
is
called
the
‘‘plenum’’,
which
is
the
air
pressure
mixing
chamber
and
serves
as
a
lid
for
the
furnace.
Some
furnaces
were
sold
with
the
plenum
already
made.
Some
were
sold
while
still
requiring
adaption
to
connect
them
with
the
duct
system.
But
however
sold,
both
the
plenum
and
humidifier
were
part
of
the
furnace.
In
the
Courts
the
Department
extended
its
claims.
In
addition
to
the
claim
that
the
humidifier
was
part
of
the
duct
work,
the
Department
said
that
it
was
wrong
to
act
on
the
certificate
in
the
circumstances
of
this
case.
Notwithstanding
the
fact
that
the
furnace
manufacturer
certified,
in
accordance
with
the
regulations,
that
the
goods
were
to
be
used,
wrought
into
or
attached
to
taxable
goods
for
sale,
a
few
of
these
humidifiers
might
have
been
used
in
space
heaters
or
sold
as
replacement
parts
for
existing
furnaces,
and
in
both
these
cases
there
was
no
exemption.
The
evidence
is
that
very
few
of
the
humidifiers
would
be
so
disposed
of.
This
led
the
Exchequer
Court
to
say
that
the
certificates
offered
no
protection
and
that
in
the
absence
of
any
contractual
arrangements
that
the
humidifiers
were
to
be
used
exclusively
in
the
manufacture
or
production
of
furnaces,
the
sales
tax
had
to
be
paid.
The
manufacturer
of
humidifiers
was
not
entitled
to
rely
on
the
furnace
manufacturer’s
certificate
and
the
burden
was
imposed
on
the
humidifier
manufacturer
of
seeing
to
it
both
by
contractual
arrangements
and
by
subsequent
investigation
that
its
products
were
used
exclusively
in
the
manufacture
of
furnaces.
The
difficulty
or
even
impossibility
of
operating
under
these
conditions
is
apparent.
In
so
deciding,
I
think
that
the
Exchequer
Court
was
in
error.
The
manufacturer
of
humidifiers
is
entitled
to
reply
on
the
certifi-
cate
of
the
furnace
manufacturer.
The
Regulations
provide
that
in
those
odd
cases
where
the
humidifier
is
not
in
fact
used
in
the
furnace,
it
is
the
purchaser
of
the
humidifier
who
becomes
responsible
for
the
sales
tax.
This
follows
from
those
sections
in
the
Regulations
dealing
with
Certificates
of
Exemption,
which
are
numbers
(b),
(1)
and
(m)
and
which
read:
“(b)
A
licensed
manufacturer
shall
not
quote
his
licence
number
nor
give
the
certificate
as
above
when
purchasing
or
importing
goods
to
be
used
in,
wrought
into,
or
attached
to
articles
specified
as
exempt
from
the
Consumption
or
Sales
Tax.
(NOTE.
—
Except
in
respect
of
goods
conditionally
exempted
according
to
use.
)
(l)
Where
a
purchaser
quotes
a
licence
number
only
on
his
order
for
goods,
the
vendor
is
responsible
for
Sales
Tax
on
the
Sale.
Where
a
purchaser
erroneously
quotes
both
licence
number
and
certificate
on
his
order,
the
purchaser
is
liable
for
the
tax,
except
in
such
cases
where
it
is
obvious
to
the
vendor
that
the
quotation
was
made
in
error.
(m)
A
licensed
manufacturer
or
producer,
who
also
operates
a
retail
branch
or
branches,
shall
not
use
his
licence
when
purchasing
or
importing
merchandise
for
such
retail
businesses.
’
’
These
do
not
require
the
manufacturer
of
humidifiers
to
enter
into
contractual
relations
as
to
the
use
to
which
the
manufacturer
of
furnaces
can
put
the
goods
and
to
conduct
an
investigation
for
the
purpose
of
ensuring
that
the
goods
are
in
fact
put
to
that
use.
It
is
unnecessary
to
deal
with
the
claim
for
exemption
under
Section
30,
subsection
(2),
of
the
Excise
Tax
Act,
which
exempts
goods
sold
by
a
licensed
manufacturer
to
another
licensed
manufacturer
‘‘if
the
goods
are
partly
manufactured
goods’’.
I
note
that
the
Minister
by
Section
29(1)
(d)
is
made
the
sole
judge
whether
or
not
goods
are
“partly
manufactured
goods’’.
Nor
do
I
express
any
opinion
on
the
argument
that
the
Crown
is
estopped
from
collecting
for
the
period
in
question
as
a
result
of
its
representations
and
conduct
during
the
preceding
period.
It
is,
however,
clear
that
everything
that
the
Department
did
in
the
preceding
period
led
this
manufacturer
to
assume
that
its
course
of
conduct
was
in
accordance
with
the
departmental
interpretation
of
the
Statute
and
Regulations.
Nothing
happened
during
the
period
August
1,
1956
to
December
31,
1958,
except
a
change
of
opinion
on
the
part
of
the
enforcement
officers
in
July
of
1958,
on
the
meaning
and
effect
of
the
Statute
and
Regulations.
I
think
that
they
were
wrong
in
the
second
meaning
which
they
attached
to
them.
I
would
allow
the
appeal
with
costs,
set
aside
the
judgment
of
the
Exchequer
Court
and
dismiss
the
Crown’s
Information
with
costs.
’’
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