Cite as: Nova Scotia (Attorney General) v. Silver Spoon Desserts Enterprises Ltd., 1989 NSCA 1 S.C.A. No. 02010
IN THE SUPREME COURT OF NOVA SCOTIA
APPEAL DIVISION
Jones, Macdonald and Chipman, JJ-A.
BETWEEN: ATTORNEY GENERAL OF ) John J. Ashley NOVA SCOTIA ) for the appellant ) Appellant 1 Kevin P. Downie ) for the respondent - and - Appeal Heard: February 9, 1989 SILVER SPOON DESSERTS 1 Judgment Delivered: March 15, 1989 ENTERPRISES LIMITED ) ) Respondent ) ) THE COURT: Appeal allowed without costs per reasons
for judgment of Jones, J.A.; Macdonald
and Chipman, JJ.A. concurring.
JONES, J.A.:
This is an appeal by the Minister of Finance
from a decision of Mr. Justice Davison on an assessment
made under the Health Services Tax Act, R.S.N.S. 1967,
c. 126.
The respondent operates a restaurant and
desserts cafe in the City of Halifax. The cafe was
opened in October, 1980 and the restaurant in September,
1983. The desserts are produced in the cafe and sold
on a "take-out" or "eat-in" basis in both operations.
The cafe is considered a bakery operation by the
Commission.
The Provincial Tax Commission (the Commission)
conducted an audit on the business operations of the
respondent. The auditor was Margaret Goulden and the
audit covered the period from January 1, 1982 to
December, 1985. A notice of assessment was sent to
the respondent claiming the following taxes:
Tax on general sales $ 8,116.45 Tax on purchases for own use 11,020.87 Interest 5,284.78 Penalty Section 3(l)( d) of the -Act provides: "3(1) Every purchaser shall pay to Her Majesty
the Queen in the right of the Province of
Nova Scotia a tax
(d) at the rate of ten per cent of the
purchase price of all other tangible personal
property purchased other than that referred
to in clauses (a), (b), (c) and (ca)."
The auditor testified before Mr. Justice
Davison that the tax on general sales covered taxes
c o l l e c t e d on s a l e s which had c a l c u l a t e d t h e s e amounts r e s p o n d e n t . The t a x on p u r c h a s e s items: 1. convection oven 26. bleach 2. mixer 27. containers 3. graduated measure 28. federal sales taxfduty 4. muffin pans 29. wreathes 5. mixer 30. wreath bases 6. bowl 31. f re ight 7. beater 32. pasta machine 8. whip 33. ear thenware mugs 9. apple peeler 34. one piece knife 10. spring-form pan 35. wire whip 11. pans 36. cake markers - 13. cake f rames 11 & 13 slice 14. pie spatula 37. quiche dishes 15. spoons 38. blade cu t t e r s 16. cake pans 39. pasta die 17. f rames 40. impulse bag sealer 18. heavy duty hand mixer 41. vegetable slicer, 19. f r eeze r shredder blades 20. sound sys tem 42. espresso machine 21. work t ab le - sling top drawer 43. me ta l markers 22. c i ty kitchen gardenfflourescent44. knives 23. oval ma t s 45. ke t t l e 24. fabric 46. plastic tools 25. ice cream machine 47. cake markers The Commission exempted mach ine ry and equipment which was p u r c h a s e d and used On t h e o t h e r hand it was t h a t equipment used i n a r e s t a u r a n t was r ev iewing t h e o p e r a t i o n and t h e r e s p o n d e n t t h e a u d i t o r t o e i g h t e e n i n c l u s i v e were Based on sales r e c o r d s and c o n v e r s a t i o n s w i t h management s h e a p p o r t i o n e d t h e u s e of c e n t f o r t h e b a k e r y and n o t been r e m i t t e d . She from t h e r e c o r d s of t h e i n c l u d e d t h e f o l l o w i n g 48. wall rack 49. piping bag 50. towels 51. napkins 52. doilies 53. fabric 54. pressure sensitive labels 55. freight - labels 56. kitchen supplies/equipment 57. signs 58. garbage bags 59. picnic signs 60. cards 61. l is ts 62. product labels - silver & blue 63. two large photos (16x20) 64. shop fabric '65. freightfhangling 66. lines 67. signs - swall desser ts fpate and ready 68. l ace 69. bluefsilver labels i n t h e b a k e r y o p e r a t i o n . t h e Commiss ion ' s p o s i t i o n t a x a b l e . A f t e r t a l k i n g t o employees of conc luded t h a t i t e m s one used i n b o t h o p e r a t i o n s . t h e s e i t e m s a t s e v e n t y p e r t h i r t y p e r c e n t f o r t h e
- 3 - restaurant. These items were accordingly only partially
taxable. The remaining items she concluded were used
in the restaurant operation and were taxable. In making
that assessment she excluded many items of a similar
nature as being used in the bakery. In fact she stated
that she excluded probably ninety per cent of the
invoices for equipment as pertaining to the bakery.
The penalty was only assessed on the tax
on general sales which had not been remitted.
Mr. Robert Silver is secretary-treasurer
of the respondent Company. Referring to the list of
equipment he testified that the majority of the items
were used in the bakery. Apart from that he maintained
that most of the items were exempt as they were used
in the manufacturing or processing of foods including
food sold in the restaurant. He exempted the sound
system. Mr. Silver stated there were two separate
kitchens in the operation. He also maintained that
a number of the items were purchased before the
restaurant opened.
The respondent appealed the original assessment
to the Commission and then to the Minister. Initially
all items in the assessment were in dispute, however,
this appeal relates to the tax assessed on purchases
for one's own .use. The respondent claimed exemptions
under s. 10(1) of the Health Services Tax Act on the
equipment and on supplies used in retail sales. An
adjustment in favour of the respondent was made on
the supplies however the appeal on the first ground
was denied.
An appeal from the assessment by the respondent
was heard before Mr. Justice Davison. He found in
favour of the Minister on all issues except for the
fourth issue which was the tax assessed on equipment
and supplies. The respondent contended that under
s. 10(l)(h), (i) and ( j ) of the -Act machinery and materials used in the manufacture or production of
goods for sale were exempt from taxation.
Those provisions are as follows:
"lO(1) The following classes of tangible
personal property are specifically exempted
from the provisions of this Act:
(h) machinery and apparatds and parts
thereof which are to be used or which are
used in the manufacture or production of
goods for sale;
(i') materials consumed or expended in the manufacture or production of goods for sale ; (j) goods purchased for the purpose of
being processed, fabricated, or manufactured
into, or incorporated into goods for the
purpose of sale;''
Section l(ca) provides:
"(ca) 'manufacture or production' means
the transformation or conversion of raw or
prepared material into a different state
or form from that in which it originally
existed as raw or prepared material but does
not include production or processing;"
After reviewing those provisions the learned
judge stated:
"The products being produced for sale in the Applicant's business include desserts and other food products. In my view, any machinery or equipment or supplies used to convert raw materials (e.9. flour, eggs, etc. ) into finished products for sale (e.9. cakes) would be exempt. It is immaterial whether the finished product is sold as a whole or a slice, in the cafe or the restaurant. In my opinion, the distinction made by the
assessor between equipment used for the purpose
of producinq a product in the bakery and
that used for producinq products in the
restaurant is arbitrary and cannot be justified
under the terms of the legislation. The
tests are whether the equipment or supplies
were used in the transformation of material
into a 'different state or form' and, secondly,
whether the new material was the ultimate
product for sale.
The word 'state' is defined in World Book
Dictionary, 1977 edition, as a 'physical
condition with reqard to com-position, form,
structure, phase or stage of existence'. Water, as a liquid, is in a different state as ice or vapor. A cake is in a state different from a mass of batter which, in turn, is in a state different from an unmixed assembly of eggs, flour, butter and baking soda.
Applying these tests, it is clear that
equipment which transforms uncooked food
into cooked food which is for sale to the
public is exempt. An oven which cooks a
roast of beef is exempt for the same reasons
as an oven which bakes a cake.
Supplies and equipment involved in the
production process but not involved in the
'transformation or conversion' of the ultimate
product for sale are not exempt."
The Minister of Finance has appealed from
that decision. While a number of grounds of appeal
are raised in the notice of appeal the main issue is
summarized in the appellant's factum as follows:
"It is whether a restaurant can be considered to be engaged in 'manufacture or production' and therefore exempt from the payment of health services tax on the purchase of tangible personal property falling within the exemption provided by s . 1% (1)( h) of the Health services Tax Act, R.S.N.S. 1967, c. 126, as amended." The words "manufacture or production" or
. variations of those words, have been used in excise and sales tax legislation for many years in Canada. With the introduction of provincial sales tax legislation followinq the second world war the same or similar language has been adopted in provincial legislation. See for example, Revenue Tax Act, R.S.P.E.I. 1974, cap. R.-14, s. 10(l)(h), Social Services and Education Tax Act, R.S.N.B. 1973, c. S-10, s. ll(o), Retail Sales Tax Act, R.S.O. 1980, c. 454, s. 5(1). In Re Michelin Tires Manufacturinq (Canada) Ltd. 15 N.S.R. (2d) 150 Cooper, J.A. stated at p. 156: "I shall first refer to the origin of s. 10(h), its application by the Province, and to definitions made of machinery and apparatus under it and thereafter to what transpired following the 'definition' on which the respondent relied in making the assessment. Section 10th) first appeared in the Hospital
Tax Act, c. 4, Stats. N.S., 1958, which came
into force on January 1, 1959. The title
of the Act was changed to Health Services
Tax Act by amendment made by s. 1 of c. 49
of the Statutes of 1969. It is apparent
that s. 10(h) was adopted from Schedule
I11 of the Excise Tax Act, R.S.C., 1952,
c. 100, as amended by An Act to Amend the
Excise Tax Act, R.S.C., 1952, vol. 5,
supplement, c. 320. That Schedule sets out
goods exempt from payment of excise tax.
The relevant exemption appeared under the
heading 'Machinery and apparatus to be used
in Manufacture or Production' as follows:
'Machinery and apparatus, as defined by the Minister of National Revenue, and complete parts thereof which,, in the opinion of the Minister, are to be used directly in the process of manufacture or production of goods ;' There is in evidence a copy of an extract
from 'General Instructions Hospital Tax Act
Department of Finance and Economics Provincial
Tax Commission Halifax, N.S. 1959 As Amended
1961' and there appears therein:
Machinery and Apparatus
(a) 'Machinery and apparatus', for the purpose of clause (h) of Section 10 of the Hospital Tax Act, is defined as machinery and apparatus used directly in the process or manufacture or production of goods which are specifically exempt under the Excise Tax Act or which are ruled as exempt under the said Act by the Department of National Revenue. " Clause (h) of s. 10 was amended by c. 31
S.N.S. 1977 to provide:
"(h) machinery and apparatus and parts thereof
which are used directly and exclusively in
the process of manufacture or production
of goods for sale;"
In The Kinq v. Pedrick and Palen (19211,
21 Ex. C.R. 14 the issue was whether a tailor who sold
made to measure suits and garments was a "manufacturer"
within the meaning of s. 19 b.b.b. of the Special War
Revenue Act, 1915, as amended. That section imposed
a tax "on sales by manufacturers and wholesalers".
Audette, J. stated at p. 17:
"Now that is not the meaning that is to be
attached to this word 'manufacturer' in the
present issue. The object of the Act cannot
be to weld into the class of manufacturer
all classes of men who manufacture, who make
or do any work, or part thereof, with their
hands. In legislating in respect of, as
well as in construing a clause of, the tariff,
reference must be had to the language,
understanding and usage of trade. Dominion
Bay Co. v. the Queen, 4 Ex. C.R. 311.
Not only by the usage of trade, but in common
parlance, the word manufacturer would seem
to come within the ambit of the definitions
given by the pest dictionaries of the day,
such as Littre and the Oxford's, under which
a manufacturer in our days, is one who produces
by labour on a large scale."
And at p. 18:
"Apart from any legal rule of construction would it not seem to submit the word to an undue straining, to do violence to the English language to hold for instance a humble seamstress, dress-maker, making a few dresses for consumers to be a manufacturer - or, as in the present controversy, a humble merchant tailor ,making suits for consumers to be a manufacturer? When speaking of a manufacturing centre, one would not mean a centre where dressmakers or retail merchant tailors carry on business. If a meeting of manufacturers were called to discuss matters relating to their business, neither dressmakers nor retail merchant tailors would be expected
or even allowed to attend such gathering.
There is but one sane conclusion to be arrived
at, if one is to be guided by common sense
and that is the retailer is not a manufacturer
in the general acceptance of the word."
And at p. 23:
"Why, indeed, should we depart from the general
and plain meaning of this specific word
'manufacturer,' which is of common and dominant
feature, to endeavour, for the convenience
of a special case, to extend to it, by doing
violence to the English language, a meaning
which to every one would so strain -it as
to nearly amount to an absurdity on its very
face. Common sense alone rebels at accepting
and applying to this word 'manufacturer'
the narrowest meaning of which it is
susceptible and which is contrary to the
understanding of the public, the language
and usage of trade and of what is commonly
and commercially known."
In The Kinq v. Karson 21 Ex. C.R. 257 Audette,
J. held that the production of candy for sale constituted
manufacturing under the Special War Revenue Act, 1915.
In -Rea v. Dominion Bakery (1923), 54 O.L.R. 656 the Ontario Court of Appeal held under the same
statute that a person who made and sold pies and cakes
was a "manufacturer" under the Federal Statute
In The Queen v. York Marble, Tile & Terrazzo -Ltd. (19681, 65 D.L.R. (2d) 449 the Supreme Court of Canada interpreted s. 30(l' (a) of the Excise Tax Act
R.S.C. 1952, c. 200 as rep. & -sub. 1959, c. 14, s. l(1) which provided:
"30(1) There shall be imposed, levied and
collected a consumption or sales tax of eight
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, and ..." The respondent in that case imported rough
marble blocks which it cut, finished and polished into
slabs. The issue was whether the finished slabs were
produced or manufactured in Canada. Spence, J. in
delivering the judgment of the Supreme Court of Canada
stated at p. 452:
"Many authorities were cited but in my view
few are enlightening. It must always be
remembered that decisions in reference 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.C.
noted in The King v. Vandeweqhe Ltd., [I9341
3 D.L.R. 57 at p. 60, [I9341 S.C.R. 244:
'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 Co. Ltd., reported
in 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 et seq. 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
[p. 171:
'The evidence shows that these lengths
of lumber were sold and delivered by the
saw-mill in British Columbia to defendants
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 lo',
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".
and he then continued [pp. 17-01:
'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 impossible
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 a1rea.d~
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 "manufacture ... 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 italicizing is my own. 1 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." He continued at p. 453:
In my view, the application of this test
alone would be sufficient justification to
find that the marble pieces which left the
respondent's plant had been 'produced' or
'manufactured' there from the raw material
of the rough slabs of marble which had arrived.
In Gruen Watch Co. of Canada Ltd. et al. v.
A.G. Can., [1950] 4 D.L.R. 156, [1950] O.R.
429, [1950] C.T.C. 440 [revd in the result
sub nom. Bulova Watch Co. v. A.G. Can.,
119511 3 D.L.R. 18, [1951] O.R. 360, [1951]
C.T.C. 941, McRuer, C.J.H.C., considered
the same question in reference to the same
statute. The facts may be briefly stated
from the first paragraph of his judgment
at p. 158 D.L.R.:
'The plaintiffs in this action have been
engaged for many years in the importation
of watch movements from abroad. They import
or purchase in Canada watch cases adapted to the particular movements imported, and by a very simple operation performed by unskilled labour, taking only a very few
minutes at an expense of from 1.25 to 3.6
cents each, the watch movement is placed
in the case and a watch ready for sale is
produced. In some cases wrist-bands, bracelets
or brooches are attached to the watch case
for the personal convenience of the purchasers.
The plaintiffs do not manufacture either
watch movements or watch cases.'
At p. 169 the learned Chief Justice said:
'I cannot find that the simple operation of putting a watch movement into a watch case is "manufacturing" a watch in the "ordinary, popular and natural sense" of the word, but I feel clear that the plaintiffs "produced" watches "adapted to household or personal use." It may well be that, as counsel for the plaintiffs argued, the movement as imported in the tin or aluminum case will keep time and could be used as a watch ....It is not a watch "adapted to household or personal use" as the term is used in its ordinary and popular sense, and the movement in the aluminum case would be quite unsalable as such. ' It is to be noted that the learned Chief Justice used the firmly established principle that the taxing statute must be interpreted by the consideration of the words thereof in the ordinary, proper, and natural sense, and that doing so he found himself able to distinguish between the two words 'produced' and 'manufactured'. It was the submission of counsel for the respondent before this Court that the two words must be considered as being practically synonymous and Charles Marchand Co. v. Higgins ( 1940 , 36 F. Supp. 792, was quoted as an authority therefor. That was a decision of Mandelbaum, District Judge in the District Court of the Southern District of New York, and the decision on this point may be taken from one sentence
in the reasons of the learned District Court
Judge [p.7951, 'I am of the opinion that
the terms as used in the present taxing statute
are synonymous.' The learned District Court
Judge reached that conclusion because art.
4 of Treasury Regulation 46 (1932 edition)
provided [p. 7941:
'As used in the Act, the term "producer"
includes a person who produces a taxable
article by processing, manipulating, or
changing the form of the article, or produces
a taxable article by combining or assembling
two or more articles.' (Government supplies
emphasis.)
and then various authorities relied on by
the learned District Court Judge held that
'manufacturer' implied a change into a new
and different article.
For these reasons, I am not able to accept the decision in Charles Marchand Co. v. Higgins as' being an authority which should pursuade this Court to hold that 'produce' and 'manufacture' as used in the statute presently considered in which neither is defined are synonymous, and I adopt the course of McRuer, C.J.H.C., in Gruen Watch Co. v. A.G. Can. in holding that an article may be 'produced' although it is not 'manufactured'. In that case, although he was unable to come to the conclusion that the mere insertion of the movement into the watch case was the manufacture of the watch, he found no difficulty in determining that such a process was the production of a watch. Similarly, in the present case, if I had
any doubt that the various procedures taken
by the respondent in reference to the marble
slabs resulted in the manufacture of a piece
of marble, I would have no doubt that those
procedures did result in the production of
a piece of marble."
That decision was applied in Mobile Concrete Services
Ltd. and Minister of Finance and Economics, (1974).
- 15 -
38 D.L.R. (3d) 465. By c. 27 S.N.S. 1982 the Health Services Tax Act was amended by inserting the present definition section of "manufacture or production" and by changing clauses (h), (i) and (j1 . It is important to note that the language in the definition section is substantially similar to the language of Archambault, J. as referred to by Spence, J. in the York Marble
case. The words "manufacture or production" now have
a single meaning and are no longer distinct as defined
by Spence, J. The emphasis is on the word "manufacture"
as defined by the cases. It should also be noted that
the words "directly and exclusively" were deleted
from s. 10(l) (h). As to the effect on that change
see Stora Kopparbergs v. N.S. (Min. of Fin.) (1987),
78 N.S.R. (2d) 354.
In Controlled Foods Corp. v. The Queen, [I9791
2 F.C. 825 the plaintiff, a restaurant operator, claimed
that in using equipment in the operation of its
restaurant for producing meals and drinks served to
customers, it was a "manufacturer" or "producer" within
the meaning of s. 27 of the Excise Tax Act and was
entitled to a tax exemption.
Gibson, J. in the Federal Court stated at p. 828: "As has been said so often in respect of
the question as to who are 'manufacturers'
or 'producers' or what constitutes 'the
manufacture or production of qoods' within
the meaning of the Excise Tax Act, Parliament
in the Act and Regulations 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
'producer' of qoods and whether or not what is done with such purchase and importation constitutes the 'manufacture or production of goods' as a question 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, Buttenrorths 1976; and cf. United Dominions Trust Ltd. v. Kirkwood.) For example, in applying a specific meaning
(i.e. whether or not what is done constitute the 'manufacture or production of qoods' within the meaning of the statute) to particular goods or art . i cles as a question of fact, not of law ( cf Parker v. The Great Western Railway), the Supreme Court of Canada in The Queen v. York Marble, Tile and Terrazzo Limited employed these words: For the present purposes, I wish to note
and to adopt one of the definitions cited
by the learned iudqe, i-e., that 'manufacture
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."
He continued at p. 830:
"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 generally accepted as being in the
manufacturing industry. One would consider
a restaurant a commercial establishment. In
land use laws, by-laws and regulations,
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. 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 'manufacturer' 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 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, qualities 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
producing 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. In that case the
defendants 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 generaly 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 attached
to the word 'manufacturer' 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
respective States. The Supreme Court of
Oklahoma in McDonald's Corp. v. Oklahoma
Tax Commission denied a claim for a refund
filed by McDonald'd finding that this fast
food restaurant (making among other things
hamburgers, fish fillets 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 Oklahoma statute provided that:
'The term. "manufacturing plants" shall mean those establishments primarily engaged in manufacturing or processing operations, and generally recognized as such.' [Emphasis added I . 1t may be that these words 'generally
recognized 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, Canteen Co. v. Bowers, Tax Com'r,
and the Pennsylvania case of Commonwealth
v. Snyder's Bakery held that the plaintiff
parties were manufacturers within the meaning
of their relevant 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 immediate 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 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
especially Schedule I11 thereto."
That decision was affirmed by the Court of
Appeal in Controlled Foods Corp. Ltd. v. The Queen,
[I9811 2 F.C. 238.
In Leslie v. Attorney General of N.S. (19781,
26 N.S.R. (2d) Coffin, J.A. stated at p. 190:
"At the outset one must acknowledge the
principle enunciated in Eastern Management
Ltd. v. City of Halifax (1970), 2. N.S.R.
(2d) 361; 17 D.L.R. (3d) 183, at p. 370 N.S.R.,
p. 189 D.L.R., where Cooper, J.A., pointed
out that although the authorities agreed
that enactments imposing and regulating the
enforcement of taxes for general and municipal
purposes must be strictly construed, a
different approach is required where there
is a claim for exemption from a taxing statute.
In that case the burden is on the person
asserting an exemption in his favour to
establish it. The question then is whether
the appellant has met that burden."
Having regard to the history of these provisions and the restricted definition in our -Act, I agree with the appellant's contention that the preparation of meals in the respondent's restaurant did not fall within the exemptions in clauses (h), (i) or ( j ) of s. 10 (1) of the Health Services Tax Act. Clauses (i) and ( j ) have to be interpreted in the same light as clause (h). I agree with the authorities that the preparation of meals does not constitute manufacturing as that word is used in common usage or as defined under the Act. I am not aware of any Canadian cases which have held otherwise. It follows with respect that the distinction made by the auditor between goods produced in the bakery and the preparation of meals in the restaurant was not arbitrary but based
on the proper interpretation of the Act.
The second issue is whether the Commission
was justified in claiming a portion of the tax on
machinery and equipment used in the bakery and in the
restaurant. I have noted the Commission conceded that
machinery and materials used in the bakery are tax
exempt. The only authority cited for making the partial
assessment was s. 32(2) of the Act which provides as
follows: " (2) Where it appears from the inspection, audit, or examination of the books of account, records, or documents that this Act or the regulations have not been complied with, the person making the inspection, audit, or examination shall calculate the tax collected or due in such manner and form and by such procedure as the Commissioner may deem adequate and expedient, and the Commissioner shall assess the person for the amount of the tax so calculated, but the person so assessed may appeal the amount of the assessment under Sections 18 and 19." The origin of the Commission practice is
referred to by Cooper, J.A. in the Michelin Tires case,
supra, at p. 166:
"The assessment of tax, however, was made
pursuant to the letter of The Honourable
Mr. Jones dated July 9, 1969. 1 first direct
my attention to the question whether or not
it was a valid exercise of the power given
under s. 10(h) of the Act. Mr. Jones does
not say that he is repealing the former
definition 3f The Honourable Mr. Smith and
substituting therefor an entirely new
definition. What he did, as I understand
it, was to say that no longer would the
machinery and apparatus as previously defined
be wholly exempt but only that portion of
it that was used exclusively and directly
in the manufacturing or production process.
The reference to the recommendation in the
letter in my opinion has the effect of enabling
us to look at what was recommended to determine
the meaning of 'portion'.
I have quoted the letter of May 22, 1969
to The Honourable Mr. Jones. The first
paragraph of that letter refers to the fact
that the Federal sales tax authorities 'in
their rulings do not give consideration to
the fact that some equipment may be used
for a very small proportion of time for
production and the remainder of the time
for non-production purposes' and the
recommendation follows that the definition
of July 3, 1963 be no longer used.
Again in the letter from the Commissioner
to The Honourable Mr. Jones dated June 17,
1969, which I have quoted in part, reference
is made to the fact that 'in some cases a
particular piece of machinery may only be
used for a very short period of time in
production but the Federal Authorities give
full exemption for the equipment' and:
'We do not feel that this is proper and
that tax should be paid on that portion
of the equipment that is not used directly
in the process of manufacture or production
of goods for sale.'
The recommendation is then set out:
'We therefore recommend that in our definition
under Section 10(h) of the Health Services
Tax Act, that we exempt from tax only that
portion of the machinery and apparatus that
is used exclusively and directly in the process
of manufacture or production of goods for
sale. This would then enable us to assess
tax on the portion of the equipment that
is not used in production.'
It follows therefore in my opinion that the
definition of The Honourable Mr. Jones was
intended to be a 'clarification' of the former
definition by enabling the Provincial tax
authorities in effect to split up a piece
of machinery which was used directly in the
process of manufacture or production of goods
for sale and also for other purposes. No
doubt this explains the use of the word
'exclusively' in the definition.
Mr. Offinga in his evidence contrasted the
assessment method of the Federal tax
authorities with that used by the Province
under what I may call the Jones definition
by reference principally to fork lifts. If
the fork lifts were used, say, seventy per
cent of the time for production purposes
and thirty per cent for other purposes the
item would be exempt. The decision was made
on the basis of major use. The Provincial
authorities, on the other hand, would in
such a situation tax the thirty per cent
portion. In fact, fork lifts in the Provincial
assessment were taken as a group and pro-rated
as so many used for production purposes and
so many for non-production. The pro-rating
was not done on an-individual fork lift basis.
The difficulty I have with the Jones definition is that it imports into it not only direct use but also exclusive use. Section 10(h), the enabling provision under which the Minister is to act, refers only to 'machinery and apparatus...to be used directly in the process of manufacture or production of goods for sale;' In a situation where electricity is used as the source of power the exemption is set out in the Smith definition of July 3, 1963 as being that applied by the Federal tax authorities as of June 12, 1963. I do not think that the Smith definition has been repealed. It purports in the Jones letter of July 9, 1969 only to be 'clarified'. The clarification takes the form of requiring not only direct but also exclusive use. I do not find authority in the enabling provision authorizing the Minister to add this requirement for exemption and on this ground alone it is my opinion that the Jones definition exceeds the power given under s. 10(h) of the Act and is therefore invalid
as a matter of law."
No doubt that decision prompted the amendment
to s. 10(l)( h) in 1977 which I have already noted.
The effect of s. lO(l)(h)(i) and ( j ) of the Act is to exempt materials and qoods used in the manufacture
or production of qoods. The exemption does not depend
on the degree to which those qoods are used in the
manufacturing process. Section 32(2) is not a faxing
provision and does not empower the Commission to impose
a tax where none is due under the -Act.
As stated by Jones, J. in McNeil v. -Shaw (L.E.) Limited, 58 N.B.R. (2d) 371 at p. 380:
"Once it has been established that the machinery or apparatus is 'used directly in the process of manufacture or production, this is sufficient. The use of the machinery or apparatus need not be exclusively in the manufacturing or production process nor does it matter the percentage of use that is attributed to such process as opposed to other processes.' Irving Oil Limited v. Provincial Secretary of the Province of New Brunswick, [I9801 1 S.C.R. 787; 29 N.B.R. (2d) 529; 66 A.P.R. 529; 31 N.R. 291: Pigeon, J., pp. 537 and 538 N.B.R. ; Re Michelin Tires Manufacturing (Canada) Ltd. (19761, 15 N.S.R. (2d) 150; 14 A.P.R. 150; Cooper, J.A., p.
168."
It is of some significance to note that s.
10 of the Revenue Tax Act, R.S.P.E.I. 1974,. cap. R-14
was amended by Chap. 26, S.P.E.I. 1982 to provide:
' 1 . 1 For the purposes of clause (l)(h)
where the machinery and apparatus is to be
used in part directly in' the process of
manufacture or production of goods for sale,
a proportion of the tax is payable based
on the proportion of time in which the machinery or apparatus is to be used for other activities."
- 25 -
~t follows from the foregoing reasons that
equipment and supplies used in the bakery are exempt.
Those used exclusively in the restaurant operation
are not exempt from tax. The trial judge did not make
a final determination as to the items which were taxable
or exempt. There was a conflict in the evidence as
to the use of the equipment and supplies. In the result
I would allow the appeal and set aside the trial judge's
decision on the fourth issue relating to the tax assessed
on equipment and supplies and remit the matter to the
trial judge for a determination of the remaining issues
based on the decision in this Court. As success on
the appeal is divided I would not allow costs on the
appeal or in the court below.
Concurred in: Macdonald, J.A. Chipman, J.A. )A. C.
S.H. No. 62460
IN TEE SUPREME COURT OF NOVA SCOTIA
TRIAL DIVISION
IN TEE HATTER OF: An appeal under the Health Services Tax Act,
R.S.N.S. 1967, c.126, as amended,,
- and -IN TEE MATTER OF: the Appeal of Silver Spoons Desserts Enterprises
Ltd.,, against a Decision of the Minister of
Finance from Notice of Assessment No. 27073, dated
April 1, 1986.
BETWEEN:
SILVER SPOON DESSERTS ENTERPRISES LTD-
APPELLANT - and -HINISTER OF FINANCE
RESPONDENT
HEARD BEFORE: The Honourable Mr. Justice J. M. Davison In Chambers
PLACE HEARD: Halifax, Nova Scotia
DATES HEARD: 29th June, 1988
COUNSEL : Kevin P. Downier Esq.,, Solicitor for the Appellant John J. Ashley, Esq.,. Solicitor for the Respondent CHAMBERS APPLICATION
ON APPEAL
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.