The Queen v. York Marble, Tile and Terrazzo Ltd., [1968] S.C.R. 140, [1968] CTC 44, 68 DTC 5001

Spence, J. (all concur) :—This is an. appeal from the judgment of Mr. Justice Gibson of the Exchequer Court of Canada delivered on May 11, 1966, whereby he allowed a petition: of right brought by the respondent to recover moneys paid by it to the Receiver General of Canada pursuant to a demand made by the Minister of National Revenue for payment of the sales or consumption tax imposed by the Excise Tax Act and the Old Age Security Act on marble products. The provisions:under which the taxes were claimed were Sections 30(1) (a) and 31(1) (d) of the Excise Tax Act, R.S.C. 1952, c. 100, and Section 10(1) of the Old Age Security Act, R.S.C. 1952, c. 200, as enacted by Statutes of Canada 1959, c. 14, Section 1. These sections read as follows:

Excise Tax Act :

80. (1) There shall be imposed, levied and collected a consumption or sales tax of eight per cent on the sale price. of all goods

(a) produced or manufactured in Canada

(i) payable, in any case other than a case mentioned in subparagraph (ii), by the producer or manufacturer at the time when the goods are delivered to the purchaser or at the time when the property in the goods passes, whichever is the earlier, and . . .

31. (1) Whenever goods are manufactured or produced in Canada under such circumstances or conditions as render it difficult to determine the value thereof for the consumption or sales tax because

(d) such oods are for use by. the manufacturer or. producer and not for ale ;

the Minister may determine the value for the tax under this Act _: and all such transactions shall for the Purposes, of this Act be regarded as sales.

Old Age Security Act :

10. (1) There shall be imposed, levied and collected an Old Age Security tax of three per cent on the sale price of all goods in respect of which tax is payable under section 30 of the Excise Tax Act, at the same time, by the same persons and, subject to the same conditions as the tax payable under that section.

By agreement between the arties, the:sole issue to be determined in the Exchequer Court was whether the work done by the respondent on slab marble during the period in question resulted in such marble becoming ‘‘goods produced or manu- factured in Canada’’ within the meaning of Section 30 (1) (a) of the Excise Tax Act.

The respondent imported slabs of raw marble. At the time of their arrival at the respondent’s plant these slabs had merely been cut from a large block. The slabs varied in thickness and in size both as to length and width. The surface was rough and greyish in colour and the slab edges were rough and unfinished. Exhibit 2 filed at the trial is a photograph of such rough marble slabs as they were stored in the respondent’s warehouse and illustrates that the said slabs possessed none of the beauty of the finished product installed by the respondent in the various buildings as to which the company was sub-contractor.

The work done at the respondent’s plant from the time the rough marble arrived there until the finished pieces left ready for installation in the various buildings was described by the vice-president, Alfred Peirol, C.A., in his evidence and may be summarized as follows :

(a) Book Matching: Each slab of marble is matched against other slabs which have been sawn from the same block so that the veining which appears in the marble will follow a pattern from piece to piece in a particular installation.

(b) Grouting: Certain slabs of marble such as Travertine marble have voids at their surfaces which are often filled with coloured cement material.

(c) Rodding: Certain slabs of marble are weak and must be reenforced with metal rods. This is done by cutting grooves in one surface of the slab of marble and by inserting and cementing metal rods into the grooves.

(d) Gluing: Certain slabs of marble often break in the course of being worked on and consequently are glued together with special materials.

(e) Grinding: The surface of a slab of marble is sometimes reduced and levelled by using a grinder:

(f) Rough polishing: Marble is polished on polishing tables. The marble is* laid flat on the table and a disc mounted on an electrically powered polishing head is caused to rotate on the surface of the marble. To the disc may be attached an abrasive such as carborundum segments or the disc may be left bare and an abrasive in the form of carborundum grain is placed on the marble itself. The rough polishing is usually done in two stages and the result thereby obtained is referred to as a honed finish.

(g) Fine Polishing: From the time polishing is begun on the polishing table to the time the marble leaves the table, the marble may undergo five polishing stages. In each stage, finer abrasives or carborundum segments are used until in the final stage the marble is polished with felt buffing pads and fine abrasive powders. The stages of polishing performed after the marble surface has been honed are referred to as fine polishing.

(h) Cutting: Once the marble is polished, it is cut to the desired dimension with a power diamond circular saw. The saw is mounted over a table on which the marble is placed and fastened. Sawing marble is a delicate operation as the edges of a piece of marble which will be exposed must not be damaged in the operation.

(i) Edge Finishing: The exposed edges of a piece ‘of marble are polished with belt sanders or by hand and again several stages are used to obtain the desired finish.

The learned Exchequer Court Judge in his reasons for judgment found that the activities aforesaid were not the application of an art or process so as to change the character of the imported natural product dealt with so as to come within the meaning of “produced or manufactured’’ in the Excise Tax Act, and it is this finding which is contested by Her Majesty the Queen in this appeal.

Many authorities were cited but in my view few are enlightening. It must always be remembered that decisions in reference to other statutory provisions, and particularly decisions in other jurisdictions, are only limited assistance in construing the exact provisions of a statute of Canada. In reference to the words “all goods (a) produced or manufactured in Canada’’. Duff, C.J. noted in His Majesty the King v. Vandeweghe Limited, [1934] S.C.R. 244 at 248; [1928-34] C.T.C. 257 at 260:

The words “produced” and “manufactured” are not words of any very precise meaning and, consequently, we must look to the context for the purpose of ascertaining their meaning and application in the provisions we have to construe,

Further reference shall be made to that judgment hereunder. It was delivered on March 6, 1934 and on December 2, 1933, Archambault, J., in M.N.R. v. Dominion Shuttle Company Limited, reported in 72 C. S. 15, gave a very interesting Judgment in the Superior Court of the Province of Quebec.

Both of these judgments considered the said Sections 85 et seq. of the Special War Revenue Act in which the same words, “produced or manufactured in Canada’’ were used. Archambault, J. outlined the facts as follows:

î The evidence shows that these lengths of lumber were sold and delivered by the saw-mill in British Columbia to defendants at Lachute, in lengths of 20’, 16’ and 25' and at so much per thousand feet.

The work done on these lengths by defendant was: first, to cut them in lengths of 10’, or 8’; second to creosote them, or dip them in creosoting oils to preserve them against the elements of the weather (for which defendants have a special plant) ; third, to round them or mill or dress the lumber to the rounded shape; fourth, to bore holes in them in order to insert the pin on which the insulator is placed, and after this work was done, they were sold to the Canadian Pacific Railway at a price, not based on so uch ‘ a thousand feet, but based on so much per hundred “cross arms”.

And he t then continued :

The questions to be decided are: first, are the defendants the producers or manufacturers of these “cross arms”? second, should the cost of transportation from British Columbia to Lachute be included in the sale price?

First, what is a manufacturer? There is no definition of the word ‘ ‘manufacturer” in the Act and it is practically impossible to find a definition which will be absolutely accurate, but from all the definitions contained in leading dictionaries, Corpus Juris, Encyclopedias, etc., the Court gathers that the manufacture is to fabricate; it is the act or process of making articles for use; it is the operation of making goods or wares of any kind; it 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.

This is exactly what. the defendant company did. They received the raw material or prepared raw material, or lengths of lumber, and put them through the processes already mentioned to make “cross arms” and sold them to the consumer.

For the present purposes, I wish to note and to adopt one of the definitions cited by the learned judge, i. e., that “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’’. (The italics are my own.). If one were to apply the latter test to the question at issue in this appeal, in my view, the finished marble slabs which left to respondent’s plant had by work, both by hand and machinery, received new form, new quality and new properties. The form differed in that what had arrived were great slabs of rew marble sometimes as long as sixteen feet and of varying widths, and what left were exactly shaped pieces of polished marble much smaller in size cut with precision to fit the places into which they were to be installed. As to quality, what arrived was a greyish, nondescript slab of stone and what left was a highly polished marble facing whether it was to be installed in wall, as a window sill, or as a post. As to properties, what arrived was in many cases a piece of unfilled stone and sometimes one which would be too fragile for use and what left in most cases was a piece of marble in which the rough unevenness had been filled in by grouting and where necessary the weakness had been remedied by rodding.

In my view, the application of this test alone would be sufficient justification to find that the marble pieces which left the respondent’s plant had been ‘‘produced’’ or “manufactured” there from the raw material of the rough slabs of marble which had arrived.

In Gruen Watch Company of Canada Ltd. et al. v. A.-G. of Canada, [1950] O.R. 429; [1950] C.T.C. 440, McRuer, C.J.H.C. considered the same question in reference to the same statute. The facts may be briefly stated from the first paragraph of his judgment at p. 480 [p. 442] :

The plaintiffs in this action have been engaged for many years in the importation of watch movements from abroad. They import or purchase in Canada watch cases adapted to the particular movements imported, and by a very simple operation performed by unskilled labour, taking only a very few minutes at an expense of from 1.25 to 3.6 cents each, the watch movement is placed in the case and a watch ready for sale is produced. In some cases wrist-bands, bracelets or brooches are attached to the watch case for the personal convenience of the purchasers. The plaintiffs do not manufacture either watch movements or watch cases.

At p. 442 [p. 454] the learned Chief Justice said :

I cannot find that the simple operation of putting a watch movement into a watch case is “manufacturing” a watch in the “ordinary, popular and natural sense” of the word, but I feel clear that the plaintiffs “produced” watches “adapted to household or personal use”. It may well be that, as counsel for the plaintiffs argued, the movement as imported in the tin or aluminum case will keep time and could be used as a watch. It is not a watch “adapted to household or personal use” as the term is used in its ordinary and popular sense, and the movement in the aluminum case would be quite unsaleable as such.

It is to be noted that the learned Chief Justice used the firmly established principle that the taxing statute must be interpreted by the consideration of the words thereof in the ordinary, proper, and natural sense, and that doing so he found himself able to distinguish between the two words ‘‘produced’’ and “manufactured”. It was the submission of counsel for the respondent before this Court that the two words must be considered as being practically synonymous and Charles Marchand Co. v. Higgins, 36 F. Supp. 792, was quoted as an authority therefor. That was a decision of Mandelbaum, District Judge in the District Court of the Southern District of New York, and the decision on this point may be taken from one sentence in the reasons of the learned District Court Judge, ‘‘I am of the opinion that the terms as used in the present taxing statute are synonymous’’. The learned District Court Judge reached that conclusion because Article 4 of Treasury Regulation 46 (1932 edition) provided :

As used in the Act, the term “producer” includes a person who produces a taxable article by processing, manipulating, or chang- ing the form of the article, or produces a taxable article by combining or assembling two or more articles

and then various authorities relied on by the learned District Court Judge held that “manufacture” implied a change into a new and different article.

For these reasons, I am not able to accept the decision in Charles Marchand v. Higgins as being an authority which should persuade this Court to hold that ‘‘ produce’’ and ‘‘manufacture’’ as used in the statute presently considered in which neither is defined are synonymous, and I adopt the course of McRuer, C.J.H.C., in Gruen Watch Co. v. A.-G. of Canada in holding that an article may be ‘‘produced’’ although it is not “manufactured”. In that case, although he was unable to come to the conclusion that the mere insertion of the movement into the watch case was the manufacture of the watch, he found no difficulty in determining that such a process was the production of a watch.

Similarly, in the present case, if I had any doubt that the various procedures taken by the respondent in reference to the marble slabs resulted in the manufacture of a piece of marble, I would have no doubt that those procedures did result in the production of a piece of marble.

In The King v. Vandeweghe Limited, supra, Duff, C.J., upon commenting that the words ‘‘produce’’ and “manufacture” were not words of any very precise meaning, sought an aid to construction in consideration of the exemptions from the impositions which were listed in subsection (4) of Section 86 of the then statute. Amongst those exemptions were pulpwood, tan bark, wool no further prepared than washed and raw fur. The Chief Justice of this Court remarked at pp. 248, 260:

Light is thrown upon the meaning of the word “produced” by the fact that pulpwood and tan bark and other articles the product of the forest are contemplated as being produced within the meaning of the statute. We have further the item “wool no further prepared than washed” which seems to imply that wool still further prepared, by dyeing for example, if sold, comes within the incidence of the tax. Then we have “raw furs” which is not without its implication. It is not easy to see why a raw fur which is separated from the animal upon which it grew, when combed, “made pliable” and dyed and thereby turned into “merchantable stock-in-trade”, has not become something which is “produced” if the term “produced” is properly applicable to such things as “pulpwood” and “tan bark”.

To apply the same method of testing to the present situation, Schedule III to the Excise Tax Act contains a list of exemptions, including :

Building stone (exemption removed effective June 14, 1963)

Sand

Gravel

Rubble

Field Stone

Cut flowers

Straw

Forest products when produced and sold by the individual settler

or farmer

Furs, raw

Logs and round unmanufactured timber

Sawdust and wood shavings

Wool not further prepared than washed

Of course, such goods as sand, gravel, rubble or field stone could not be considered either ‘‘manufactured’’ or “produced”. Nor in all probability would they have been imported and so taxable under Section 30(1)(b). There have been, however, some very simple operations in the production of cut flowers, straw, raw furs and wool not further prepared than washed, and yet it is apparent that these items were regarded by Parliament as being ‘‘manufactured’’ or “produced”.

In at least two recent decisions, the Court has considered the schedules to the Customs Act as being a revenue statute in pari materia and therefore an aid in the interpretation of words in the Excise Tax Act. In Bradshaw v. Minister of Customs and Excise, [1928] -S.C.R. 54, Duff, C.J., when considering the phrase ‘‘nursery stock’’ as used in subsection (4) of Section 19BBB of Chapter 8 of the Statutes of Canada, 5 Geo. V, pointed out that in the Customs Tariff the words used were ‘‘trees, plants and shrubs, commonly known as nursery stock’’ and in The King v. Planters Nut and Chocolate Company Ltd., [1951] Ex. C.R. 122 at 180; [1951] C.T.C. 16 at 24, Cameron, J. said:

It is of considerable interest, also, to note that in the tariff rates under The Customs Act (which, as a revenue Act, I consider to be in part materia), separate items are set up for fruits, for vegetables, and also for “nuts of all kinds, not otherwise provided, including shelled peanuts”. This would seem to indicate that in the minds of the legislators, nuts were not included in the categories of fruits or vegetables, and also that peanuts fell within the category of nuts.

When one calls in aid of the construction of the words “manufactured” and ‘‘produced’’ in Section 30(1) (a) of the Excise Tax Act, the provisions of the Customs Tariff, items 306b and 3060, which read as follows:

306b. Building stone, other than marble or granite, planed, turned, cut or further manufactured than sawn on four sides.

806c. Marble, not further manufactured than sawn, when imported by manufacturers of tombstones to be used exclusively in the manufacture of such articles, in their own factories.

it would appear that the legislators regarded mere sawing of both building stone and marble as being the manufacture thereof. I view these considerations of both the exemptions in Schedule III to the Excise Tax Act and the items in the Customs Act as being confirmatory of my view that the legislators intended that the words ‘‘manufactured’’ or ‘‘ produced’’ should encompass goods such as the polished marble slabs in question in this appeal.

Gibson, J., in the penultimate paragraph of his reasons for judgment, stated:

The activities of the suppliant in relation to the imported marble were done as part and parcel of executing building sub-contracts resulting in such marble becoming part of the realty and in doing so the suppliant did not at any material time produce or manufacture in Canada “goods” as meant in Section 30(1) (a) of the Excise Tax Act.

It should be noted that the Excise Tax Act in Section 30 imposes not only a sales tax but a consumption tax and that Section 31(1) (d) of the said Excise Tax Act makes specific provision for goods which although manufactured or produced in Canada were for use by the manufacturer or producer and not for sale. This Court in The King v. Fraser Companies Lid., [1931] S.C.R. 490; [1931] C.T.C. 140, held that a corporation which produced lumber and used the same in the performance of a building contract was liable for tax, and again, in The King v. Dominion Bridge Co. Lid., [1940] S.C.R. 487; [1940-41] C.T.C. 99, held that a company which produced steel members in order to fabricate them in the superstructure of a bridge was liable to the tax.

I am, therefore, of the opinion that the fact that the respondent used the marble pieces in executing the building sub-con- tracts does not exempt it from the liability of the tax.

I would allow the appeal with costs. Her Majesty should have the costs in the Exchequer Court.