T-1661-78
Controlled Foods Corporation Limited (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Gibson J.—Vancouver,, March 8, 9;
Ottawa, May 10, 1979.
Excise tax — "Manufacturer" or 'producer" — Restaurant
owner claiming exemption from sales tax imposed by s. 27 of
the Excise Tax Act on ground that it is a "manufacturer" or
"producer" of meals and drinks served to its customers —
Whether or not plaintiff a "manufacturer" or 'producer" —
Excise Tax Act, R.S.C. 1970, c. E-13, ss. 27, 29, Schedule III,
s. I(a) (i), (b), (c).
Plaintiff, a restaurant operator, claims that in using equip
ment in the operation of its restaurant for producing meals and
drinks served to customers, it was and is a "manufacturer" or
"producer" within the meaning of section 27 of the Excise Tax
Act. It is contended that this machinery was purchased by
plaintiff as a "manufacturer" or "producer" for the purposes of
and within the meaning of Part XIII of Schedule III of the
Excise Tax Act and that plaintiff consequently was entitled to
an exemption of consumption or sales tax which otherwise
would be imposed by section 27 of the Excise Tax Act. The
issue to be decided is whether or not plaintiff is a "manufactur-
er" or "producer".
Held, the appeal is dismissed. After considering the authori
ties and the whole of the evidence, and using commercial usage
as a guide and confined to the facts of this appeal, 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 "manu-
facture or production of goods", and further Controlled Foods
would not be considered and would not be generally recognized
as a "manufacturer" or "producer" within the meaning of the
Excise Tax Act, especially Schedule III thereto.
APPEAL.
COUNSEL:
M. R. V. Storrow and D. Morley for plaintiff.
W. Scarth for defendant.
SOLICITORS:
Davis & Company, Vancouver, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
GIBSON J.: Controlled Foods Corporation Lim
ited operates restaurants in the Provinces of Brit-
ish Columbia, Alberta, Saskatchewan and Ontario
and so the same issue as arises in this appeal would
arise in respect to all their restaurants.
In this appeal, Controlled Foods claims that in
operating its restaurant in Richmond, British
Columbia, it is a "manufacturer" or "producer" of
meals, beverages and drinks and therefore is en
titled to certain exemptions from consumption or
sales tax exigible under section 27 of the Excise
Tax Act, R.S.C. 1970, c. E-13, as amended on:
1. machinery and apparatus purchased by Con
trolled Foods to the extent that such is used
directly in the manufacture and production of
meals, beverages and drinks as provided by sub-
paragraph 1(a)(i) of Part XIII of Schedule III
of the Excise Tax Act;
2. equipment purchased by Controlled Foods
for use by it in carrying refuse or waste from
machinery and apparatus used by them directly
in the manufacture or production of meals,
beverages and drinks as provided by paragraph
1(c) of Part XIII of Schedule III of the Excise
Tax Act;
3. equipment purchased by Controlled Foods
for use by it in exhausting dust and noxious
fumes produced by the manufacturing or pro
duction of prepared meals, beverages and drinks
as provided by paragraph 1(c) of Part XIII of
Schedule III of the Excise Tax Act; and
4. safety devices and equipment purchased by
Controlled Foods for use by it in the prevention
of accidents in the manufacture or production of
meals, beverages and drinks as provided by
paragraph 1(d) of Part XIII of Schedule III of
the Excise Tax Act.
Section 27(1)(a)(i) of the Act provides as
follows:
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, ...
Section 29(1) of the Excise Tax Act provides
for certain exemptions from the tax exigible and
reads as follows:
29. (1) The tax imposed by section 27 does not apply to the
sale or importation of the articles mentioned in Schedule III.
Schedule III at section 1(a)(i),(b),(c) and (d)
reads 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,
(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;
The issue in this action arose in this way: Con
trolled Foods in the year 1976 constructed and
equipped and opened and commenced to operate a
restaurant in Richmond, British Columbia (one of
a chain of similar restaurants so opened and oper
ated by it) which (like the others it operates) it
calls "The Corkscrew", and purchased for use in
the operation of this restaurant, certain machinery,
apparatus and equipment which it has used contin
uously since then. Controlled Foods thereupon
claimed that in using this certain machinery,
apparatus and equipment in the operation of this
restaurant to produce the meals and the drinks
served to customers it was and is a "manufactur-
er" or "producer" within the meaning of section
27 of the Excise Tax Act, and that this machinery,
apparatus and equipment was sold to or imported
for use by it as a "manufacturer" or "producer"
for the purposes of and within the meaning of
section 1 of Part XIII of Schedule III of the
Excise Tax Act and as a consequence was entitled
to an exemption of consumption or sales tax which
otherwise would be imposed by section 27 of the
Excise Tax Act.
The parties have agreed that if the Court should
find that Controlled Foods in operating this res
taurant in producing meals and drinks is a "manu-
facturer" or "producer" within the meaning of the
Excise Tax Act, then: (1) that the items of ma
chinery and apparatus (identified by the letter
"A" in one of the schedules of the document filed
as part of the evidence entitled "Agreed Statement
of Facts") are exempt from tax under section 27 of
the Excise Tax Act under the exemption provided
by section 1 of Part XIII of Schedule III; (2) that
in respect of the items of equipment identified by
the letter "B" of that schedule that such items are
not exempt from tax under section 27 of the
Excise Tax Act under the exemption provided by
section 1 of Part XIII of Schedule III; and (3) that
in respect of the items and equipment identified by
the letter "C" of that schedule, the parties are in
dispute as to whether such items are exempt or not
under the same provisions of the said Act and
Schedule.
As has been said so often in respect of the
question as to who are "manufacturers" or "pro-
ducers" or what constitutes "the manufacture or
production of goods" within the meaning of the
Excise Tax Act, Parliament in the Act and Regu
lations has given no guide. Without such guide it is
still always necessary in deciding the issues in
cases such as this to determine whether the subject
purchaser or importer of machinery, apparatus or
equipment is or is not a "manufacturer" or "pro-
ducer" of goods and whether or not what is done
with such purchase and importation constitutes the
"manufacture or production of goods" as a ques
tion of fact, and to determine the construction of
the statutory provisions as a question of law. In
doing so, judicial notice of the ordinary meaning of
these words may be taken; and the meaning most
appropriate in the context and circumstance may
be chosen; and commercial usage can be used as
an aid for such statutory interpretation. (See
Cross: Statutory Interpretation, Butterworths
1976; and cf. United Dominions Trust Ltd. v.
Kirkwood')
For example, in applying a specific meaning (i.e.
whether or not what is done constitutes the
"manufacture or production of goods" within the
meaning of the statute) to particular goods or
articles as a question of fact, not of law (cf Parker
v. The Great Western Railway 2 ), the Supreme
Court of Canada in The Queen v. York Marble,
Tile and Terrazzo Limited 3 employed these words:
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".
[Underlining added.]
and further:
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.
Literally using these latter words, and applying
them to the subject raw materials, with a view to
proving that such had "received new form, new
quality and new properties", Controlled Foods
adduced evidence on this appeal proving what it
did and does to its raw materials in using the said
machinery, apparatus and equipment in operating
its Corkscrew Restaurant. It adduced evidence to
say that it produces articles for use (that is the
meals and drinks it serves to customers) from raw
or prepared material by giving to those materials
new forms, qualities and property or combinations,
and in doing so employed precisely the words
recited above from the case of The Queen v. York
Marble, Tile and Terrazzo Limited (supra). For
' [1966] 2 Q.B. 431 at p. 454.
2 (1856) 25 L.J. Q.B. 209.
3 [1968] S.C.R. 140 at p. 145.
example, Dr. James F. Richards, an expert, in his
testimony said in summary, after having first dis
cussed all the things Controlled Foods did to the
raw food and liquid material before it converted
into and served such as meals and drinks to cus
tomers: "All of the treatments and processes used
by the ... (Controlled Foods) (as heretofore stated
by him) cause the raw material used in the treat
ments and processes to acquire new forms, quali
ties and properties and to receive substantial
changes in their essences from the time they were
first dealt with by ... (Controlled Foods) to the
time of the finished product."
Counsel for the defendant agrees that this evi
dence adduced by Controlled Foods is literally
correct in fact, but that such is not conclusive in
the determination of the issue in this appeal.
In my view in deciding the issue in this appeal it
is of substantial assistance to consider as an aid
commercial usage and what is generally accepted
as such.
For example, in commercial usage one would
not normally consider that a restaurant was in the
manufacturing industry and it would not be gener
ally accepted as being in the manufacturing indus
try. One would consider a restaurant a commercial
establishment. In land use laws, by-laws and regu
lations, restaurant use would be categorized as
commercial use.
Another example employing commercial usage
and what is generally accepted as such, as a guide,
is found in the decision of Angers J. in The King v.
Shelly 4 . In that case Angers J. found that a person
who built a yacht for his own personal use with no
intention of disposing of it was not a "manufactur-
er" or "producer" within the meaning of The
Special War Revenue Act, 1915, S.C. 1915, c. 8,
so as to be liable for consumption or sales tax even
though the subject person had taken raw material
4 [1935] Ex.C.R. 179.
at hand and by machinery and tools had fashioned
such into a new shape and form for use and
thereby had given such material new forms, quali
ties and properties or combinations. Angers J.
found in effect employing commercial usage and
practice and what is generally accepted as such
that such person was not a "manufacturer" or
"producer" holding that the statute had in mind
and was applicable only to manufacturing or pro
ducing in the way of a business, even though there
are no words in the statute enjoining Angers J. to
so find.
Another example is to be found in the judgment
of The King v. Karson 5 . In that case the defend
ants carried on the business of confectioners and
made candy. Audette J. for the Court in that case,
again applying commercial usage and practice as
an aid found that the defendants when they made
candy were "manufacturers" within the meaning
of The Special War Revenue Act, 1915, and would
be generally accepted as such in the commercial
world. Audette J. at page 261 said:
... but this fact goes to show what is the custom of the trade
and how traders understand the word "manufacturer" as used
in our statute. It is the meaning attaching to the word "manu-
facturer" in its plain and literal sense that should govern us in
construing the statute, and when it is proved, as it was here at
the trial, that the sense in which the people in the trade accept
it corresponds with that literal sense, the construction of the
statute is freed from difficulty.
Other examples are found in certain American
decisions based on various statutes of their respec
tive States. The Supreme Court of Oklahoma in
McDonald's Corp. v. Oklahoma Tax Com
mission 6 denied a claim for a refund filed by
McDonald's finding that this fast food restaurant
(making among other things hamburgers, fish fil
lets sandwiches, french fried potatoes, shakes and
carbonated soft drinks) was not manufacturing or
processing as defined in the relevant statute of the
State of Oklahoma in that the preparation or
cooking of food is not "generally recognized" as
manufacturing or processing. The relevant
5 (1922) 21 Ex.C.R. 257.
6 OkI., 563 P.2d 635.
Oklahoma statute provided that: "The term
`manufacturing plants' shall mean those estab
lishments primarily engaged in manufacturing or
processing operations, and generally recognized as
such." [Emphasis added.]
It may be that these words "generally recog
nized as such" in the Oklahoma statute do not add
anything legislatively other than to direct the
Court to employ commercial usage and practice as
an aid in deciding cases.
The Ohio cases of Jer-Zee, Inc. v. Bowers, Tax
Com'r 7 , Canteen Co. v. Bowers, Tax Com'r 8 , and
the Pennsylvania case of Commonwealth v. Sny-
der's Bakery 9 held that the plaintiff parties were
manufacturers within the meaning of their rele
vant State statutes when such parties were
engaged in the preparation of goods for immediate
sale to customers as for example, by the making
and selling of frozen desserts by coin operated
machinery which automatically delivered in a cup
carbonated soft drinks or hot coffee made from a
combination of ingredients, or by preparing potato
chips for selling to serve the customer for immedi
ate consumption after processing them.
There is however, nothing in the reasons of any
of these United States decisions and there is also
nothing in the reports recording the ratios of the
decisions which give any assistance in determining
the issue in this appeal.
In view of and having considered these and
other authorities and after considering the whole
of the evidence and using commercial usage as a
guide and confined to the facts of this appeal, in
my opinion what has been done and is done by
Controlled Foods to the raw materials it uses in
the treatments and processes employing the sub
ject machinery, apparatus and equipment would
not in fact and generally would not be recognized
as constituting the "manufacture or production of
125 N.E. 2d 195.
8 148 N.E. 2d 684.
9 35 A.2d. 260.
goods", and further Controlled Foods would not be
considered and would not be generally recognized
as a "manufacturer" or "producer" within the
meaning of the Excise Tax Act especially
Schedule III thereto.
Accordingly, the subject items of machinery,
apparatus and equipment are not exempt from
consumption or sales tax under section 27 of the
Excise Tax Act under the exemption provided by
section 1 of Part XIII of Schedule III.
In view of this result, it is not necessary to make
any adjudication in respect of the items and equip
ment identified by the letter "C" of one of the
schedules of the documents filed as part of the
evidence entitled "Agreed Statement of Facts".
Therefore the appeal is dismissed with costs.
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.