Enseignes Imperial Signs Ltd., M.N.R. V., [1991] 1 CTC 229

Pratte, J.A.:—This appeal is brought from a judgment of the Trial Division (Dubé, J.) which quashed an assessment made by the Minister of National Revenue under the Excise Tax Act, R.S.C. 1985, c. E-15.

The respondent makes and sells illuminated signs. The great majority of the signs it sells are new; but it also sells used signs which it reconditions and alters somewhat in accordance with the needs of its customers. The assessment vacated by the trial judge related to sales of used signs. It was based on the appellant's argument that the respondent was the manufacturer or producer of these used signs, so that it should pay the tax which is payable under subparagraph 50(1)(a)(i) of the Excise Tax Act by the producer or manufacturer of goods. [1] The only problem raised by this appeal is as to whether the trial judge was right in holding that the changes made by the respondent to the used signs before selling them were so insignificant that the respondent could not be regarded as the producer or manufacturer of the signs.

The signs sold by the respondent resemble thin metal boxes, the bottom of which is intended to be fixed to a wall and the top is replaced by a transparent plastic cover which serves as the front of the sign. The advertising message that the sign is to communicate is drawn and painted on the inside surface of this cover. Fluorescent tubes are placed inside the box and their light illuminates the sign.

The respondent buys used signs with a view to selling them to small merchants who wish to obtain an illuminated sign at low cost. When a customer appears he must first select from the respondent's stock of used signs one with a suitable shape and dimensions. When this has been done, the respondent will transform the sign to meet the new customer's requirements. The metal part of the sign is reconditioned and repainted; the lighting system is also repaired. The plastic cover is replaced in the rare cases where this is necessary; usually it is cleaned and the colours that were on its inside surface washed off; finally, the new advertising message which the customer wishes to have is painted on it, a relatively simple operation since the respondent only agrees to paint on its used signs advertising messages which can be composed by computer.

After referring to the judgment of the Supreme Court of Canada in R. v. York Marble, Tile & Terrazzo Ltd., [1986] S.C.R. 140; [1968] C.T.C. 44; 68 D.T.C. 5001, the trial judge held that the respondent could not be regarded as the producer or manufacturer of the used signs which it had sold because, in reconditioning these signs, the respondent had not conferred any new form, quality, property or combination on them.

In York Marble, the Supreme Court had to decide whether marble squares, made from slabs of imported marble which had been sawn, cut, reinforced and polished in Canada, had been produced or manufactured in Canada Within the meaning of what was then paragraph 30(1)(a) of the Excise Tax Act. Answering this question in the affirmative, Spence, J. speaking for the Court first adopted the definition of the word ” manufacturer" used in a judgment of the Quebec Superior Court, M.N.R. v. Dominion Shuttle Co. (1934), 72 Que. S.C. 15: ”. . .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”.

Spence, J. concluded that, in the circumstances, there had been manufacture because the marble slabs imported from Italy had been given a new form, new quality and new properties. The judge then added that, even if this first conclusion was wrong, the marble squares in question must be said to have been produced in Canada. In Spence, J.'s opinion, the verbs produce" and “manufacture”, as used in the Excise Tax Act, are not synonymous so that a thing which was not manufactured in Canada may still have been produced there. In this regard the judge cited with approval a judgment of the Ontario High Court, Gruen Watch Co. of Canada Ltd. v. A.-G. Canada, [1950] 4 D.L.R. 156; [1950] C.T.C. 440; 4 D.T.C. 784, that someone importing watch cases and movements separately is producing watches in Canada, though he is not manufacturing them, when he places the movements in the cases.

The latter decision shows that a thing can be produced by carrying out a very simple operation. What matters is not the complexity of the operation but its result. A thing is produced if what a person does has the result of producing something new; and a thing is new when it can perform a function that could not be performed by the things which existed previously.

In the case at bar I have no difficulty concluding that, contrary to what the trial judge held, the respondent produced the used signs which it sold. The respondent not only renewed these signs, it transformed them so they could transmit a new advertising message. Transforming a restaurant's sign into a sign advertising a grocery or a pharmacy is in my opinion producing a new sign.

Counsel for the respondent argued that, by recycling the used signs, his client had played a role similar to that of a mechanic who resells used cars after repairing and repainting them. That is not correct. A car which a mechanic has repaired and repainted has exactly the same function as before, it is the same car; the respondent's used signs, once remade, no longer perform the same role as before; they are new signs.

I would allow the appeal, set aside the judgment of the Trial Division and dismiss the respondent's action with costs both at trial and on appeal.

Appeal allowed.