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A-1202-82
Coca Cola Ltd. (Appellant)
v.
Deputy Minister of National Revenue for Customs and Excise (Respondent)
and
Viceroy Manufacturing Company Limited, Scep ter Manufacturing Co. Ltd. (Intervenants) (Appellants)
Court of Appeal, Thurlow, C.J., Ryan and Le Dain JJ.—Ottawa, December 7 and 22, 1983.
Customs and excise — Whether soft drink cases and hand carriers subject to sales tax imposed by s. 27 of Excise Tax Act — Test to determine "machinery or apparatus" used in "manufacture or production" not limited to process preceding finished goods stage — Board failing to consider evidence of use in production process — Cases not excluded from exemp tion by Sch. III, Part III, s. 1 of Act as not used "exclusively" in containing goods — Appeal allowed — Excise Tax Act, R.S.C. 1970, c. E-13, ss. 2(1) (as am. by S.C. 1980-81-82-83, c. 68, s. 1(3),(3.1)), 27 (as am. by S.C. 1970-71-72, c. 62, s. 1; S.C. 1974-75-76, c. 24, s. 13; S.C. 1980-81-82-83, c. 68, s. 10), 29(1) (rep. and sub. S.C. 1980-81-82-83, c. 104, s. 9), 59, 60 (as am. by R.S.C. 1970 (2nd Supp.), c. 10, s. 64(2)), Sch. III, Part I, s. 1 (rep. and sub. S.C. 1980-81-82-83, c. 68, s. 28), Sch. III, Part XIII, s. 1(a)(i) (rep. and sub. S.C. 1973-74, c. 12, s. 2(5)) — Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, s. 52(c)(î).
Jurisdiction — Federal Court of Appeal — Appeal from Tariff Board decision under s. 60 of Excise Tax Act not strictly limited by wording of question in order granting leave to appeal — Interpretation of question in light of issues raised by appeal — Excise Tax Act, R.S.C. 1970, c. E-13, s. 60(1), (4) (as am. by R.S.C. 1970 (2nd Supp.), c. 10, s. 64(2)).
Soft drink cases and hand•carriers are used by the appellant for the handling of its soft drink bottles in different processes, from the plant to the consumer. This is an appeal under section 60 of the Excise Tax Act from a decision of the Tariff Board declaring them subject to the sales tax imposed by section 27 of that Act.
The first point is whether the scope of the appeal is limited by the wording of the question of law as formulated by the Federal Court Judge who granted leave to appeal. The second is whether the cases and carriers are exempt, under subsection
29(1) and subparagraph 1(a)(i) of Schedule III, Part XIII of the Act, as apparatus used directly in the manufacture or production of goods. The third is whether they are denied exemption by the concluding words of section 1, Schedule III, Part I.
Held, the appeal should be allowed. In view of the ambiguity of the wording of the question, the Court should not adopt a restrictive interpretation of the question as it would deny the appellant most of his submissions and as no objection to their relevancy was raised.
The second point first raises the question of the definition of the relevant words. Neither the statutory definition of "manu- facturer or producer" in paragraph 2(1)(J) of the Act, nor the judicial interpretations of "produced or manufactured" in sub section 27(1) affords a sure guide as to the meaning of the words "manufacture or production" in subparagraph 1(a)(i) of Schedule III, Part XIII, which must be given their ordinary meaning in their context. The test applied by the Board to determine whether the cases and carriers are "machinery or apparatus" used in the "manufacture or production" of goods unduly restricts the meaning of those words to that used up to, but not after, the moment when a usable and saleable article is in existence, without regard to the next necessary step, that of removing it from the production line. The Board also failed to consider evidence of use of the cases and carriers at the beginning of the production process. Therefore, the cases and carriers are apparatus for use in the manufacture or production of goods within the meaning of subparagraph 1(a)(i) of Schedule III, Part XIII.
As for the third point, since the cases and carriers are not used "exclusively" in containing goods, they do not fall within the exclusion, pursuant to section 1 of Schedule III, Part I of the Act, of containers designed for repeated use.
CASES JUDICIALLY CONSIDERED
CONSIDERED:
The Deputy Minister of National Revenue for Customs and Excise v. Parke, Davis & Company Limited, [1954] Ex.C.R. 1; The Queen v. York Marble, Tile and Terraz- zo Limited, [1968] S.C.R. 140; Irving Oil Limited, et al. v. The Provincial Secretary of The Province of New Brunswick, [1980] 1 S.C.R. 787; 109 D.L.R. (3d) 513.
COUNSEL:
Lyndon A. J. Barnes and Carol Tennenhouse Diamond for appellant and intervenants (appellants).
Judith McCann for respondent.
SOLICITORS:
Osler, Hoskin & Harcourt, Toronto, for appellant and intervenants (appellants).
Deputy Attorney General of Canada for respondent.
The following are the reasons for judgment rendered in English by
THURLOW C.J.: This is an appeal under section 60 of the Excise Tax Act [R.S.C. 1970, c. E-13 (as am. by R.S.C. 1970 (2nd Supp.), c. 10, s. 64(2))] from a decision of the Tariff Board which declared, on an application under section 59 of the Act, that the plastic or wooden soft drink cases and plastic hand carriers in issue in the proceed ings are subject to and not exempt from the sales tax imposed by section 27 [as am. by S.C. 1970- 71-72, c. 62, s. 1; S.C. 1974-75-76, c. 24, s. 13; S.C. 1980-81-82-83, c. 68, s. 10] of the Act. There are three points involved in the appeal: first, the scope of the appeal itself, having regard to the wording of the order giving leave to appeal; second, whether the cases and carriers are exempt under subsection 29(1) [rep. and sub. S.C. 1980- 81-82-83, c. 104, s. 9] and Schedule III, Part XIII, subparagraph 1(a)(i) [rep. and sub. S.C. 1973-74, c. 12, s. 2(5)]; and, third, whether they fall within Schedule III, Part I, and are denied exemption by the concluding words of section 1 [rep. and sub. S.C. 1980-81-82-83, c. 68, s. 28] of that Part.
The point as to the scope of the appeal arises on subsection 60(1) of the Act and the terms of the order of the Court giving leave to appeal.
The subsection reads:
60. (1) Any of the parties to proceedings under section 59, namely,
(a) the person who applied to the Tariff Board for a declaration,
(b) the Deputy Minister of National Revenue for Customs and Excise, or
(c) any person who entered an appearance with the Secretary of the Tariff Board in accordance with subsection 59(2),
may, upon leave being obtained from the Federal Court of Canada or a judge thereof, upon application made within thirty days from the making of the declaration sought to be appealed, or within such further time as the Court or judge may allow,
appeal to the Federal Court upon any question that in the opinion of the Court or judge is a question of law.
The practice under this provision, and under a similarly worded provision that was in the Cus toms Act [R.S.C. 1970, c. C-40] for some years after 1951, has been for the most part, though by no means invariably, to set out in the order giving leave to appeal the question which the Court or judge granting leave considered to be a question of law. Thus, in The Deputy Minister of National Revenue for Customs and Excise v. Parke, Davis & Company Limited,' Thorson P., in dealing with an appeal, said:
It was my opinion that section 49(3) required that the court or judge in granting leave to appeal should specify the question which in its or his opinion was a question of law and on which the appeal was permitted. Accordingly, on December 29, 1949, I gave leave to the appellant to appeal to this Court from the decision of the Tariff Board on what, in my opinion, was a question of law, which I specified as follows:
Did the Tariff Board err as a matter of law in deciding that Penicillin S-R, imported under Windsor entries numbers 16407-A, June 23, 1949, and 17043-A, June 28, 1949, is exempt from duty by virtue of Customs Tariff item 206a?
Later he said:
This is the first appeal to this Court under the Customs Act and certain observations of a general nature may be in order. The right of appeal conferred by the Act is a limited one. In the first place, leave to appeal must be obtained from this Court or a judge thereof. Moreover, the appeal for which leave may be obtained is confined to "any question which in the opinion of the court or judge is a question of law". This language permits possible anomalous results since the jurisdiction of the Court to entertain an appeal is made to depend not on whether a question is actually a question of law but on whether in the opinion of the court or judge it is so. That being the case, it is quite possible, through an erroneous opinion of the court or judge that a particular question is a question of law, that the Court will find itself vested with jurisdiction to entertain an appeal on what is actually a question of fact. Conversely, if the court or judge is erroneously of the opinion that the question in issue is not a question of law, the Court will have no jurisdic tion to entertain an appeal, although the question is actually one of law. Whether such eventualities were contemplated when the legislation was enacted may be the subject of specula tion but that they might result from the language of the enactment does not appear to admit of doubt.
Other cases in which the question was specified in the order are to be found in the Exchequer Court Reports for the year 1953 and later years.
' [1954] Ex.C.R. 1, at pages 4 and 5.
The need to specify the question was considered to arise from the view that the statute required that the Court or judge which grants leave form the opinion that the question is one of law. That interpretation of subsection 60(1) may be open to question but I do not think it is necessary to review it in the present case.
In this instance the order granting leave reads as follows:
Leave to appeal is granted on the question of whether or not the Tariff Board erred in deciding that the goods in issue were subject to and not exempt from the consumption or sales tax imposed by section 27 of the Excise Tax Act in view of the provisions of section 2(1)(f) of the said Act.
It will be noted that the form of the question does not differ much from that used in many cases save for the words "in view of the provisions of section 2(1)(f) of the said Act". These words raise the question whether what was considered to be a question of law, on which leave to appeal was granted, is somehow limited to the effect of the addition to subsection 2(1) [as am. by S.C. 1980- 81-82-83, c. 68, s. 1(3),(3.1)] of a paragraph (f) [as added idem] which includes in the definition of "manufacturer or producer":
2. (1) .. .
(f) any person who, by himself or through another person acting for him, assembles, blends, mixes, cuts to size, dilutes, bottles, packages, repackages or otherwise prepares goods for sale, other than a person who so prepares goods in a retail store for sale in that store exclusively and directly to consumers;
As the result of so restricting the meaning of the question would be to deny to the appellant most of his submissions and as no objection to their rele vancy was raised in the respondent's memorandum of argument, the Court should, I think, be loath to so restrict the issue on which the appellant had leave to appeal by reference to wording which in the context of the rest of the question is difficult to interpret. In the circumstances, I do not think the wording should be read as meaning anything more than as an indication that the Court, in addition to the question or questions of law raised by the rest of the question, was of the opinion that there was an arguable question of law on the effect of the addition of paragraph (f) to the definition. Accordingly, I would hold that the question to be
determined and the appeal are not limited to issues as to the effect of the enactment of paragraph 2(1)(f).
The second issue requiring determination is whether the soft drink cases and carriers in ques tion are exempt from sales tax under subsection 29(1) and Schedule III, Part XIII, subparagraph 1(a)(i) of the Act. In the scheme of Part V of the Act the general charging provision is subsection 27(1) which imposes tax on the sale price of all goods "produced or manufactured in Canada" or "imported into Canada". The provisions relied on for the exemption are:
29. (1) The tax imposed by section 27 does not apply to the sale or importation of the goods mentioned in Schedule III ... .
SCHEDULE III
PART xi 11
PRODUCTION EQUIPMENT, PROCESSING MATERIALS AND PLANS
1. All the following:
(a) machinery and apparatus sold to or imported by manufac turers or producers for use by them directly in
(i) the manufacture or production of goods,
The appellant produces and sells bottled soft drinks. When sold by the appellant the bottled soft drinks are in the cases and hand carriers which are in issue in the appeal. The appellant sells the product by the case rather than by the individual bottle. The hand carriers are made of plastic ma terial; some of the cases are of plastic material, others are wooden. Both the carriers and the cases are so designed as to hold a particular number of bottles of a particular size or sizes and to protect them from breakage.
The bottling operation is carried out on produc tion line equipment capable of producing some 300 filled bottles per minute. Some parts of the equip ment are involved in the mixing of the concen trates with desired proportions of water, some with the washing of the bottles, some with the filling and capping of the bottles, and some with the moving of them from one stage of the procedure to another.
In this operation empty bottles are brought in the cases and carriers in question to the conveyor where they are placed on its rollers and carried to a point where the machinery removes the bottles from them. The bottles then go in one direction to be washed, filled and capped, the cases and hand carriers in another direction in which they are moved along, in the case of those made of plastic to be washed, and thence in all cases to a point in the production line where they are again mechani cally filled, this time with filled bottles, and there upon placed on pallets for removal to the warehouse.
In its description of the operation, the Board said:
... Mr. Warren described the production process at the bot tling plant. The concentrates are delivered to the plant in stainless steel containers and mixed in a mixing tank where water and sugar are added. The resulting syrup goes through stainless steel lines to the production area where the syrup and water are proportioned as required and additional water is added to reduce the mixture to a finished product. The product is then ready to go into a bottler or product tank, travelling through stainless steel lines to the top of a filler bowl. As the bowl turns the bottles come on to be filled. As the bottles leave the filler the closures are put on and they go to the packer to be placed inside the plastic or wooden cases. In some instances the bottles are placed directly in the cases without being put inside plastic hand carriers. The cases, when filled, move down a conveyor to a pile-off station where they are manually loaded onto pallets and taken to the warehouse for loading onto trucks for delivery to retail stores. The hand carriers and cases remain with the retailer for one to three weeks until they are picked up to be placed on pallets and stored in the applicant's warehouse. They are returnable and have a normal life of seven years.
No witnesses were called for the respondent but, in cross- examination of the appellant's witness, counsel adduced evi dence that the soft drink bottles are placed in the hand carriers and cases after the drink mix is prepared and injected into the bottles and after the caps are date coded and put on. The witness conceded that the only thing done to the bottles after they are placed in the hand carriers and cases is labelling and that the quality of the drink was not altered thereafter. The witness also conceded that the goods in issue are used exclusive ly for holding the soft drink bottles and that they were designed for repeated use. During reexamination, the witness asserted that the applicant was not merely selling bottles of soft drink but was selling the cases as entire units.
The uncontradicted evidence also shows that when selling its product the appellant charges a deposit for the cases and carriers and that in the normal course of the business they are returned to the appellant in a few weeks filled with empty bottles. Thereafter the cases and carriers are used again to carry the empty bottles to and on the conveyor to the point where the machinery removes the bottles from them.
The Board's reasons for denying exemption under subparagraph 1(a)(i) of Schedule III, Part XIII appear from the following excerpt:
The Board finds that the bottled soft drinks are fully manu factured at the time they are placed in the hand carriers and cases. They are not, either at that time or thereafter, given any new forms, qualities and properties or combinations. The manufacture or production of the soft drink must therefore be regarded as having been completed before the goods in issue come into use. They do not, therefore, fall within the exemption provided by section 1(a) of Part XIII of the Act.
The appellant's first submission was that because of the addition of paragraph (f) to the definition of "manufacturer or producer" in sub section 2(1) of the Act the meaning of the expres sion "manufacture or production" in other sections of the Act must be taken to have been expanded so as to include the essentially packaging operations referred to in paragraph (f).
With respect I do not find that argument per suasive. It appears to me that the expressions "manufacturer or producer", "manufactured or produced" and "manufacture or production", which are found in various places and contexts in the Act, are used for differing purposes and that it is wrong to try to interpret one by reference to what another means or has been held to include either in a particular context or in general. As it seems to me, the definition of "manufacturer or producer" in subsection 2(1) is intended to identify a person who will be liable to pay the tax whether or not he manufactures or produces anything or is or is not a manufacturer or producer. A reference
to paragraphs (a) to (e) 2 of the subsection and the classes of persons described in them, I think, makes this clear. While the added paragraph (f), unlike the preceding paragraphs, further expands the definition by reference to functions carried out in connection with goods, it does not, in my opin ion, give rise to an inference that such functions necessarily constitute "manufacture or produc tion" or "manufacturing or producing" within the meaning of any of the provisions of the Act.
The meaning of "produced or manufactured" in subsection 27(1), which has been considered in numerous cases, also affords no sure guide to what is meant by "manufacture or production" in any other provision, including subparagraph 1(a)(i) of Part XIII of Schedule III. The expression "pro- duced or manufactured" is used in subsection 27(1) adjectivally to prescribe or outline the scope of the class of goods on the sale of which tax is imposed. It refers to goods that have been "manu-
2 2. (1) In this Act
"manufacturer or producer" includes
(a) the assignee, trustee in bankruptcy, liquidator, execu tor, or curator of any manufacturer or producer and, generally, any person who continues the business of a manufacturer or producer or disposes of his assets in any fiduciary capacity, including a bank exercising any powers conferred upon it by the Bank Act and a trustee for bondholders,
(b) any person, firm or corporation that owns, holds, claims, or uses any patent, proprietary, sales or other right to goods being manufactured, whether by them, in their name, or for or on their behalf by others, whether such person, firm or corporation sells, distributes, consigns, or otherwise disposes of the goods or not,
(c) any department of the Government of Canada or of any province of Canada, any board, commission, railway, public utility, manufactory, company or agency owned, controlled or operated by the Government of Canada, or the government of any province of Canada, or under the authority of the legislature or the lieutenant governor in council of any province of Canada, that manufactures or produces taxable goods,
(d) any person who sells, otherwise than in a retail store exclusively and directly to consumers, cosmetics that were not manufactured by him in Canada, other than a person who sells such cosmetics exclusively and directly to hair stylists, cosmeticians and other similar users for use in the provision of personal grooming services and not for resale,
(e) any person who sells gasoline, diesel fuel or aviation fuel, other than a person who sells such goods exclusively and directly to consumers, and
factured or produced", not goods to be manufac tured or produced. Whether goods have been "manufactured or produced" in Canada may be tested by what has happened to them in Canada. But the expression does not refer to and is not concerned with the means by which the goods have been manufactured or produced. Moreover, deci sions that turn on whether particular goods have been "manufactured or produced" in operations involving them or whether goods fall within the meaning of that expression in the Act are of little use in a case of this kind in which there is no issue as to whether the appellant is a "manufacturer or producer", within the meaning of the Act, of the bottled soft drinks or as to the product of its operation being goods "produced or manufac tured" in Canada within the meaning of subsection 27(1). What is here in issue is a different question, that of whether the cases and hand carriers are sold to or imported by the appellant for use by it "directly in ... the manufacture or production of goods", that is to say, its bottled soft drinks. These words must, in my opinion, be given their ordinary meaning in their context in the particular subpara- graph 1(a)(i) of Part XIII of Schedule III.
Accordingly, I would reject the appellant's sub mission based on paragraph (f) of the definition of "manufacturer or producer" in subsection 2(1).
The second branch of the appellant's submission was twofold, first that the Board erred in applying the test of The Queen v. York Marble, Tile and Terrazzo Limited 3 and, second, that the Board failed to consider the evidence that the cases and carriers in question are used at the beginning of the production process to introduce onto the con veyor and carry empty bottles along on it to the point where the machinery removes them from the cases and carriers and moves them to the washing operation.
I agree with both branches of this submission. In my view the Board erred in applying to the ques tion whether goods which fall within the meaning of "machinery or apparatus" are for use in the "manufacture or production" of goods a test which
3 [1968] S.C.R. 140.
narrowly and unduly confines such machinery or apparatus to that used up to but not after the moment when a usable and saleable article is in existence without regard for what must happen immediately thereafter to get the article out of the way of like articles on the production line. By parallel reasoning one would hold that the rollers on the conveyor which come into play after the filled bottles have been capped are not machinery or apparatus used in the production of the bottled products because the manufacture or production of the bottled product has been completed before such rollers come into use. Such a test, in my opinion, is unreal. In an operation of this kind means for removal of the product from the produc tion equipment is as essential as any other part of the machinery or apparatus used in the manufac ture or production of the product and is used as directly in the manufacture or production of the product as any of the other parts. The cases and carriers here in question fall easily within the meaning of "apparatus" and are used in the pro duction process at a time when the distribution and warehousing operations have not yet begun. The fact that the cases and carriers are subse quently used in the warehousing and distribution processes is not relevant to the question under discussion.
Moreover, the cases and carriers serve a further function in the "manufacture and production" pro cess in being used to put bottles on the conveyor, to hold them while being conveyed to the point where they are removed and to hold them in position for removal by the apparatus which car ries out that function. Again these cases and carri ers are carrying out an essential function of the manufacture or production of the product and are used directly in it. The system requires a supply of empty bottles to be brought to the washing
^ Compare Irving Oil Limited, et al. v. The Provincial Secre tary of The Province of New Brunswick, [1980] 1 S.C.R. 787, at page 796; 109 D.L.R. (3d) 513, at page 518.
As to the propane gas tanks, it is clear that they are used directly in the process of production for sale since it is at this point that odour is added, a step without which the product would not be fit for sale. As was pointed out in the Michelin case the statutory requirement of direct use is fulfilled irrespective of the percentage of use that may be ascribed to the process of manufacture as opposed to other processes such as storage and distribution.
apparatus. In the system described it is not con ceivable that the procedure could be carried out by putting or dumping individual bottles on the rollers of the conveyor.
As the reasons of the Board do not mention this feature of the use of the cases and carriers it appears to me that the Board has erroneously failed to consider the effect of the evidence and that its finding is unsupportable and should not be allowed to stand. In my opinion, the finding is erroneous in law and should be replaced with a finding that the cases and carriers are apparatus for use in the manufacture or production of goods within the meaning of Schedule III, Part XIII, subparagraph 1 (a) (i) of the Act.
There remains the question whether the exemp tion is foreclosed by section 1 of Part I of Schedule III. That provision reads:
SCHEDULE III
PART I
COVERINGS OR CONTAINERS
1. Usual coverings or usual containers sold to or imported by a manufacturer or producer for use by him exclusively in covering or containing goods of his manufacture or production that are not subject to the consumption or sales tax, but not including coverings or containers designed for dispensing goods for sale or designed for repeated use.
The Board's finding on this point was expressed in the following paragraph of its reasons:
The Board finds that the product that the applicant sells is a bottled soft drink, not, as urged by its representative in argu ment, a bottled soft drink placed inside the hand carriers and cases. The hand carriers and cases are for use by it in covering or containing goods of its manufacture or production and therefore would be exempt under section 1 of Part I of the Schedule were it not for the exception to that exemption provided by the words "but not including coverings or contain ers ... designed for repeated use". The goods in issue, being returnable, are clearly and admittedly designed for repeated use and are therefore outside the exemption.
The cases and carriers in question are undoubt edly designed for repeated use. They are in fact used over and over again and last up to seven years. But containing the bottled soft drinks of the appellant's manufacture when in storage after they
have been produced and in the course of their distribution to customers is but one of the uses to which the cases and carriers are put. They are also used to contain and return empty bottles to the appellant and as well in the ways already men tioned in the course of manufacture or production of the bottled soft drinks. The cases and carriers are thus not used "exclusively" in containing goods of the appellant's manufacture or production. They do not fall within Schedule III, Part I, section 1 and are thus not affected by its exclusion of containers designed for repeated use.
Further, even if it could be said that these cases and carriers fell within section 1 of Part I of Schedule III and are not exempted because of the exclusion, the result is simply that the cases and carriers are not exempted by that provision. They are not on that account rendered ineligible for exemption by any other provision of the Act under which they qualify for exemption.'
In the result I would allow the appeal, set aside the declaration of the Tariff Board and, exercising the powers of the Court under subsection 60(4) of the Excise Tax Act 6 and subparagraph 52(c)(î) of the Federal Court Act [R.S.C. 1970 (2nd Supp.), c. 10],' declare that the plastic or wooden soft drink cases and plastic hand carriers in issue are apparatus sold to or imported by the appellant for use by it in the manufacture or production of goods within the meaning of subparagraph 1(a)(i)
5 Compare Irving Oil Limited, et al. v. The Provincial Secre tary of The Province of New Brunswick, supra, footnote 4, S.C.R. at page 796, D.L.R. at page 518:
Concerning the transformers, the basis on which the exemption was denied by the Minister was simply untenable in law. While it is proper to look at the various exemptions in considering each of them, they are nevertheless independent.
6 60....
(4) The Federal Court may dispose of an appeal under this section by dismissing it, by making such order as the Court may deem expedient or by referring the matter back to the Tariff Board for re-hearing.
52. The Court of Appeal may
(c) in the case of an appeal other than an appeal from the Trial Division,
(i) dismiss the appeal or give the decision that should have been given, or
of Part XIII of Schedule III of the Excise Tax Act and are exempt from the consumption or sales tax imposed by section 27 of that Act.
RYAN J.: I concur. LE DAIN J.: I agree.
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