Consumers' Gas Co., B.C. Hydro & Power
Authority, Gas Metropolitain, Inc., Greater Win-
nipeg Gas Co., Lloydminster Gas Co. Ltd.,
Inland Natural Gas Co. Ltd., Northern & Cen
tral Gas Corp., Union Gas Co. of Canada Ltd.,
Valley Gas Co. Ltd., North Canadian Oils Ltd.,
Alberta's Southern Gas Co., Alberta Gas Trunk
Line Co. Ltd., Trans Canada Pipelines Ltd., Fort
Nelson Gas Co., Kingston Public Utilities Com
mission, Canadian Western Natural Gas Co. Ltd.
& Northwestern Utilities Ltd., Inter-City Gas
Ltd., Kitchener Public Utilities Commission,
Corp. of the City of Medicine Hat, Saskatchewan
Power Corp., United Gas Ltd., West Coast
Transmission Co. Ltd. and Great Northern Gas
Utilities Ltd. (Appellants)
v.
Deputy Minister of National Revenue, Customs
and Excise (Respondent)
Court of Appeal, Jackett C.J., Noël A.C.J. and
Thurlow J.—Ottawa, September 12, 1972.
Customs and Excise—Appeal from Tariff Board—Regula-
tors used to reduce gas pressure delivered to customers of
public utilities—Whether used in "manufacture" or "produc-
tion"—Construction of—Excise Tax Act, R.S.C. 1970, c.
E-13, Sch. III, Part XIII, par. 1(a).
Appellant public utility companies appealed from a decla
ration of the Tariff Board that regulators used by them in
reducing the pressure of gas delivered to their customers
were not used "in the manufacture or production of goods"
within the meaning of par. 1(a) of Part XIII of Sch. III of
the Excise Tax Act, so as to be exempt from sales tax.
Held (Noël A.C.J. dissenting), it could not be concluded
that the Tariff Board erred in law in not finding as a fact
that changing the pressure of natural gas in the regulators
was "manufacture" or "production". Moreover, as a ques
tion of law the function performed by the regulators could
not be regarded as either "manufacture" or "production".
Quebec Hydro-Electric Com'n v. D.M.N.R. [1970] S.C.R.
30, considered.
Per Noël A.C.J., the Tariff Board erred in law in its
construction of the word "production" in its application to
the gas industry. Canadian Lift Truck Co. v. D.M.N.R.
(1956) 1 D.L.R. (2d) 497, discussed.
APPEAL from Tariff Board.
A. de L. Panet for appellants.
A. Garneau for respondent.
JACKETT C.J.—This is an appeal from a
Tariff Board declaration declaring certain
"regulators" not to be exempt from consump
tion or sales tax under paragraph 1(a) of Part
XIII of Schedule III of the Excise Tax Act,, and
an application under section 28 of the Federal
Court Act to set that declaration aside.
With reference to the section 28 application,
counsel for the appellants was not able to per
suade the Court that there was any arguable
ground for relief that was not available on the
appeal and, on this point, counsel for the
respondent was not called on.
The appeal is on the question whether the
Board erred in law in deciding that the regula
tors in issue did not fall within the exempting
provision, which had the effect of granting
exemption to
(a) machinery, and apparatus sold to or imported by
manufacturers or producers for use by them directly in
the manufacture or production of goods;
For purposes of the appeal, the findings of fact
of the Board must be accepted as correct.
The Board's findings of fact are contained in
the following part of the declaration:
The appellant carries on a utility operation in which it
sells and delivers natural gas to its customers in Ontario,
Quebec and Northern New York State (Exhibit A-1, p. 21,
last two lines). Some 99 per cent of this natural gas is
purchased from Trans-Canada PipeLines and about one per
cent comes from the appellant's own gas wells in Lake Erie.
The gas is used by the appellant's customers largely for
space heating, water heating, direct heating and other
domestic, commercial or industrial purposes.
In its natural state, the gas may be relatively pure
methane or a mixture of many constituents such as
methane, butane, propane, butylene and impurities such as
sulphur and water. The appellant sells pure methane as its
natural gas product. In consequence, the gas received from
the wells is first usually processed in two scrubbing plants
or gas processing plants for the removal or recovery for
other use of the constituents other than methane. From the
second or last scrubbing plant, the gas emerges at a pressure
of 100 to 150 p.s.i.g. It then enters the Trans-Canada
PipeLines compressor station where the pressure is raised
to reach 400 to 925 p.s.i.g. for efficiency and economy of
transmission.
Upon reaching the appellant's area of distribution the gas
passes through a Sales Metering Station where the gas is
"odourized", by which is meant that an offensive odour or
stench is imparted to it.
There is a City Gate Regulating Station where the pres
sure is brought down to levels between 250 and 450 p.s.i.g.
and where it is some times necessary to heat the gas or to
add an oil fog to it to prevent drying of certain pipeline
joints. At a Border Regulating Station, usually at an urban
area, the pressure is again reduced to the vicinity of 60 to
175 p.s.i.g. Then, nearer to the customer, at a District
Regulator Station, there is another reduction in pressure to
some 15 to 60 p.s.i.g. Finally, at the customer's premises,
there is a Domestic Regulator which reduces the pressure to
some 4 p.s.i.g., often described as "7 inches water column",
for private residences or to as much as 5 p.s.i.g. for certain
industrial customers.
These successive reductions in pressure are performed by
the device in issue which is known as a regulator.
The regulator is a device the function of which is to
change the pressure between two piping systems; at its
inlet, it receives gas at a given pressure, reduces this pres
sure and, at its outlet, releases the gas at the new lower
pressure. Beyond this action, it may also be a pressure
limiting device to prevent accidents.
There was evidence that pressure regulators are used in
other distribution systems such as those for steam, oil or
water.
The natural gas in issue appears to have two main uses:
as a fuel and as a feedstock for the petrochemical industry.
In its first use, as a fuel or source of energy, there was
evidence to establish that natural gas competes in the
market place with such other sources as electricity, oil and
coal.
In the course of the evidence, it was stated that there was
a "processing" of pressure; this was explained to be only a
reduction in pressure. It was also made clear that, after
reaching the Trans-Canada PipeLines, there was no change
in the B.T.U. (British Thermal Unit) content of the gas; the
only change made after the gas enters the pipeline appears
to be what was called "odourizing" and some times the
addition of an oil fog.
There is agreement between the parties that the regulators
are "machinery and apparatus sold to or imported by" the
appellant and that the gas which is sold by the appellant is
"goods", both within the meaning of the exempting provi
sion. The Board accepts these two points of agreement
between the parties.
The conclusion of the Board is contained in
the following passages of its declaration:
The transformation which occurs in the natural gas is one
that occurs not in the constituent elements or the nature of
the gas itself, but rather in the pressure at which an other
wise unchanged gas is delivered to its purchaser. It is quite
true that at a lower pressure the gas contains a lesser
number of B.T.U.'s per cubic unit because of lack of
compression but in no other way is it changed from the gas
at a higher pressure. The mutation that takes place in the
gas is one in pressure only which, though it changes the
concentration or number of B.T.U.'s per cubic unit, does
not change its nature. Were the entity in the distribution
system water or liquid instead of gas it is open to specula
tion whether a similar contention could be advanced. It is
one thing to produce or manufacture by changing the con
stituent elements or the nature or even the form of a thing
but quite another merely to change the pressure at which it
is delivered to the customer who purchases it.
In consequence, the Board finds that the regulator is not
used "directly in the manufacture or production" of the gas
but rather is used only in modifying the pressure at which
the gas, already manufactured and produced, is delivered to
its purchasers.
In reaching this conclusion, the Board gave
considerable attention to its decision in the
Hydro Quebec case, where it held that trans
formers used in connection with electricity
were entitled to exemption under the provision
relied on in this case, and gave its reasons for
making a finding on the evidence in this case
that is different from the finding that it made on
the evidence in that case.' I find nothing in this
discussion to invalidate its finding that what
happens to the natural gas in the regulator
"does not change its nature".
In Quebec Hydro-Electric Commission v.
Deputy Minister of National Revenue [1970]
S.C.R. 30, Abbott J., giving the reasons of the
majority, referred to the findings of the Tariff
Board in that case, which it quoted as follows:
Evidence concerning the business of the appellant, the
nature of electricity, the purpose and function of the trans
formers and other relevant matters was heard by the Tariff
Board which, in its declaration, made certain findings,
amongst them the following:
From the evidence it appears that the current in the
primary coil of a transformer is electrically insulated from
the core of the transformer and from the secondary winding
of the transformer. By electro-magnetic induction, initiated
by the electrical energy of the primary alternating current, a
new and separate alternating current is produced in the
secondary winding of a transformer. The current in the
secondary circuit usually differs, not in the number of watts
or of cycles, but in the number of volts and of amperes.
However the operation of a transformer is no mere trans
mission in the sense of causing the primary current to pass,
go or be conveyed or conducted from the primary circuit to
the secondary circuit.
* * *
The electrical energy produced by the applicant is not a
commodity which is ordinarily used by or sold to its cus
tomers until it has been transformed; it exists, prior to such
transformation, in a form which is not generally marketable
because it is unsuited for the use of most customers.
* * *
Because it is the transformation in issue that turns the
electrical energy into a form that can be used by the
customer, this transformation must be considered to be part
of the manufacture and production of electricity. Because
the transformation of voltage is done exclusively in the
transformers and by the transformers, they are apparatus
sold to or imported by the applicant for use by it directly in
the manufacture or production of goods.
Abbott J. then disposed of the matter as
follows:
The principal contention of the respondent before the
Tariff Board, the Exchequer Court and this Court was that
the words "manufacture or production", when applied to a
commodity such as electricity, must be construed to mean
manufacture or production in the sense of "generation".
That contention was rejected by the Tariff Board, but was
accepted by the learned President of the Exchequer Court.
As Duff C.J. stated in The King v. Vandeweghe Limited,
[1934] S.C.R. 244 at 248, [1934] 3 D.L.R. 57: "The words
`manufacture' and 'production' are not words of any 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." Nevertheless, taking
these words in their natural and ordinary sense, there is
nothing in the Excise Tax Act which would compel such a
restrictive meaning as that contended for by the respondent.
Moreover such a meaning would be contrary to evidence
which was accepted by the Board. In my opinion the Board
correctly construed para. (a) of Schedule V of the Excise
Tax Act, and did not misdirect itself as to the law.
The Board found as a fact that the transformers in issue
in this appeal are "apparatus sold to or imported by the
appellant for use by it directly in the manufacture of
goods". There was ample evidence to support that finding
and, under the provisions of s. 57 of the Excise Tax Act, it
is not subject to judicial review.
It would appear to me from this decision that
the question as to whether, in the circumstances
of a particular case, a particular process is one
of "manufacture" or "production" is, within
wide limits, a question of fact for decision by
the Tariff Board in a case that arises as this one
did. In other words, as I understand it, what is
"manufacture" or "production" depends on the
sense in which those words are used in the
context of different situations. In the context of
this case, I cannot conclude that the Tariff
Board was wrong in law in not finding that
changing the pressure of the natural gas in the
regulators is "manufacture" or "production".
If I am wrong in my view that the question is
one of fact—if, in other words, once the basic
facts are established, it is a question of law for
the Court as to whether they fall within the
exemption provision—then, I am of the view
that the Tariff Board's decision was correct.
What is "manufacture" or "production"
within the ordinary sense of those words is
something that varies according to the context
or class of activity involved. A merchandiser or
retailer does many things in the course of distri
bution that are necessary to make his goods
acceptable to, or usable by, his customers. Gen
erally speaking, if those things are things nor
mally done by the distributor in the course of
distribution, they would not be regarded by the
business community as manufacture or produc
tion. Certainly, it would be a shock to a retailer
if he found that such acts made him liable to
consumption or sales tax on the retail sale price.
On the other hand, a retailer can combine the
role of manufacturer and retailer, and it is a
question, if not of fact, of characterization, to
decide whether border line acts fall in one class
or the other. In my view, merely changing the
pressure of natural gas, when it is a reversible
act such as it appears to be in this case, cannot,
within the ordinary sense in which the words
are used, be regarded as either "manufacture"
or "production".
I should add, with reference to the appeal,
that, in this case, the respondent did not support
the view, taken by the members of the Board
other than the Chairman, that the appellant did
not qualify as a manufacturer or producer even
if the acts in question were manufacture or
production and this Court, therefore, need
express no view on that question.
My conclusion is that the appeal should be
dismissed.
NOËL A,C.J.—The Chief Justice has set
down clearly the facts herein and I shall not
repeat them except when necessary to empha
size what I consider as important in determining
the question involved in this appeal and pre
sented for determination by the Tariff Board
which is whether the "regulators" used by the
appellants to reduce the pressure of the gas
they sell are used in the manufacture or produc
tion of goods. The Board said they were not.
Had the Board said that they were, they would
have been exempt from consumption or sales
tax under paragraph 1(a) of Part XIII of
Schedule III of the Excise Tax Act.
The sole question on which leave to appeal
under section 60 of the Excise Tax Act was
obtained is limited to a question of law, i.e., did
the Tariff Board err as a matter of law in
deciding that the regulators in issue are not
"machinery and apparatus sold to or imported
by manufacturers or producers for use by them
directly in the manufacture or production of
goods"?
In order to appreciate the problem involved
herein, it is useful to describe the appellants'
operations and set down the sequence which
takes place when they purchase gas, process it
and deliver it to their customers.
The appellants buy 99% of their gas as natu
ral gas from Trans Canada Pipelines and obtain
1% thereof from their own wells in Western
Ontario. When this natural gas emerges from
their wells it may contain impurities such as
butane, etc., and in such cases it is processed.
Trans Canada Pipelines, when delivering gas to
the appellants, for reasons of economy and
efficiency, raises the pressure of the gas up to
between 400 to 925 pounds. Natural gas pur
chased by the appellants is, therefore, received
at a very high pressure and under such condi
tions is not generally saleable or useable. To
render this gas marketable and saleable, the
appellants must, therefore, reduce it to lower
pressures which are determined by the individu
al and special requirements of their customers.
The pressure processing to render the gas sale
able and useable is done by means of the
regulators. The function of the regulators is,
therefore, to process the pressure of the gas
from a high level to a low level and, in some
cases, the regulator acts as a security device. A
number of facts brought out in the evidence of
an informative nature may also be useful in
assessing the problem and they are set out
hereunder. Natural gas is a competitor in the
market place with electricity. The regulators
perform the same function in reducing the pres
sure of natural gas to make it saleable or use
able as does a transformer in reducing the volt
age to make electricity useable or saleable.
There is .no question that in discussing the
application of the Quebec Hydro Electric deci
sion ([1970'] S.C.R. 30) to the present case, the
Board erred when it found that a volt is a
constituent element of electricity when, in fact,
voltage is not that but merely the electromotive
force reckoned or expressed in volts and some
thing akin to pressure in gas and it also made a
mistake when it relied on this finding to distin
guish one case from the other.
The evidence establishes that the product
sold by the appellants is not only natural gas but
natural gas produced for the customer at a
particular pressure. It is not indeed gas in the
state of nature that is supplied to the customer
or gas in a container but gas at a particular
pressure, i.e., in most cases at 7 or 14 inches
water column and this refers to a very particu
lar pressure. I should mention that 28 inches
water column corresponds to 1 pound of pres
sure and 7 inches water column corresponds to
pound pressure and, in some cases, gas is
supplied to industries at 5 or 6 pounds pressure.
Regulators are, of course, required mainly to
reduce the level of pressure to the above
requirements.
The Board, in its decision, has concluded as
follows:
The transformation which occurs in the natural gas is one
that occurs not in the constituent elements or the nature of
the gas itself, but rather in the pressure at which an other
wise unchanged gas is delivered to its purchaser. It is quite
true that at a lower pressure the gas contains a lesser
number of B.T.U's per cubic unit because of lack of com
pression but in no other way is it changed from the gas at a
higher pressure. The mutation that takes place in the gas is
one in pressure only which, though it changes the concen
tration or number of B.T.U's per cubic unit, does not
change its nature. Were the entity in the distribution system
water or liquid instead of gas it is open to speculation
whether a similar contention could be advanced. It is one
thing to produce or manufacture by changing the constitu
ent elements or the nature or even the form of a thing but
quite another merely to change the pressure at which it is
delivered to the customer who purchases it.
In consequence, the Board finds that the regulator is not
used "directly in the manufacture or production" of the gas
but rather is used only in modifying the pressure at which
the gas, already manufactured and produced, is delivered to
its purchasers.
Having regard to the decision reached with
respect to transformers in the Quebec Hydro
case and the ordinary meaning the Board gave
to the word "production" therein, when it
accepted as the ordinary and normal meaning of
the word "production" not only the generation
of electricity, but also what is done in order to
supply it at required voltages and considering
the facts established in this case, I would have
been inclined, had I sat on the Tariff Board, to
hold on the facts that appellants' regulators are
used in the production of gas.
This is not sufficient, however, to enable me
to allow the appeal because there is no right of
appeal from the decision of the Tariff Board on
findings of fact. The only right of appeal con
ferred by section 60 of the Excise Tax Act is an
appeal upon a question that in the opinion of
this Court or a judge thereof, is a question of
law and even in such a case, only after leave to
appeal on such question has been obtained. It
follows that to the extent that the declaration of
the Tariff Board was a finding of fact, this
Court has no right to interfere unless it was so
unreasonable as to amount to error as a matter
of law or that the tribunal has in some way
misdirected itself, acted on insufficient evi
dence or came to a conclusion which no reason
able tribunal could properly come to. It is
indeed not sufficient in order to hold that there
was an error in the finding of fact that a court
might have found differently on a full right of
appeal. It follows, of course, that this Court
cannot substitute its own conclusion for the
finding of the Tariff Board if there was material
before it from which it could reasonably have
found as it did. It is often difficult in some
cases to make a clear distinction between fact
and law. It has even been said that a question is
fact or law depending on whether the Court
chooses to "treat" it as one or the other. It has
also been suggested that the device of charac
terizing a question as one of fact or as "mixed"
permits a court to pretend that it must affirm
the administrative action if it is "supported by
evidence" or is "reasonable". This, of course, is
not true, but the fact remains that there is
considerable difficulty in determining in
individual cases whether the task is that of
defining the statute or is merely that of ascer
taining whether the facts of the particular case
meet the prescribed form and the question as to
whether a court is faced with a question of fact
or of law is not always easy to resolve. In
Canadian Lift Truck Co. Ltd. v. D.M.N.R.
(1956) 1 D.L.R. (2d) 497 (referred to by my
brother Thurlow) the Supreme Court, by Kel-
lock J., dealt with the powers of a court in such
matters. At page 498 when referring to
Edwards v. Bairstow [1955] 3 All E.R. 48 he
said:
While the construction of a statutory enactment is a
question of law, and the question as to whether a particular
matter or thing is of such a nature or kind as to fall within
the legal definition is a question of fact, nevertheless if it
appears to the appellate Court that the tribunal of fact had
acted either without evidence or that no person, properly
instructed as to the law and acting judicially, could have
reached the particular determination, the Court may pro
ceed on the assumption that a misconception of law has
been responsible for the determination; ...
There have also been several decisions in the
United Kingdom which have enlarged upon this
matter and have held that there can be ques
tions of law where the lower court has, in
coming to its decision (1) applied an erroneous
test or principle which might have affected its
conclusion (cf. Goodhew v. Morton [1962] 2 All
E.R. 771 MacKenna J.), (2) taken irrelevant
matter into consideration or (3) failed to take
relevant matter into consideration (cf. Merchan
dise Transport Ltd. v. B.T.C. [1961] 3 W.L.R.
1358 at p. 1392 per Danckwertz L.J.) or that
the lower court must have misdirected itself in
law in that the evidence is inconsistent with and
contradictory of the determination or, finally,
that the only true and reasonable conclusion
contradicts the determination (cf. Griffiths v.
J.P. Harrison Ltd. [1962] 2 W.L.R. 909 and
Bracegirdle v. Oxley [1947] K.B. 349).
I believe that no person properly instructed
as to the law and acting judicially could have
reached the decision the Tariff Board did here
and I am of the view that there has been a
misconception of the law in the interpretation
given by the Board to the meaning of "produc-
tion" in the context of the Excise Tax Act in its
application to the gas industry.
As Duff C.J. stated in The King v. Van-
deweghe Limited [1934] S.C.R. 244, at page
248:
The words "manufacture" and "production" are not
words of any 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....
Gas as well as electricity is a very special
commodity. Both are only held to be goods
because they happen to be listed in paragraph 3,
Part VI, Schedule III in which goods exempt
from sales tax are enumerated. Such commodi
ties have a number of characteristics of their
own and do not fall within ordinary classes of
tangible goods. They can be subjected to certain
specific changes only and cannot, for instance,
be transformed in the same manner as wood or
plastic or coal. Such commodities as electricity
and gas, because of their very nature, may well
be produced in the Quebec Hydro case by a
reduction of voltage or in the gas industry by a
reduction of pressure and such production
involves in both cases a simple change of char
acteristics which, however, in the Quebec
Hydro case was found by the Board to be a
sufficient change to allow it to hold that there
had been production. My brother Thurlow,
during the hearing, put this very aptly when he
said that the coal merchant who breaks down
large slabs of coal into small pieces in order to
meet with the requirements of the consumer,
would certainly be considered as producing coal
yet he would be doing no more than the gas
merchant who reduces the pressure of the gas
to the requirements of the ultimate consumer.
To hold as the Tariff Board has held that the
meaning of "production" as applied to gas, does
not embrace the operation whereby in the
regulator the gas is brought down in stages to a
pressure which will render it saleable and use
able to its users, even if such reduction is
brought about while being transported in pipes
until it reaches the ultimate consumer at the
required pressure is, in my view, to ignore the
realities of the very special commodity involved
and to do so, by a reference to a false distinc
tion as it has done when comparing the opera
tions of a regulator with that of a transformer is
to apply an erroneous test or principle which
might have affected its conclusions and is in my
view a misdirection in law.
Furthermore, to say that a certain operation
of reducing the pressure of gas has not the
characteristics of an operation of production
because the nature or form of the commodity is
not changed is also a serious misconception and
a clear indication that the Board has misdirect
ed itself. May I also add that to hold that an
operation is not production because at the same
time it may be held to be transportation or
distribution is also an error in law. It is a wrong
interpretation of the words of the statute which
do not require such an operation to be exclu
sively or solely production and is a miscon
struction of the true meaning to be given to the
word "production" in the statute. This is not the
case of a board expert in the field coming to a
conclusion which is open to it on the evidence
before it, but rather one where having already
come to a conclusion of the meaning of a term
"production" refuses to apply it to a similar
situation. The Board has indeed accepted as the
meaning of "production" in one industry, i.e.,
the electrical field, a meaning which must be
accepted as being their ordinary meaning of the
term (and having done this, may I suggest that
the Board's expertise has then ceased to be of
determining significance) and now wrongly
refuses to apply the same meaning to the word
"production" in an analogous situation in anoth
er field, the gas industry, which, as we have
seen, happens to be in close competition with
the electrical industry. Furthermore, it has
refused to apply this meaning because of an
error in appreciating the true nature of voltage
and has thereby distinguished wrongly between
two operations which appear clearly to be of a
very similar nature. This, in my view, is a
refusal to apply the same rules or principle or
standard in a uniform manner and also a serious
misconception of law.
This is not indeed a case where it was open to
the Board on the evidence before it to reach the
decision it did but one where, on the evidence
before it, and because of the meaning adopted
by the Board in the Quebec Hydro case, it was
not open to it to reach any other conclusion but
that the appellants' regulators were used in the
production of goods.
It appears to me that once the true meaning
of a word used by the legislature has been
judicially determined, the authoritative answer
to it should become a judicial precedent in
similar situations and should be law for all other
cases in which the same statutory provision
comes in question.
I therefore reach the conclusion that the
Tariff Board erred as a matter of law in reach
ing its decision and that appellants' regulators
are used in the production of goods and, there
fore, exempt from consumption or sales tax
under paragraph 1(a) of Part XIII of Schedule
III of the Excise Tax Act. I would, therefore,
allow the appeal with costs.
* * *
THURLOW J.—The details of the facts of this
case are stated in the reasons of the Chief
Justice and I need not repeat them.
The Consumers' Gas Company, which will be
referred to as the appellant, buys, and receives
into its distribution system from the Trans
Canada Pipeline, gas at a pressure of some 9010
p.s.i.g. At that pressure the gas is not useful as a
fuel or as feed stock for industrial purposes.
The reason why the pressure has been raised so
high is to move the gas economically and effi
ciently through the Trans Canada Pipeline. The
same pressure serves to move the gas through
the appellant's pipeline distribution systems but
for a number of reasons it cannot be moved in
those systems at so high a pressure nor can it be
delivered to customers at that pressure. In
consequence the pressure is reduced at the
several stages referred to in the findings of the
Tariff Board. The successive reductions in pres
sure are brought about by use of the regulators
here in question and, in total, their effect is
sufficient to enable the appellant to supply and
deliver the gas to customers at a pressure at
which the customers' appliances can accept and
consume it. The total change in pressure is very
substantial since it represents a drop from some
900 p.s.i.g. to p.s.i.g. for most domestic con
sumers and to 5 p.s.i.g. for certain other
consumers. --
The question presented for determination by
the Tariff Board was whether the regulators by
which the pressure is reduced are used by the
appellant directly in the manufacture or produc
tion of natural gas and the Board answered that
question in the negative. Its findings include the
following:
The transformation which occurs in the natural gas is one
that occurs not in the constituent elements or the nature of
the gas itself, but rather in the pressure at which an other
wise unchanged gas is delivered to its purchaser. It is quite
true that at a lower pressure the gas contains a lesser
number of B.T.U.'s per cubic unit because of lack of
compression but in no other way is it changed from the gas
at a higher pressure. The mutation that takes place in the
gas is one in pressure only which, though it changes the
concentration or number of B.T.U.'s per cubic unit, does
not change its nature. Were the entity in the distribution
system water or liquid instead of gas it is open to specula
tion whether a similar contention could be advanced. It is
one thing to produce or manufacture by changing the con
stituent elements or the nature or even the form of a thing
but quite another merely to change the pressure at which it
is delivered to the customer who purchases it.
Because of the nature of pressure in a gas, it cannot be said
that the goods—the gas—are manufactured or produced
when only the pressure at which they are delivered is
changed by the regulator. The manufacture or production
occurred theretofore; the change in pressure is a modifica
tion not of the product itself but only of the pressure at
which it is delivered.
The regulator in the present case involves no actual produc
tion of gas and, in terms of change, no change in the
constituent elements of the gas itself but rather a change
only in the pressure at which it is delivered to its purchaser,
with its consequent change of concentration or number of
B.T.U.'s per cubic unit.
In consequence, the Board finds that the regulator is not
used "directly in the manufacture or production" of the gas
but rather is used only in modifying the pressure at which
the gas, already manufactured and produced, is delivered to
its purchasers.
A right of appeal by leave from this determi
nation is provided for by section 60 of the
Excise Tax Act but the appeal is not a broad
one embracing all questions of fact and law as
was the situation in The King v. Vandeweghe
[1934] S.C.R. 244, The Queen v. York Marble,
Tile and Terrazzo Ltd. [1968] S.C.R. 140 and
The Queen v. C.P.R. [1971] S.C.R. 821. In the
present case it is limited to the question of law
on which leave to appeal has been obtained that
is to say:
Did the Tariff Board err as a matter of law in deciding that
the regulators in issue are not "machinery and apparatus
sold to or imported by manufacturers or producers for use
by them directly in the manufacture or production of
goods".
In Canadian Lift Truck Co. Ltd. v. D.M.N.R.
(1956) 1 D.L.R. (2d) 497 at p. 498 Kellock J.
speaking for the Supreme Court said with refer
ence to such a question:
The question of law above propounded involves at least two
questions, namely, the question as to whether or not the
Tariff Board was properly instructed in law as to the
construction of the statutory items, and the further question
as to whether or not there was evidence which enabled the
Board, thus instructed, to reach the conclusion it did.
While the construction of a statutory enactment is a ques
tion of law, and the question as to whether a particular
matter or thing is of such a nature or kind as to fall within
the legal definition is a question of fact, nevertheless if it
appears to the appellate Court that the tribunal of fact had
acted either without any evidence or that no person, proper
ly instructed as to the law and acting judicially, could have
reached the particular determination, the Court may pro
ceed on the assumption that a misconception of law has
been responsible for the determination; Edwards v. Bair-
stow, [1955] 3 All E.R. 48.
The principal contention of the appellant, as I
have understood it, is that the Tariff Board in
reaching its conclusion failed to apply the true
meaning of "manufacture or production" in the
applicable statutory provision as that expres
sion has been interpreted and applied in the
Quebec Hydro Electric Commission v.
D.M.N.R. case ([1970'] S.C.R. 30), having
regard to the fact that regulators in a gas distri
bution system are used to perform a function
that is precisely analogous to that of transform
ers in an electrical distribution system and that
like the transformers in the Quebec Hydro case
the regulators in the present case are used to
produce from unsaleable and unusable gas at
high pressure saleable and usable gas at an
appropriate low pressure.
I have not found in the reasons of the Tariff
Board any misstatement of the applicable law,
nor do I recall counsel having pointed to any
such misstatement in the course of the argu
ment and it seems to me to follow that the only
remaining basis on which the Board's conclu-
sion, which on its face is one of fact, could be
successfully attacked as erroneous in point of
law is that the conclusion is so inconsistent with
the facts and material before the Board as to
lead irresistibly to the conclusion that a miscon
ception of the law has been responsible for the
Board's determination.
I do not think this has been made out. It was
plainly a question of fact to determine what
changes in the end product had been wrought
by the use of the regulators and it was also a
question of fact whether such changes were
sufficient in the circumstances to amount to
"manufacture or production" of goods within
the meaning of the statute. To my mind it was
not incumbent on the Board to weigh the facts
of this case by reference to somewhat analo
gous features of the transformer case or to
reach a conclusion similar to the conclusion
reached in that case. Even though the Board in
fact considered the facts by reference to those
found in that case and made certain compari
sons therewith it was still open to the Board on
the material before it to regard as it did the gas
itself as the "goods" referred to in the statute
and to find, as it also did, that the pressure
regulators had not changed the commercial
qualities or characteristics of that gas to such an
extent as to amount to "manufacture or produc
tion" of gas in the common meaning or sense of
that expression.
In my opinion it was also open to the Board
to find, as it did, as a concomitant to this
conclusion that the change in pressure was but
a change in the pressure at which the gas was
delivered, for to my mind it appears from the
evidence that the successive steps in reducing
the pressure of the gas to move it safely and
economically through the appellant's distribu
tion system and the pressure maintained at the
several stages of movement of the gas through
that system could be regarded as features or
characteristics of that system and as dictated by
its needs and the need to deliver the gas to
consumers at a sufficiently high range of pres
sures to enable the final regulator to maintain
the supply at a low but constant pressure.
I am accordingly in agreement with the first
ground of the decision of the Chief Justice and
would on that basis alone dismiss the appeal.
JACKETT C.J.:
1 In this connection the Board said inter alia:
The Board's first finding was that, rather than merely
bringing about a transformation, change or mutation in an
existing current, it "produced" a "new and separate"
current. It is, however, not from this basis that the
appellant seeks to draw analogy.
The Board's second finding was that, whether or not
the transformer "produces an electricity new and sepa
rate from that in the primary circuit", it "turns the electri
cal energy into a form that can be used by the customer"
and "this transformation must be considered to be part of
the manufacture and production of electricity". From this
finding, the appellant argues that the regulator does like
wise for the natural gas.
This contention must be examined in the light of the
nature of any change or transformation which occurs in
the electricity or in the gas.
The transformation which occurs in the electricity,
though it leaves unchanged the frequency or cycle of
alternation and the amount of electrical energy expressed
in watts, has changed the "new and separate current" in
its two constituent elements of pressure or electromotive
force expressed in volts and of current flow expressed in
amperes. Thus the change or mutation which renders the
electricity a salable, marketable and usable commodity is
a change in each of its two constituent elements.
It is consequently clear that when the volt is called a
unit of pressure in electricity it is so called in a very
different sense from that used in discussing pressure of
gas. In gas, pressure is measurable in weight upon a unit
area, it is also "la pression exercée sur une surface". This
is not so in electricity and the analogy may not be carried
too far.
Because of the nature of pressure in a gas, it cannot be
said that the goods—the gas—are manufactured or pro
duced when only the pressure at which they are delivered
is changed by the regulator. The manufacture or produc
tion occurred theretofore; the change in pressure is a
modification not of the product itself but only of the
pressure at which it is delivered.
Thus, it appears to the Board that there is a very real
distinction between its finding in the transformer case and
the present one in that the transformer case involved the
production of a new and separate current and, in terms of
change, a change in the very constituent elements of the
electricity itself whereas the regulator in the present case
involves no actual production of gas and, in terms of
change, no change in the constituent elements of the gas
itself but rather a change only in the pressure at which it
is delivered to its purchaser, with its consequent change
of concentration or number of B.T.U.'s per cubic unit.
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.