Linden,
J.A.
(Heald
and
Stone,
JJ.A.
concurring):—This
appeal
raises
the
issue
of
whether
Speedy
Muffler
King
is
entitled
to
take
advantage
of
the
tax
incentive
provisions
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the"Act")
designed
to
foster
manufacturing
and
processing
of
goods
in
Canada.
Tenneco
Canada
Inc.,
the
successor
company
to
Speedy
Muffler
King
Corporation,
appeals
a
decision
of
the
Honourable
Mr.
Justice
Dubé
dated
October
26,
1987
([1987]
2
C.T.C.
231;
87
D.T.C.
5434)
in
which
he
held
that
their
business
was
not
permitted
to
rely
on
these
provisions
for
the
taxation
years
1975,1976,1977
and
1978
because
it
was
not
engaged
in
"manufacturing
or
processing
in
Canada
of
goods
for
sale
.
.
.",
as
required
by
paragraph
125.1
(3)
(c).
The
appellant
assembles
and
installs
exhaust
systems
in
automobiles.
These
systems
usually
comprise
a
muffler,
a
tail
pipe
and
an
exhaust
pipe,
but
sometimes
the
systems
are
more
complicated
and
include
a
resonator,
a
connector
and
a
catalytic
converter.
A
customer
of
the
appellant
may
have
only
one
part
replaced,
or
two
parts,
or
the
entire
system,
depending
on
what
is
required
to
rectify
the
problem.
In
addition
to
these
major
parts,
in
repairing
an
exhaust
system,
other
minor
items
are
used
such
as
gaskets,
clamps,
brackets,
hangers,
nuts
and
bolts.
Each
of
these
parts
is
made
for
specific
models
of
automobiles
by
Walker
Exhaust
Limited
of
Cambridge,
Ontario.
They
are
shown
in
a
catalogue
and
are
kept
in
stock
at
the
various
outlets
of
the
appellant,
which
buys
them
from
Walker.
None
of
the
parts
are
actually
made
by
the
appellant.
When
a
customer
arrives
at
the
appellant's
establishment,
an
inspection
is
made
of
his
vehicle,
which
is
hoisted
on
a
jack.
He
is
then
advised
about
the
work
required,
about
the
part
or
parts
that
need
to
be
replaced
and
the
estimated
cost.
If
he
approves,
the
old
parts
are
removed
and
the
new
ones
installed
while
he
waits.
A
video
presentation
of
such
an
operation
was
prepared
for
the
trial
and
was
shown
to
this
Court
during
the
hearing.
The
work
normally
involved
in
repairing
the
exhaust
system
was
also
explained
in
detail.
The
pipes
frequently
need
to
be“
"dressed"—that
is,
flared,
deburred,
welded,
heated,
cut
and
bent
to
get
the
parts
to
fit
together
properly.
In
addition,
clamping
and
crimping
is
usually
done.
In
about
one-third
of
the
cases,
an
entirely
new
exhaust
system
has
to
be
installed,
which
involves
its
assembly
during
the
operation.
In
the
rest,
only
one
or
two
parts
are
needed.
Usually
the
work
takes
about
15
to
20
minutes;
five
minutes
to
remove
the
worn-out
parts
and
10
to
15
minutes
to
install
the
new
parts.
In
an
imaginative
and
powerful
argument,
Ms.
Swystun,
on
behalf
of
Speedy,
contended
that
the
assembly
of
these
complete
exhaust
systems
is
manufacturing,
within
the
meaning
of
the
section.
In
addition,
she
argued
that
the
dressing
and
other
operations
done
to
many
of
these
parts
was
processing.
Hence,
she
argued,
the
appellant
should
receive
the
benefit
of
the
tax
incentives
for
that
portion
of
its
work
that
fell
within
the
definition.
Senior
counsel
for
the
Attorney
General,
Mr.
Olsson
disagreed,
contending
that
none
of
this
was
manufacturing
or
processing
at
all.
As
the
trial
judge
held,
he
argued
that
it
was
merely
selling
parts,
which
had
been
manufactured
by
Walker,
and
installing
them
into
the
vehicles
after
having
made
the
minor
adjustments
required
to
get
them
to
fit.
Junior
counsel
for
the
Attorney
General,
Mr.
Spiro,
in
a
forceful
argument,
contended
that
these
goods
were
not
sold
to
the
customers
but
that
title
passed
to
them
by
accession,
so
that
even
if
there
were
manufacturing
or
processing,
they
could
not
qualify
for
the
tax
incentives.
I
am
of
the
view
that,
despite
the
superb
argument
of
the
appellant's
counsel,
the
trial
judge
was
correct
in
holding
that
the
business
of
the
appellant
did
not
involve
manufacturing
or
processing,
as
these
words
are
used
in
the
Income
Tax
Act.
In
view
of
our
decision
on
these
issues,
it
is
not
necessary
to
canvass
the
sale
issue,
which
was,
in
any
event,
so
thoroughly
canvassed
by
Mr.
Justice
Urie
in
this
Court
in
Halliburton
Services
Ltd.
v.
The
Queen,
[1990]
1
C.T.C.
427;
90
D.T.C.
6320
(F.C.A.)
and
Nowsco
Well
Service
Ltd.
v.
The
Queen,
[1990]
1
C.T.C.
416;
90
D.T.C.
6312
(F.C.A.).
The
first
issue
is
whether
the
appellant
is"
manufacturing".
The
definition
of
"manufacturing"
derived
from
The
Queen
v.
York
Marble,
Tile
and
Terrazzo
Ltd.,
[1968]
S.C.R.
140;
[1968]
C.T.C.
44;
68
D.T.C.
5001,
is
as
follows:
“.
.
.
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."
Although
it
is
clear
that
the
assembly
of
a
product
can
amount
to
manufacture,
this
is
not
necessarily
so.
(See
Martland,
J.
in
D/M.N.R.
Customs
and
Excise
v.
Research-Cottrell
(Canada)
Ltd.,
[1968]
S.C.R.
684.)
The
definition
of
"assembly"
from
Webster's
Third
International
Dictionary
(1964)
reads:
The
act
or
process
of
building
up
a
complete
unit
(as
a
motor
vehicle)
using
parts
already
in
themselves
finished
manufactured
products;
a
collection
of
parts
so
assembled
as
to
form
a
complete
machine,
structure
or
unit
of
a
machine.
The
trial
judge
concluded
at
page
234
(D.T.C.
5436):
In
my
view,
assembly
can
be
"manufacture",
but
not
when
it
is
merely
limited
to
the
installation
of
replacement
parts:
the
assembly
must
create
a
new
product."
The
only
witness,
called
by
the
plaintiff,
had
on
some
occasions
visited
a
major
automobile
manufacturing
plant.
He
viewed
it
as
an
assembly
of
parts,
yet
constituting
a
manufacture
of
cars.
The
major
distinction,
of
course,
is
that
those
large
assembly
plants
create
a
new
product,
an
automobile,
which
is
then
distributed
wholesale,
whereas
Speedy
Muffler
merely
assembles
a
few
component
parts,
already
custom
built
by
another
manufacturer
(Walker)
and
attaches
them
to
a
vehicle.
As
I
see
it,
Speedy
Muffler
does
not
really
create
new
goods
for
sale:
it
merely
installs
on
cars
goods
already
manufactured
elsewhere.
[Emphasis
added.]
I
Agree
with
this
conclusion.
In
my
view,
the
appellant
is
not
producing
for
sale
an
identifiable
article
of
commerce
by
assembling
parts
produced
by
others,
as
in
the
case
of
a
new
automobile
or
a
"fully-assembled
bicycle."
(See
Harry
D.
Shields
Ltd.
v.
D/M.N.R.
(1980),
2
C.E.R.
1;
See
also
D/M.N.R.
v.
Kipp
Kelly
Ltd.,
[1982]
1
F.C.
571;
3
C.E.R.
196.)
This
is
not
like
the
major
changes
made
to
the
marble
in
The
Queen
v.
York
Marble,
Tile
and
Terrazzo,
supra,
Rather,
it
is
repairing
and
replacing
damaged
parts
of
an
automobile.
The
components
of
the
exhaust
system
cannot
be
assembled
before
being
installed.
They
must
be
affixed
to
the
vehicle
one
piece
at
a
time.
The
appellant
is
not
creating
or
assembling
any
new
articles
for
sale
to
others
in
the
market.
There
is
no
new
form,
quality,
property
or
combination
in
the
automobile
involved.
(See
Gruen
Watch
Co.
v.
A.-G.
Canada,
[1950]
C.T.C.
440;
4
D.T.C.
784;
[1950]
O.R.
429
(Ont.
C.A.).)
Any
ordinary
customer
of
Speedy
Muffler
King
would
be
surprised
if
told
that
Speedy
"manufactures"
exhaust
systems;
such
a
customer
would
think
that
they
repair
or
replace
exhaust
systems,
not
manufacture
them.
Walker
is
the
manufacturer—not
the
appellant,
which
is
a
retailer,
repairer
and
installer
of
exhaust
systems.
No
one
would
think
that
the
retailer
of
tires,
who
installs
them
on
the
wheels
of
the
customers’
vehicles,
is
manufacturing.
There
may
be
some
adjustments
required
in
the
wheels,
air
may
have
to
be
pumped
into
the
tires,
some
wheel
parts
may
have
to
be
replaced,
but
this
would
be
a
sale
and
an
installation,
not
the
manufacture
of
a
tire
system.
The
aim
of
Parliament
was
not
to
give
tax
incentives
to
this
type
of
operation.
(Commons
Debates,
July
3,1973
at
page
5255
and
page
5263.)
The
second
issue
is
whether
the
appellant
was
"processing".
Despite
the
vigorous
argument
of
Ms.
Swystun,
I
am
not
persuaded
that
there
was
any
"processing"
being
done
here.
Certainly
there
were
adjustments,
alterations
and
changes
made
to
the
parts,
when
needed,
in
order
to
fit
them
together
properly
and
to
hold
them
in
place,
but
this
did
not
amount
to
processing.
The
two
tests
for
determining
whether
a
taxpayer
processes
goods
are
(i)
whether
there
is
a
change
in
the
form,
appearance
or
other
characteristics
of
the
goods
subject
to
the
operation,
and
(ii)
whether
the
product
becomes
more
marketable.
(See
Federal
Farms
Ltd.
v.
M.N.R.,
[1966]
Ex.
C.R.
410;
[1966]
C.T.C.
62;
66
D.T.C.
5068
at
67
(D.T.C.
5071-72;
Ex.
C.R.
416);
affd
67
D.T.C.
5311
(S.C.C.).)
The
definition
of
"process"
in
Webster's
Third
New
Dictionary
(1964)
is:
To
subject
to
a
particular
method,
system
or
technique
of
preparation,
handling
or
other
treatment
designed
to
effect
a
particular
result;
put
through
a
special
process
as
(1)
to
prepare
for
market,
manufacture
or
other
commercial
use
by
subjecting
to
some
process(-ing
cattle
by
slaughtering
them)
(-ed
milk
by
pasteurizing
it)
(-ing
grain
by
milling)
(-ing
cotton
by
spinning)
Processing
occurs
when
raw
or
natural
materials
are
transformed
into
saleable
items.
Such
raw
or
natural
materials
are
unsaleable,
or
would
sell
for
a
lesser
price,
in
their
unprocessed
state.
Thus,
gravel
treated
by
washing,
drying
and
crushing
becomes
more
valuable
(Nova
Scotia
Sand
and
Gravel
Ltd.
v.
The
Queen,
[1980]
C.T.C.
378;
80
D.T.C.
6298
(F.C.A.)),
as
do
vegetables
prepared
by
washing,
brushing,
spraying
and
packing
(Federal
Farms
v.
M.N.R.,
supra).
Both
of
these
operations
are
processing.
Furthermore,
processing
implies
uniformity;
the
same
process,
or
a
highly
similar
one,
is
usually
applied
to
each
item
treated
(Vibroplant
v.
Holland,
[1982]
1
All
E.R.
792
(C.A.)).
The
operations
of
the
appellant
did
not
come
within
these
definitions.
There
was
no
real
change
in
the
form,
appearance
or
characteristics
of
the
pipes
and
other
parts
being
used
in
the
exhaust
systems.
There
were
minor
alterations
of
them,
when
needed,
in
order
to
enable
them
to
fit
together
and
to
function
as
a
system.
If
the
alterations
and
adjustments
were
not
made,
the
customer
would
not
receive
a
repaired,
operating
exhaust
system.
Nor
did
the
appellant's
activities
make
the
goods
more
marketable.
The
agreement
to
buy
the
parts
and
have
them
installed
as
a
functioning
system
is
made
prior
to
the
installation
operation.
If
they
are
not
the
right
parts,
if
they
do
not
fit
together,
or
if
they
do
not
work
properly,
the
agreement
would
not
be
performed
by
the
appellant
and
the
payment
would
not
have
to
be
made
by
the
customer.
This
case
is
not
like
Admiral
Steel
Products
Ltd.
v.
M.N.R.
(1966),
40
Tax
A.B.C.
322;
66
D.T.C.
174,
where
steel
products
were
substantially
changed
in
form
so
as
to
be
more
usable
and
marketable.
Nor
is
it
like
the
Federal
Farms
and
Nova
Scotia
Sand
and
Gravel
cases,
supra,
where
the
products
were
processed
in
order
to
make
them
saleable.
What
was
done
here
resembles
more
what
was
done
in
Harvey
C.
Smith
Drugs
Ltd.
v.
M.N.R.,
[1986]
1
C.T.C.
2339;
86
D.T.C.
1243,
(counting
pills)
and
Latter
Investments
Ltd.
v.
M.N.R.,
[1982]
C.T.C.
2076;
82
D.T.C.
1086,
(cutting
cloth).
Suppose
someone
purchased
a
ready-made
suit
of
clothes,
which
required
some
alterations,
at
a
retail
clothing
store.
To
do
those
alterations
on
a
ready-made
suit
would
not,
I
think,
be
considered
manufacturing
or
processing.
To
order
a
suit
made
to
measure,
however,
would
be
manufacturing
by
the
maker
of
the
suit.
This
interpretation
is
consistent
with
Parliament's
intention,
as
it
has
been
judicially
interpreted,
in
creating
the
special
incentive
through
paragraph
125.1
(3)(c)
(Mother's
Pizza
Parlour
(London)
Ltd.
v.
The
Queen,
[1985]
1
C.T.C.
361;
85
D.T.C.
5271
(F.C.T.D.)).
The
nature
of
the
modern
commercial
world
is
that
goods
often
pass
through
many
hands
before
they
reach
consumers.
At
each
stage,
minor
alterations
may
be
made
to
the
goods,
or
they
may
be
assembled
in
conjunction
with
other
ready-made
goods,
before
they
progress
through
the
commercial
chain.
The
benefit
of
the
incentives
cannot
be
claimed
by
each
of
the
handlers
merely
because
they
altered
the
goods
in
some
small
way.
Only
those
operations
which
significantly
change
the
character
of
the
goods
can
truly
be
described
as
"manufacturing"
or
"processing"
so
as
to
qualify
for
the
special
tax
incentives.
In
conclusion,
in
my
view,
there
is
is
neither
manufacturing
nor
processing
taking
place
in
the
appellant's
establishments.
I
would
dismiss
the
appeal
with
costs.
Appeal
dismissed.