Controlled Foods Corporation Limited v. Her Majesty the Queen, [1979] CTC 270, 79 DTC 5189

Gibson, J:—Controlled Foods Corporation Limited operates restaurants in the Provinces of British Columbia, Alberta, Saskatchewan and Ontario and so the same issue as arises in this appeal would arise in respect of all their restaurants.

In this appeal, Controlled Foods claims that in operating its restaurant in Richmond, British Columbia, it is a “manufacturer” or “producer” of meals, beverages and drinks and therefore is entitled to certain exemptions from consumption or sales tax exigible under section 27 of the Excise Tax Act, RSC 1970, c E-13, as amended on:

1. machinery and apparatus purchased by Controlled Foods to the extent that such is used directly in the manufacture and production of meals, beverages and drinks as provided by subparagraph 1 (a)(i) of Part XIII of Schedule III to the Excise Tax Act;

2. equipment purchased by Controlled Foods for use by it in carrying refuse or waste from machinery and apparatus used by them directly in the manufacture or production of meals, beverages and drinks as provided by paragraph 1(c) of Part XIII of Schedule III to the Excise Tax Act;

3. equipment purchased by Controlled Foods for use by it in exhausting dust and noxious fumes produced by the manufacturing or production of prepared meals, beverages and drinks as provided by paragraph 1(c) of Part XIII of Schedule III to the Excise Tax Act; and

4. safety devices and equipment purchased by Controlled Foods for use by it in the prevention of accidents in the manufacture or production of meals, beverages and drinks as provided by paragraph 1(d) of Part XIII of Schedule III to the Excise Tax Act.

Subparagraph 27(1)(a)(i) of the Act provides as follows:

(1) There shall be imposed, levied and collected a consumption or sales tax of twelve 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,

Subsection 29(1) of the Excise Tax Act provides for certain exemptions from the tax exigible and reads as follows:

(1) The tax imposed by section 27 does not apply to the sale or importation of the articles mentioned in Schedule III.

Schedule III at subparagraph 1(a),(i), paragraph (b), (c) and (d) reads as follows:

All the following:

(a) machinery and apparatus sold to or imported by manufacturers or producers for use by them directly in

(i) the manufacture or production of goods,

(b) machinery and apparatus sold to or imported by manufacturers or producers for use by them directly in the detection, measurement, prevention, treatment, reduction or removal of pollutants to water, soil or air attributable to the manufacture or production of goods;

(c) equipment sold to or imported by manufacturers or producers for use by them in carrying refuse or waste from machinery and apparatus used by them directly in the manufacture or production of goods or for use by them for exhausting dust and noxious fumes produced by their manufacturing or producing operations;

(d) safety devices and equipment sold to or imported by manufacturers or producers for use by them in the prevention of accidents in the manufacture or production of goods;

The issue in this action arose in this way: Controlled Foods in the year 1976 constructed and equipped and opened and commenced to operate a restaurant in Richmond, British Columbia (one of a chain of similar restaurants so opened and operataed by it) which (like the others it operates) it calls “The Corkscrew”, and purchased for use in the operation of this restaurant, certain machinery, apparatus and equipment which it has used continuously since then. Controlled Foods thereupon claimed that in using this certain machinery, apparatus and equipment in the operation of this restaurant to produce the meals and the drinks served to customers it was and is a “manufacturer” or “producer” within the meaning of section 27 of the Excise Tax Act, and that this machinery, apparatus and equipment was sold to or imported for use by it as a “manufacturer” or “producer” for the purposes of and within the meaning of section 1 of Part XIII of Schedule III to the Excise Tax Act and as a consequence was entitled to an exemption of consumption or sales tax which otherwise would be imposed by section 27 of the Excise Tax Act.

The parties have agreed that if the Court should find that Controlled Foods in operating this restaurant in producing meals and drinks is a “manufacturer” or “producer” within the meaning of the Excise Tax Act, then: (1) that the items of machinery and apparatus (identified by the letter “A” in one of the schedules of the document filed as part of the evidence entitled “Agreed Statement of Facts”) are exempt from tax under section 27 of the Excise Tax Act under the exemption provided by section 1 of Part XIII of Schedule III; (2) that in respect of the items of equipment identified by the letter “B” of that Schedule that such items are not exempt from tax under section 27 of the Excise Tax Act under the exemption provided by section 1 of Part XIII of Schedule III; and (3) that in respect of the items and equipment identified by the letter “C” of that Schedule, the parties are in dispute as to whether such items are exempt or not under the same provisions of the said Act and Schedule.

As has been said so often in respect of the question as to who are “manufacturers” or “producers” or what constitutes “the manufacture or production of goods” within the meaning of the Excise Tax Act, Parliament in the Act and Regulations has given no guide. Without such guide it is still always necessary in deciding the issues in cases such as this to determine whether the subject purchaser or importer of machinery, apparatus or equipment is or is not a “manufacturer” or “producer” of goods and whether or not what is done with such purchase and importation constitutes the “manufacture or production of goods” as a question of fact; and to determine the construction of the statutory provisions as a question of law. In doing so, judicial notice of the ordinary meaning of these words may be taken; and the meaning most appropriate in the context and circumstance may be chosen; and commercial usage can be used as an aid for such statutory interpretation. (See Cross: Statutory Interpretation, Butterworth 1976; and cf United Dominions Trust Ltd v. Kirkwood, [1966] 2 QB 431 at 454.)

For example, in applying a specific meaning (ie whether or not what is done constitutes the “manufacture or production of goods” within the meaning of the statute) to particular goods or articles as a question of fact, not of law (cf Parker v The Great Western Railway, 25 LJQB 209), the Supreme Court of Canada in The Queen v York Marble, Tile and Terrazzo Limited, [1968] SCR 140 at 145; [1968] CTC 44 at 48; 68 DTC 5001 at 5003, employed these words:

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”.

and further:

If one were to apply this latter test to the question at issue in this appeal, in my view, the finished marble slabs which left the respondent’s plant had by work, both by hand machinery, received new form, new quality and new properties.

Literally using these latter words, and applying them to the subject raw materials with a view to proving that such had “received new form, new quality and new properties’’, Controlled Foods adduced evidence on this appeal proving that what it did and does to its raw materials in using the said machinery, apparatus and equipment in operating its Corkscrew Restaurant. It adduced evidence to say that it produces articles for use (that is the meals and drinks it serves to customers) from raw or prepared material by giving to those materials new forms, qualities and property or combinations, and in doing so employed precisely the words recited above from the case of The Queen v York Marble, Tile and Terrazzo Limited (supra). For example Dr James F Richards, an expert, in his testimony said in summary, after having first discussed all the things Controlled Foods did to the raw food and liquid material before converted into and served such as meals and drinks to customers: “All of the treatments and processes used by the . . . (Controlled Foods) (as heretofore stated by him) cause the raw material used in the treatments and processes to acquire new forms, qualities and properties and to receive substantial changes in their essences from the time they were first dealt with by . . . (Controlled Foods) to the time of the finished product.’’

Counsel for the defendant agrees that this evidence adduced by Controlled Foods is literally correct in fact, but that such is not conclusive in the determination of the issue in this appeal.

In my view in deciding the issue in this appeal it is of substantial assistance to consider as an aid commercial usage and what is generally accepted as such.

For example, in commercial usage one would not normally consider that a restaurant was in the manufacturing industry and it would not be generally accepted as being in the manufacturing industry. One would consider a restaurant a commercial establishment. In land use laws, by-laws and regulations, restaurants use would be categorized as commercial use.

Another example employing commercial usage and what is generally accepted as such, as a guide, is found in the decision of Angers, J in The King v Shelly, [1936] 1 DLR 415; [1935-37] CTC 48; 1 DTC 298. In that case Angers, J found that a person who built a yacht for his own personal use with no intention of disposing of it was not a “manufacturer” or “producer” within the meaning of the Special War Revenue Act so as to be liable for consumption or sales tax even though the subject person had taken raw material at hand and by machinery and tools had fashioned such into a new shape and form for use and thereby had given such material new forms, qualities and properties or combinations. Angers, J found in effect employing commercial usage and practice and what is generally accepted as such that such person was not a “manufacturer” or “producer” holding that the statute had in mind and was applicable only to manufacturing or producing in the way of a business, even though there are no words in the statute enjoining Angers, J to so find.

Another example is to be found in the judgment of The King v Peter Kar- son and William Karson (1922), 21 Ex CR 257. In that case the defendants carried on the business of confectioners and made candy. Audette, J for the Court in that case, again applying commercial usage and practice as an aid found that the defendants when they made candy were “manufacturers” within the meaning of the Special War Revenue Act and would be generality accepted as such in the commercial world. Audette, J at 261 said:

. . . but this fact goes to show what is the custom of the trade and how traders understand the word “manufacturer” as used in our statute. It is the meaning attaching to the word “manufacturer” in its plain and literal sense that should govern us in construing the statute, and when it is proved, as it was here at the trial, that the sense in which the people in the trade accept it corresponds with that literal sense, the construction of the statute is freed from difficulty.

Other examples are found in certain American decisions based on various statutes of their respective States. The Supreme Court of Oklahoma in McDonald’s Corp v Oklahoma Tax Commission Okl 563 P 2d 635 denied a claim for a refund filed by McDonald’s finding that this fast food restaurant (making among other things hamburgers, fish fillets sandwiches, french fried potatoes, shakes and carbonated soft drinks) was not manufacturing or processing as defined in the relevant statute of the State of Oklahoma in that the preparation or cooking of food is not “generally recognized’’ as manufacturing or processing. The relevant Oklahoma Statute provided that: “The term ‘manufacturing plants’ shall mean those establishments primarily engaged in manufacturing or processing operations, and generally recognized as such.”

It may be that these words “generally recognized as such” in the Oklahoma Statute do not add anything legislatively other than to direct the Court to employ commercial usage and practice as an aid in deciding cases.

The Ohio cases of Jer-Zee, Inc v Bowers, Tax Com’r 125 NE 2d 195, Canteen Co et al v Bowers, Tax Com’r 148 NE 2d 684, and the Pennsylvania case of Commonwealth v Snyder’s Bakery 35 A 2d 260, held that the plaintiff parties were manufacturers within the meaning of their relevant State Statute when such parties were engaged in the preparation of goods for immediate sale to customers as for example, by the making and selling of frozen deserts by coin operated machinery which automatically delivered in a cup carbonated soft drinks or hot coffee made from a combination of ingredients, or by preparing potato chips for selling to serve the customer for immediate consumption after processing them.

There is however, nothing in the reasons of any of these United States decisions and there is also nothing in the reports recording the ratios of the decisions which gives any assistance in determining the issue in this appeal.

In view of and having considered these and other authorities and after considering the whole of the evidence and using commercial usage as a guide and confined to the facts of this appeal, in my opinion what has been done and is done by Controlled Foods to the raw materials it uses in the treatments and processes employing the subject machinery, apparatus and equipment would not in fact and generally would not be recognized as constituting the “manufacture or production of goods”, and further Controlled Foods would not be considered and would not be generally recognized as a “manufacturer” or “producer” within the meaning of the Excise Tax Act especially Schedule III thereto.

Accordingly, the subject items of machinery, apparatus and equipment are not exempt from consumption or sales tax under section 27 of the Ex- cise Tax Act under the exemption provided by section 1 of Part XIII of Schedule III.

In view of this result, it is not necessary to make any adjudication in respect to the items and equipment identified by the letter “C” of one of the schedules of the documents filed as part of the evidence entitled “Agreed Statement of Facts”.

Therefore the appeal is dismissed with costs.

Re Schmit

Saskatchewan Queen’s Bench (MacPherson, J), October 3, 1978, on an appeal from a decision of the Board of Revenue Commissioners.

Sales tax—Saskatchewan—Education and Health Tax Act, RSS 1965,

The taxpayer bought an aircraft to spray farmland for weeds and insects and to be used for seeding. The aircraft was designed and equipped and suitable only for agricultural purposes and its use restricted to within 25 miles of the respondent’s home. At issue was whether the aircraft was subject to sales tax.

HELD:

The aircraft was not a “farm implement” within the meaning of subsection 6(1) of the Act and was therefore subject to sales tax. Appeal allowed.

Iwaannis J L Stamatinos, for the appellant.

R A Robertson for the respondent.

MacPherson, J:—The Board of Revenue Commissioners achieved a certain amount of unjustified notoriety for appearing to hold in this matter that an aeroplane is a tractor and therefore exempt from provincial sales tax. The Minister, being dubious, appealed to this Court.

The present respondent and his brothers farm nine and one-half sections of land, of which the respondent owns two and one-half sections and rents another. Schmit bought the aircraft in question for use in this farming enterprise and particularly, of course, for spraying weeds and insects and seeding. It is designed and equipped and suitable only for agricultural purposes. It is unusable for pleasure flying. Its use is restricted to agricultural purposes and within 25 miles of Schmit’s home by its licence from the federal Department of Transport. The 25-mile limit has, on occasion, been lifted when Schmit has been required to use the aircraft for Government assistance in an emergency.

The evidence before the Board was that there are nearly 300 such aircraft in Saskatchewan and that almost all are owned by farmers. The amount of farm work done by them is very great. They are quick and efficient. They can, and do, apply weed killers or pesticides or seed. They can work when the time is right but when the soil is to wet for earth-bound equipment. The point of all this was properly accepted by the Board. The chairman said: “Oh, I think we are all very much aware that technology is moving so quickly that farming from the air is a fact of life.”

Schmit has a conventional aircraft which he uses for pleasure flying and upon which he has paid the tax.

The Education and Health Tax Act, RSS 1965, c 66 has been amended almost every year. In 1968, c 20, section 6, the former section 6 was replaced by the following:

6.(1) Subject to regulations made by the Lieutenant Governor in Council for the purpose of enlarging or restricting the meaning of any word or expression contained herein there are hereby specifically exempted from the provisions of this Act . . . the following classes of tangible personal property sold at retail sales in Saskatchewan, that is to say:

19. farm implements and parts where they are purchased by a farmer for use solely in operation of his farm;

20. farm machinery and parts where they are purchased by a farmer for use solely in the operation of his farm;

(The emphasis is mine.)

The Regulation, Sask Reg 140/73, passed under the authority of section 6 [further am 1970, c 15, section 4; 1972, c 37, section 1; 1973, c 34, section 3; 1974-75, c 12, section 1; 1976, c 16, section 1] reads in part, as follows:

1. Pursuant to subsection (1) of section 6 of The Education and Health Tax Act, the following are the meanings to be given to the several of the words or expressions used in section 6:

(9) “farm implements” and “farm machinery” in paragraphs 19 and 20 of subsection (1) of section 6 of the Act means:

and here is a list of 59 implements and machinery including, for example, bale stookers, combines, cultivators, harrows and farm tractors. The difficulty faced by Schmit (and the Board) is that, although the aircraft in question is clearly and patently a farm implement or machine, it is not any one of the machines or implements listed. The Legislature specifically delegated the power of defining the meaning of the words to the Lieutenant-Governor in Council. With respect to farm implements and machines the effect of the Regulation is to restrict the meaning. There is no saving clause or other leeway in the interpretation of the Regulation.

The real problem is that the subject article, the aircraft, has wings and flies, and nothing in the Regulation possesses the same attributes.

The media have been having a little unfair fun with the Board. The Board did not say that the aircraft is a tractor. They said this: “Where the regulations do not specifically itemize an agricultural machine as is the case with regard to ‘sky tractors’, it is necessary to apply a reasonable interpretation.” The term “sky tractors” arose in the evidence before the Board. Some agricultural pilots, they were told, refer to their equipment as “sky tractors” and some manufacturers advertise their product as such.

In effect, the Board is saying this: Because the aircraft is so obviously a farm implement and because the Act says that farm implements are exempt from tax, therefore, the aircraft must by covered by the Regulation and therefore exempt. It is saying further, that because the aircraft does so much work that is done by a tractor in the fields, the logical category for it under the Regulation is “farm tractor”.

These are the points upon which the Minister takes issue with the Board’s decision.

I must agree with the Minister. It does not matter what “farm equipment” or “farm machinery” may mean in their widest or ordinary sense. Those phrases mean what the Regulation says they mean. Section 6 of the Act is clear in that respect. Thus the question is not whether the subject aircraft is a farm implement but whether it is a farm implement within the meaning of the Act and that, of course, means within the meaning of the Regulation.

Driedger, The Construction of Statutes (1974), puts it this way at p 5:

. . . there is a question whether a word does or does not in a particular context have a meaning it is capable of bearing in the abstract; this is a question of scope. A marriage abroad is a marriage, but is it a marriage within the meaning of the Royal Marriages Act? A woman is a person but is a woman a person within the meaning of the Senate provisions of the British North America Act? And words, however general, may be limited with respect to the subject-matter in relation to which they are used.

Then, too, there is the rule of interpretation usually shown in the Latin maxim expressio unius exclusio alterius. It means that the mention of one or more things of a particular class may be regarded as silently excluding all other members of the class: see Maxwell on Interpretation of Statutes, 12th ed (1976), p 293. In this instance, the application of the maxim results in the exclusion of all farm implements not specifically mentioned in the Regulation. Thus, agricultural aircrafts are excluded from the exemption.

If the law is wrong or unjust, it can only be set right by an amendment to the Act by the Legislature or to the Regulation by the Lieutentant-Governor in Council. The power to legislate is in those bodies, not in the Board or in this Court.

The appeal is therefore allowed.