Gaston Charbonneau v. Her Majesty the Queen, [1979] CTC 82

Dubé, J [TRANSLATION]:—At issue is a claim for reimbursement of an amount “of approximately $30,000” paid by plaintiff in sales tax on a substance called “Anti-Skid” used to prevent skidding.

Whereas under subsections 44(6) and 44(7) of the Excise Tax Act RSC 1970, c E-13, plaintiff cannot claim reimbursement of taxes paid before March 3, 1973, that is two years before his application for refund made on March 3, 1975, plaintiff reduced the present claim to $8,179.98, and defendant acknowledged that this amount had in fact been paid.

Paragraph 27(1)(a) of the Act provides for a tax on the sale price of all goods “produced or manufactured” in Canada. Pursuant to the provisions of subsection 29(1), section 27 does not apply to the sale of the articles mentioned in Schedule III. Part X of the said Schedule III, entitled “Mines and Quarries”, lists five series of exempt articles including:

1. Crushed stone; crushed gravel.

3. Ores of all kinds.

4. Sand, gravel, rubble and field stone.

Part XI of the Schedule, entitled “Miscellaneous”, contains fourteen series of exempt articles including:

13. Sodium chloride.

Plaintiff alleged that its Anti-Skid is made simply by adding a very small quantity of salt to gravel, both articles exempt from sales tax. Defendant contended that Anti-Skid is a manufactured product and not exempt.

In his statement of claim plaintiff alleged that his anti-skidding substance is composed of gravel and salt in a proportion of 99 to 1. However, an advertisement for Anti-Skid gives the following “analysis”: fifteen per cent sodium, 25% sand and 60% stone. According to plaintiff’s testimony at the hearing the latter was an early formula, used in 1968 and 1969. In subsequent years the proportion of salt was considerably reduced. In fact, plaintiff admitted that actually there never was any analysis. Moreover, according to him, the salt adds very little to the effectiveness of the anti-skidding product, but gives confidence to users and therefore promotes sales.

According to the testimony of plaintiff and his warehouse manager, the only two witnesses for plaintiff, preparation of the anti-skidding substance is an extremely simple, rudimentary, even primitive, operation. Plaintiff obtains supplies of dry gravel or crushed stone, 3/16 or 1/4 inch in diameter, from local quarries. At the warehouse a tractor pushes and lifts in its shovel a load of gravel on which salt is spread (approximately 200 lbs of salt per 6,000 lbs of gravel, or some 3%). The load is tipped through a sort of funnel into twenty-five or eighty pound bags, which are sealed immediately. No one checks the proportion of salt and gravel in each bag. The only mixing that takes place is done by gravity when the gravel and salt are tipped through the funnel into the bags.

Plaintiff sells and transports his anti-skidding substance to wholesalers. Anti-Skid is bought primarily by motorists, who place a bag of it in their car trunks and use it in winter to prevent skidding on ice or packed snow.

Neither of the two parties presented an analysis of the composition of Anti-Skid. Defendant called only one witness, an engineer employed by the Quebec Department of Transport, who presented an analysis of the production of abrasives in general. Some interesting conclusions emerge from his affidavit and testimony.

Abrasives are materials used to reduce slipping on roads. In general they are composed of crushed stone, crushed gravel or sand. The size and shape of the particles (angular or round) are factors that enable the abrasive to grip the layer of ice. Addition of chlorides (NaC1 and CaC1 is recommended in order to increase this gripping action. The effectiveness of the salt increases with the temperature. The freezing point of a solution containing twenty-three per cent salt in water in -21°C.

Once again, according to the witness’s expert opinion, which was not contradicted, the percentage of moisture in abrasives affects their agglomeration temperature and their adhesion to the surface of ice or packed snow. A smaller proportion of salt may be added to abrasives composed of crushed stone since these particles, which are larger than sand particles, have less surface area in contact with each other and consequently less agglomeration.

Adding salt to the mixture prevents the agglomeration caused by condensation on the inside surface of a polyethylene bag containing abrasives when the bag is exposed to sunlight.

According to the expert, therefore, in order to prevent agglomeration of abrasives until -20°C the solution formed by the salt and the water must contain more than 23% salt. In short, he states that the addition of 3.5% salt to abrasives containing little moisture protects them from agglomeration and is effective at temperatures as low as -18°C. Regardless of the quantity of salt in the abrasives there will be agglomeration if the temperature goes below -20°C.

As to whether the addition of salt (NaC1) to abrasives affords a stronger grip on ice or packed snow, the expert replied that a proportion of between 1.67% and 3.3% salt in abrasives might be sufficient where there is no highspeed traffic and where bagged abrasives are used near buildings, that is in areas less exposed than highways.

The issue here is whether bags of gravel to which a small amount of salt was added constitute “produced or manufactured’’ goods. On the one hand plaintiff alleges that what is involved is simply the sale of two exempt articles in the same container. On the other hand, defendant has not attempted to show, by chemical analysis of the product in question or otherwise, that mixing changes the properties of the two components.

We must first attempt to define the terms “produced or manufactured in Canada’’ used in section 27 of the Act. In The Queen v York Marble, Tile and Terrazzo Ltd, [1968] CTC 44; 68 DTC 5001, Spence, J reiterated the definition of Archambault, J, at 5003:

For the present purposes, I wish to note and to adopt one of the definitions cited by the learned judge, ie, 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”.

In this judgment the Supreme Court held that the York Marble company had performed operations on the marble, which was imported from Italy, that made it into “goods produced or manufactured in Canada’’ within the meaning of the Act. In this case the marble had been subjected to mechanical and manual processing including sorting, matching, jointing, pointing, bonding, aligning, grinding, polishing, cutting and finishing.

In 1971 The Queen v Canadian Pacific Railway Co, [1971] CTC 163; 71 DTC 5078, Spence J referred to the case cited above and held that railway ties were “goods produced or manufactured”. The pieces of wood are cut into ties of a specific size, seasoned, reinforced with iron rods, bored, branded and creosoted. The learned judge concluded that even if the forms, qualities and properties of the ties had not been altered, even if they had not been “manufactured”, they were nevertheless “produced”. He says at 5081:

As pointed out by McRuer, CJHC in Gruen Watch Company of Canada Ltd et al v Attorney General of Canada, 1950 OR 429; 50 DTC 784, and adopted by this court in the York Marble case, the words used in the Excise Tax Act are “produced or manufactured” and those words were not synonymous, that is, that a thing may be “produced” even though it is not “manufactured”', an example would be the growth of a crop from seed.

Again, as in the York Marble case, I would be strongly of the opinion that even if there had not been, in the present case, such an alteration of the forms, qualities and properties of the untreated tie as would justify it being described as “manufactured”, nevertheless, it should be said that it was “produced”. For this reason, I am of the opinion, with respect, that the learned trial judge was in error and it should be held that the process carried out by Domtar for the respondent did result in these untreated ties being “produced or manufactured”.

[The emphasis is mine.]

In W T Hawkins Limited v Deputy Minister of National Devenue for Customs and Excise, [1957] Ex CR 153, Cameron J of the Exchequer Court held that “Magic-Pop” popcorn, composed of three exempt ingredients, was taxable. His thought is expressed in the following passage, at 158:

The second submission is that, as “Magic-Pop” is composed of three ingredients, all of which are exempt from tax, the new article is therefore also exempt. The exempting section, subsection 32(1) refers to the articles mentioned in Schedule III and does not contain any such words as “or any combination of the articles mentioned in Schedule III”. It is to be noted from the provisions of the schedule that when Parliament intended to extend the exemption to articles beyond those specifically listed, it used such phrases as “or other similar articles”, “and similar goods”, or “materials for use exclusively in its manufacture”. If Parliament had intended to extend the exemption to articles or products consisting of a number of tax exempt articles, it would have been a simple matter to have so provided. I am unable to agree with this submission.

If I had to decide whether the article sold by plaintiff was “manufactured”, I would have some difficulty in giving an opinion: there is no evidence that the combination of the two substances changed the form, the quality or the properties of the product. There is no doubt, however, that the goods in question were “produced” by plaintiff. Even if the gravel and salt keep their respective attributes, the combination of the two results in a commercial product distributed in a distinctive package and having a market value. The anti-skidding product is neither gravel nor salt.

In his statement of claim plaintiff alleged that the amounts in question “were paid erroneously and without right”, and he claimed reimbursement of the said amounts “paid in error”.

Paragraph 44(1)(c) of the Act reads as follows:

44.(1) A deduction from, or refund of, any of the taxes imposed by this Act may be granted

(c) where the tax as paid in error.

Learned counsel for the defendant referred to a large body of opinion to show that plaintiff was required to prove that he was eligible for the refund referred to in the section above quoted. In his view, since plaintiff paid freely and without constraint he may not allege now that he paid in error. In his testimony plaintiff explained that the officials asked him to complete the forms necessary to the collection of the sales tax. He thought he had to pay the said tax until he realized that his competitors were not paying it. He therefore alleged that he had paid “in error”.

I do not have to answer this last question, however, since I am of the opinion that Anti-Skid is a product “produced” within the meaning of the Act and that the tax imposed by section 27 applies to this product.

The action is therefore dismissed with costs.