A-391-79
Controlled Foods Corporation Limited (Appel-
lant) (Plaintiff)
v.
The Queen (Respondent) (Defendant)
Court of Appeal, Heald and Urie JJ. and Kerr
D.J.—Vancouver, October 1; Ottawa, November
3, 1980.
Customs and excise — Excise tax — "Manufacturer" or
"producer" — Appeal from decision of Trial Division dismiss
ing appellant's action for declaration that it is a manufacturer
or producer — Appellant restaurateur claims that it is a
manufacturer or producer because it prepares food and bever
ages for consumption by its customers on the premises
Whether Trial Judge erred in finding that activities of appel
lant did not constitute manufacturing or producing, and in
finding that appellant was not a manufacturer or producer —
Appeal dismissed — Excise Tax Act, R.S.C. 1970, c. E-13, as
amended, ss. 27(1)(a), 29(1), Schedule III, Part XIII, s.
I (a) (i), (ii), (iii), (b), (c).
Appeal from Trial Judge's dismissal of appellant's action for
a declaration that it is a manufacturer or producer. Appellant
restaurant owner claims that the preparation of food and
beverages for consumption by its customers on the premises
makes it a manufacturer or producer. It contends that the
treatments and processes used in the preparation of meals and
beverages caused raw materials to acquire new forms, qualities
and properties. Respondent's witness distinguished the opera
tions of a food processor from those of a restaurant. The issues
are whether or not the Trial Judge erred in finding that
appellant's activities did not constitute manufacturing or pro
ducing and in finding that appellant was not a manufacturer or
producer.
Held, the appeal is dismissed. The Trial Judge correctly
found that, to determine the issues, he was entitled to examine
the generally accepted commercial view of the nature of a
restaurant operation, as well as the dictionary definition of
"manufacturer" or "producer". In ascertaining the commercial
view, there was evidence before him from which he could infer,
as he did, that the treatments and processes employed by
appellant in the preparation of meals and beverages would not
generally be recognized as constituting "manufacturing or pro
ducing". The preparation of food and particularly beverages for
immediate retail sale on the restaurant premises is not manu
facturing or producing within the meaning of the Act.
Royal Bank of Canada v. Deputy Minister of National
Revenue for Customs and Excise 79 DTC 5263, referred
to. R. v. Pedrick (1921) 21 Ex.C.R. 14, referred to. R. v.
Karson (1922) 21 Ex.C.R. 257, referred to. R. v. Shelly
[1935] Ex.C.R. 179, referred to. R. v. York Marble, Tile
and Terrazzo Ltd. [1968] S.C.R. 140, distinguished.
APPEAL.
COUNSEL:
M. R. V. Storrow and D. Morley for appel
lant (plaintiff).
W. B. Scarth for respondent (defendant).
SOLICITORS:
Davis & Company, Vancouver, for appellant
(plaintiff).
Deputy Attorney General of Canada for
respondent (defendant).
The following are the reasons for judgment
rendered in English by
URIE J.: This is an appeal from a judgment of
the Trial Division [[1979] 2 F.C. 825] dismissing
the action of appellant in which it sought declara
tions that the appellant is, for the purposes of
paragraphs 1(a),(c) and (d) of Part XIII of
Schedule III to the Excise Tax Act, R.S.C. 1970,
c. E-13, as amended, a manufacturer or producer
with the result that certain items of machinery,
apparatus and equipment purchased by it are
exempt from the imposition of sales tax otherwise
payable thereon by virtue of subsection 29(1) of
the Act.
The appellant is the operator of restaurants in
five provinces. During the year 1976 it caused to
be erected a building in Richmond, British
Columbia for the purpose of operating a restau
rant known as "The Corkscrew". For use in that
operation it purchased and had installed certain
machinery, apparatus and equipment which it has
used continuously therein since that time in the
preparation of food and beverages for consumption
by its customers on the premises. Items of that
machinery, apparatus and equipment are identi
fied in three groups in the agreed statement of
facts filed by the parties. The items in schedule A
to the statement, it is agreed by the parties, are
exempt from the payment of sales tax if the appel
lant is successful in this appeal. Those listed in
schedule B, it has been agreed, are not exempt.
The respondent does not concede that those items
identified in schedule C are exempt even though
the appellant is successful in its appeal.
The evidence discloses that the total area of the
restaurant premises is approximately 12,000
square feet of which about two-thirds is available
for public use while the balance of one-third is
used for staff areas and kitchen areas. The restau
rant seats 210 in the dining area and 50 in the
lounge area where drinks are prepared and served.
Of the appellant's 65 employees, two-thirds are
employed servicing the public area while the
remainder are employed on what was described as
the "processing" side of the operation.
The sections of the Excise Tax Act relevant to
this appeal are:
27. (1) There shall be imposed, levied and collected a con
sumption 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, ...
29. (1) The tax imposed by section 27 does not apply to the
sale or importation of the articles mentioned in Schedule III.
Paragraphs 1 (a),(b),(c) and (d) of Part XIII of
Schedule III are relevant to the appeal and read as
follows:
1. All the following:
(a) machinery and apparatus sold to or imported by manu
facturers or producers for use by them directly in
(i) the manufacture or production of goods,
(ii) the development of manufacturing or production pro
cesses for use by them, or
(iii) the development of goods for manufacture or produc
tion by them;
(b) machinery and apparatus sold to or imported by manu
facturers or producers for use by them directly in the detec
tion, measurement, prevention, treatment, reduction or re
moval 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 manu
facture or production of goods or for use by them for
exhausting dust and noxious fumes produced by their manu
facturing 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;
As has been said frequently before 1 , in order to
obtain exemption from the sales tax otherwise
imposed by subsection 27(1), two conditions must
be met, as subsection 29(1) and Part XIII of
Schedule III clearly disclose. They are:
(a) machinery or apparatus must be sold to or
imported by a manufacturer or producer; and
(b) the manufacturer or producer must use the
machinery or apparatus directly in the manufac
ture or production of goods.
The issues in this appeal, thus, are whether or
not the learned Trial Judge erred in finding, first,
that the activities of the appellant do not constitute
"manufacturing or producing" and, second, in
finding that the appellant was not a "manufactur-
er or producer".
It is common ground that the appellant was the
purchaser of the machinery, apparatus and equip
ment in issue and that the food and drinks pre
pared and dispensed are goods for the purpose of
the exempting provisions of the Act. This agree
ment between the parties, however, does not
extend to either of the issues above defined. The
appellant claims that it is a "manufacturer or
producer" of meals and beverages and is entitled
to the exemptions provided in those paragraphs of
Part XIII, Schedule III above quoted on the basis
that:
1. the machinery and apparatus purchased by it,
to the extent that such is used directly in the
production of meals and beverages, fall within
the terms of subparagraph 1(a)(i);
2. the equipment for use by it in carrying refuse
or waste from machinery and apparatus used by
it in the manufacture of meals and beverages
fall within the terms of paragraph 1 (c);
3. the equipment for use by it in exhausting dust
and noxious fumes produced during the manu
facturing or production of meals and beverages
also falls within the terms of paragraph 1 (c);
4. safety devices and equipment for use by it in
the prevention of accidents in the manufacture
E.g. The Royal Bank of Canada v. Deputy Minister of
National Revenue for Customs and Excise 79 DTC 5263 at
5264 (F.C.A.).
or production of meals and beverages fall within
the terms of paragraph 1(d).
Counsel for the appellant relied in large part in
his submissions before this Court on the judgment
in the Supreme Court of Canada in The Queen v.
York Marble, Tile and Terrazzo Ltd. 2 Because it
is important to place the portion of the judgment
of Spence J., speaking for the Court, upon which
the appellant understandably relies, in its proper
context I quote hereunder the rather substantial
excerpt therefrom commencing on page 144:
The learned Exchequer Court Judge in his reasons for judg
ment found that the activities aforesaid were not the applica
tion 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 enlight
ening. It must always be remembered that decisions in refer
ence to other statutory provisions, and particularly decisions in
other jurisdictions, are of 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, 3 D.L.R. 57):
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 Minister of National Revenue v. Dominion
Shuttle Company Limited ((1933), 72 Que. S.C. 15), gave a
very interesting judgment in the Superior Court of the Province
of Quebec.
Both of these judgments considered the said ss. 85 ff. 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:
The evidence shows that these lengths of lumber were sold
and delivered by the sawmill in British Columbia to defend
ants 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 the price, not based on so much a thousand feet,
but based on so much per hundred "cross arms".
2 [1968] S.C.R. 140.
and he 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 impos
sible 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 to
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 "manufac-
ture 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 the respondent's plant had by work,
both by hand and machinery, received new form, new quality
and new properties. [The emphasis is mine.]
It was of course, appellant's contention that the
evidence disclosed that all of the treatments and
processes used by the appellant in the preparation
of meals and beverages caused raw material used
in the treatments and processes to acquire new
forms, qualities and properties and to receive sub
stantial changes in their essences from the time
they were first dealt with by the appellant to the
time of the finished product. Thus what the appel
lant was doing was manufacturing or producing
meals and beverages.
As the learned Trial Judge observed, in adduc
ing evidence to support its submission, the appel
lant's expert adopted the exact words of Spence J.
in stating that, in the preparation of the meals and
beverages, what was done imparted to the compo
nents thereof new forms, qualities and properties.
However, it was also the learned Judge's view that
although such changes did occur such fact did not
conclusively determine that the appellant, even if it
could be said that it was manufacturing and pro
ducing, was a manufacturer or producer. I agree
with him for two reasons.
Firstly, it must be noted that Mr. Justice Spence
adopted "for the present purposes" one only of the
definitions of "manufacturer" cited by Archam-
bault J. in the Dominion Shuttle case. Clearly he
chose the definition in the light of the particular
circumstances of that case and did not exclude the
application of other definitions or the consider
ation of other principles in other circumstances.
Resort to standard dictionary definitions which I
need not quote, support the view that the one
chosen by Spence J. does not, in all factual cir
cumstances, necessarily apply.
Secondly, a line of authorities in Canadian juris
prudence, extending back as far as sixty years, has
held that "it is not improper to consider as an aid
the generally accepted commercial view of the
operation under review." 3 The learned Trial Judge
reviewed and referred to the authorities upon
which this principle is based, including a number
of decisions from courts in the United States, and
concluded that, quite properly, he could take into
account in reaching his decision the generally
accepted view of knowledgeable persons in the
trade as to the nature of the operations conducted
in a restaurant. He held [at page 832] as follows:
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 especial
ly Schedule I11 thereto. [Emphasis is mine.]
I am of the opinion that, as a matter of law, he
correctly found that, to determine the questions
here in issue, he was entitled to examine the
generally accepted commercial view of the nature
3 The Royal Bank of Canada v. D.M.N.R., supra, at page
5266. See also: The King v. Pedrick (1921) 21 Ex.C.R. 14, at
p. 17. The King v. Karson (1922) 21 Ex.C.R. 257 at pp.
260-263. The King v. Shelly [ 1935] Ex.C.R. 179.
of a restaurant operation as well as the dictionary
definitions of those terms. In ascertaining the com
mercial view, there was evidence before him from
which he could infer, as he did, that the treatments
and processes employed by the appellant in the
preparation of the meals and beverages served to
its customers would not generally be recognized as
constituting "manufacturing or producing" in the
accepted sense of those terms or that it was, in so
conducting its operations, a "manufacturer or
producer".
The appellant adduced evidence from two wit
nesses only to demonstrate that "all of the treat
ments and processes used by the plaintiff as
described in this report 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 the plaintiff to the
time of the finished product." 4 As far as I have
been able to ascertain appellant tendered no evi
dence as to commercial usage.
On the other hand, the respondent adduced
evidence through an expert witness, J. A. Kitson,
the head of the Food Processing Section of the
federal Department of Agriculture. He agreed that
the changes to the various foods and drinks pre
pared by the appellant for consumption by its
customers on its premises, during preparation, as
described by Dr. Richards were correct. But, he
also distinguished between the operations of food
processors such as canners, meat, fish and poultry
packers and frozen food processors, from those of
a restaurant. The former's task is, essentially, to
preserve and prolong the shelf life of foods to be
consumed some time after their preparation. A
restaurant, on the other hand, he stated, prepared
its food for consumption shortly after the cooking
process has been completed. He testified in part as
follows:
Q. Now, in your experience in dealing with the food process
ing industry, is a restaurant considered to be a food
processor?
A. Not in my experience at all. As an example, we have in
British Columbia here a Western Food Processors Asso
ciation with a number of members, all of whom are
canners or freezers, or an association such as the Mush
4 Statement of Evidence of Dr. James F. Richards, pp. 9
and 10.
room Growers Association, who are involved in the proc
essing industry.
Q. Are you able to state, Mr. Kitson, that the preparation of
food by a restaurant is not generally recognized by those
involved in the food processing operation?
A. That is correct, it is generally regarded as a different
industry.
Q. And then the essential difference between the restaurant
operation and the food processor is what?
A. The restaurant is preparing potatoes in this case or any
product for a relatively short storage life of a day,
possibly two days and in some cases, in most cases just a
few minutes or an hour, whereas the processor is prepar
ing a product to have a lengthy storage life to put it
through the distribution chain and enable the final con
sumers to hold it for whatever period they desire before
consumption.
MR. SCARTH: Is my learned friend prepared to take Mr.
Kitson's statement as read?
MR. STORROW: Oh, yes.
THE COURT: How does that tie in or have anything to do with
whether the food is processed?
A. What 1 am referring to, my lord, is the generally accepted
term in the trade called food processing.
THE COURT: Has that got anything to do with the meaning of
manufacture or production of food, are they synony
mous?
A. Manufacture and production are synonymous with —
THE COURT: Processing?
A. Manufactured food, one is thinking, I believe, of fabrica
tion of a food from a group of ingredients. In processing
as it is generally accepted in the field in which I work, we
are always referring to something that is providing a
longer storage life, some degree of sterilization.
THE COURT: They are food processors?
A. Yes.
THE COURT: Are they manufacturers or producers in your
view?
A. They are producers.
THE COURT: Producers?
A. Let me think. I don't feel qualified to answer.
THE COURT: You are just sticking with a food processor in
the trade is usually not characterized as — a restaurateur
is not categorized in the industry as a food processor and
that is all you are saying?
A. Yes.
From all of the above it is my opinion that there
clearly was evidence permitting the learned Trial
Judge to reach the conclusions, which I earlier
quoted, with reference to the general understand
ing of the nature of what the appellant does to the
raw materials it uses. 5 Moreover, his conclusions
also accord with my opinion that the preparation
of food and particularly beverages for immediate
retail sale on the restaurant premises is not manu
facturing or producing within the meaning of the
Act.
Since I have also expressed the view that he was
entitled to ascertain the generally accepted com
mercial view of what a restaurant operation does,
it follows that he did not err in finding that the
appellant was not entitled to the exemptions it
claimed from the payment of the sales tax imposed
by subsection 27(1) of the Excise Tax Act. In view
of this conclusion it is unnecessary to consider
which of the particular items of machinery,
apparatus and equipment listed in the schedule to
the agreed statement of facts, are dutiable or
exempt from duty.
For the foregoing reasons, the appeal should be
dismissed with costs.
HEALD J.: I concur.
* * *
KERR D.J.: I agree.
5 In that connection, while there is no evidence on the record
to substantiate the view, I think it inconceivable that a
housewife would dream that she could be described as a
manufacturer or processor in the preparation of meals for her
family, an operation which differs only in scale from that
performed by the chef in a restaurant's kitchen. That is not to
say, perhaps that in preserving and pickling fruit and vegetables
for use at some time in the future and not necessarily for
immediate consumption, she might not consider herself to be a
processor of preserved goods.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.