Deputy Minister of National Revenue for Customs and Excise v. Robertson Building Systems Limited, [1979] CTC 422, 79 DTC 5354

Pratte, J:—This is an appeal, pursuant to section 60 of the Excise Tax Act, RSC 1970, c E-13, from a decision of the Tariff Board holding that certain span rib rolls purchased by the respondent and used by it in the production of structural flooring sections were exempt from the tax imposed by subsection 27(1) of the Excise Tax Act.

Subsection 27(1) reads in part as follows:

There shall be imposed, levied and collected a consumption or sales tax of 12% on the sale price of all goods

(a) produced or manufactured in Canada

(b) imported into Canada, payable by the importer or transferee who takes the goods out of bond for consumption at the time when the goods are imported or taken out of warehouse for consumption;

The provisions which, according to the Board’s decision, would create an exemption in favour of the goods purchased by the respondent are found in subsection 29(1) and in subparagraph 1 (a)(i) of Part XIII of Schedule III.

Subsection 29(1) provides that:

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

As to section 1 of Part XIII of Schedule III, it reads in part as follows:

1. 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,

The Board held, in the decision under attack, that the rolls purchased by the respondent were exempt from tax as pieces of “machinery and apparatus . . . imported by . . . producers for use by them directly in the . . . production of goods.”

It is common ground that the machinery purchased by the respondent falls within the exemption provided for in paragraph 1(a) of Part XIII of Schedule III if that provision is read in isolation. However, the appellant submits that a different conclusion must be reached if that section is read as it should be in conjunction with subsection 26(4) of the Act.

Subsection 26(4) reads in part as follows:

Where a person

(d) manufactures or produces from steel that has been purchased by or manufactured or produced by that person, and in respect of which any tax under this Part has become payable, fabricated structural steel for buildings,

he shall, for the purposes of this Part, be deemed not to be, in relation to any such building, structure, building sections, building blocks or fabricated steel so manufactured or produced by him, the manufacturer or producer thereof.

It is the appellant’s contention that the rolls sold to the respondent were used exclusively to produce fabricated structural steel in the conditions described in paragraph 26(4)(d). It follows, according to the appellant, that the respondent is deemed for the purposes of Part V of the Act (which includes subsection 29(1) and its reference to Schedule III) not to have produced that structural steel. The appellant concludes that the respondent is not a producer of goods and, for that reason, cannot benefit from the exemption provided for in paragraph 1(a) of Part XIII of Schedule III.

The appellant’s submission is, in my view, untenable. The sole problem to be resolved here is whether the goods in question fall within the exemption provided for in paragraph 1(a) of Part XIII of Schedule III. In order for an article to fall within that provision, it must fulfill three conditions: first, it must be a machinery or an apparatus, second, it must be purchased by a producer and, third, it must be purchased by the producer for use by it directly in the production of goods.

The appellant does not challenge the finding of the Board that the rolls purchased by the respondent are “machinery and apparatus” within the meaning of the section, but merely contends that those rolls do not meet the second and third prescribed conditions.

It is clear, in my view, that the second condition was met at the time of the purchase, which, in my view, is the time when the taxability of an article under paragraph 27(1)(b) must be determined. At that time, it is common ground that the respondent was a manufacturer of a great variety of building products. Even if certain of those products may perhaps have fallen within subsection 26(4), it nevertheless remains that the respondent was a producer of goods and that the rolls here in question were purchased by a producer of goods.

As to the last condition prescribed by the section, it was also clearly fulfilled at the time of the purchase by the respondent. The appellant acknowledges in his factum that, at that time, the span rib rollS were purchased by the respondent with the intention, not only of using them in the production of structural steel for buildings, but also for making a range of other products. It follows, in my view, that it cannot be denied, in spite of subsection 26(4), that the rolls were purchased to be used by the respondent in the production of goods. The fact that, for reasons unknown, the rolls may not have been used for the purpose for which they had been purchased cannot support the conclusion that they had been purchased for a different purpose.

For those reasons as well as for the reasons given by the Board, I would dismiss this appeal with costs.