T-3826-74
The Queen (Plaintiff)
v.
Stuart House Canada Limited (Defendant)
Trial Division, Addy J.—Toronto, January 12;
Ottawa, January 19, 1976.
Customs and excise—Defendant cutting aluminum foil into
shorter lengths, re-rolling and packaging—Whether "produc-
tion" of foil—Excise Tax Act, R.S.C. 1970, c. E-13.
Defendant receives rolls of aluminum foil which it cuts into
shorter lengths and re-rolls on cardboard tubes. The boxes in
which the rolls are packed are received by defendant already
printed, precreased, and equipped with a cutting edge. Defend
ant forms the boxes, glues the flaps, and seals them. A roll of
foil is inserted into each, and the product is marketed. The issue
is whether these operations constitute production.
Held, the action is dismissed. The expression which has been
applied in similar cases is "new forms, qualities and properties
or combinations." Defendant has not altered the form, qualities
or properties of the foil. These words should be considered
conjunctively; they are applicable in all of the jurisprudence
where an activity has been held to constitute production or
manufacturing within the meaning of the Excise Tax Act. The
only two words in the expression which may be considered as
alternatives are "properties" and "combinations". Thus, there
must be some change in the form, qualities and properties or in
the form, qualities and combinations to constitute either manu
facture or production in their ordinary meaning. It would be
violating the use of the word "produces" in its usual sense to
hold that defendant is producing foil because it is packing it in
smaller, handier packages thus rendering it more marketable.
Nor is the minor operation of repacking large, uncut rolls with
a rod inserted, for sale to restaurants, production, since less
work is involved and the foil is not cut.
The King v. Vandeweghe Limited [1934] S.C.R. 244; The
Queen v. York Marble, Tile and Terrazzo Limited [1968]
S.C.R. 140; Quebec Hydro-Electric Commission v. Dep.
M.N.R. [1970] S.C.R. 30; The Queen v. E. J. Piggott
Enterprises Ltd. 73 DTC 5013; The Queen v. Canadian
Pacific Railway Company [1971] S.C.R. 821 and Con
sumers' Gas Company v. Dep. M.N.R. (1975) 6 N.R. 602,
applied. Gruen Watch Company of Canada Limited v.
Attorney-General of Canada [1950] O.R. 429, agreed
with.
ACTION.
COUNSEL:
G. R. Garton for plaintiff.
C. Campbell for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
McCarthy & McCarthy, Toronto, for
defendant.
The following are the reasons for judgment
rendered in English by
ADDY J.: The issue in this case is the liability of
the defendant for payment of excise tax as a
manufacturer or a producer of aluminum foil.
There is no question as to the amount due if
liability is found to exist, the parties being agreed
as to the total amount of tax which, together with
penalty to the 31st of January 1976, would amount
to $19,974.26 representing tax in the amount of
$17,263.05 and penalties in the amount of
$2,711.21.
No oral evidence was adduced at the trial, the
parties having filed an agreed statement of facts
which is annexed hereto*. There is therefore no
requirement for any finding of fact.
On examining the agreed statement of facts, it is
evident that the only thing which the defendant
does to the aluminum foil itself is to cut it into
shorter lengths and re-roll it on cardboard tubes.
The boxes, in which these tubes with the foil on
them are packed, are received by the defendant
already printed, precreased for folding and
equipped with a cutting edge. The defendant bends
the flattened boxes along the creases, forms them
into boxes and puts glue on the flaps at each end to
seal them. A roll of foil is then inserted into each
box and the completed product is marketed.
It is important to note here that the aluminum
foil is delivered to the defendant in rolls of two
widths, that is, twelve inches and eighteen inches,
and that the width of the foil is not altered in any
way, but merely its length.
It has been settled that the words "produced"
and "manufactured" are not words of any precise
meaning and that an article may be considered as
having been produced without having been manu
factured. Refer The King v. Vandeweghe Limited'
and, more particularly, Gruen Watch Company of
*[The agreed statement of facts is not reproduced. Ed.]
' [1934] S.C.R. 244 at 248.
Canada Limited v. Attorney-General of Canada 2
where McRuer C.J.H.C. stated at page 442:
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.
This would be, however, with great inconvenience. 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 unsaleable as such.
This statement was approved by the Supreme
Court of Canada in The Queen v. York Marble,
Tile and Terrazzo Limited' where Spence J., in
delivering the judgment of the Court, stated at
page 147 of the report:
... I adopt the course of McRuer C.J.H.C., in Gruen Watch
Co. v. Attorney-General of Canada 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 determin
ing that such a process was the production of a watch.
There can be no question of the defendant in the
case at bar having manufactured the foil but there
is an issue as between the parties whether or not it
might be producing foil.
The simple question therefore is whether or not
the operations performed by the defendant consti
tute the production of foil. Several cases were cited
by counsel for the plaintiff. In the Gruen Watch
Co. case (supra) watchworks were imported and
were inserted into watchcases by the plaintiff and
it was held that this constituted the production of
watches. It is to be noted however that what the
plaintiff received was not watches but watchworks
and watchcases and what resulted from its inter
vention were different articles, that is, completed
watches. McRuer C.J.H.C. at page 442 of the
above-mentioned report stated:
I therefore find that for the purposes of The Excise Tax Act the
watch movements as imported were not watches.
z [1950] O.R.429.
3 [1968] S.C.R. 140.
This, of course, cannot be said of the aluminum
foil: what was received was foil and what was sold
was the same foil.
Similarly, in the case of The King v. Van-
deweghe Limited (supra) at 248, what was
received were raw furs or skins and what was
produced were dressed and dyed furs. In the York
Marble case (supra) the following operations were
performed on marble slabs by the taxpayer: book
matching, grouting, rodding, gluing, grinding,
rough polishing, fine polishing, cutting and edge
finishing. These operations are described in full on
pages 143 and 144 of the above-mentioned report
of the case. There is not the slightest doubt that,
on the facts, the taxpayer was, at the very least,
producing something quite different from the raw
marble.
In the case of Quebec Hydro-Electric Commis
sion v. Dep. M.N.R. 4 electricity was transformed
from one type of alternating current to what was
described in the findings of fact by the Tariff
Board at pages 33 and 34 as follows:
By electromagnetic induction, initiated by the electrical energy
of the primary alternating current, a new and separate alternat
ing current is produced in the secondary winding of a trans
former. The current in the secondary circuit usually differs, not
in the number of watts or of cyles, but in the number of volts
and of amperes.
This finding of fact was evidently relied on by the
Supreme Court of Canada in allowing the appeal
from the Exchequer Court and reinstating the
decision of the Tariff Board. Abbott J., in deliver
ing the opinion of the majority of the Court
(Pigeon J. having dissented), stated at page 34:
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. [The underlining is
mine.]
The word "form" here, in my view, goes to the
very nature of the product which before being
"transformed" could not be used by the ordinary
consumer. This fundamental distinction becomes
more evident when one considers the very recent
and as yet unreported decision of the Supreme
[1970] S.C.R. 30.
Court of Canada, in the case of The Consumers'
Gas Company v. Dep. M.N.R. 5 , where that Court,
in agreeing with the finding of the Tariff Board
and of the Federal Court of Appeal, felt that the
Hydro-Quebec case (supra) was not applicable.
The grounds for the distinction were that there
was merely a change of pressure in the gas-pipe
and all the appellant company did was to "...
merely cause the gas to pass, go, be conveyed or
conducted from the higher pressure pipes to lower
pressure pipes, instead of producing a new current
at a different voltage which was the function of the
transformers as it was seen in the Hydro-Quebec
case." (Per Pigeon J. at page 2 of the reasons.) In
other words, there was no difference in the nature
of the gas itself or in its form, properties and
qualities following the operation performed by the
appellant.
Another case in point is the case of The Queen
v. E. J. Piggott Enterprises Ltd.' This case dealt
with the production of audio-tape cartridges. The
tape was purchased separately as well as the vari
ous components of the container cartridges. These
components consisted of a top and a bottom of the
container, a spool, a pressure pad and a spring.
The parts were then fixed together with a screw.
After assembly of the cartridge parts, the tape was
wound on the cartridge spool and the whole was
sold as a Ferropak cartridge. The defendant
engaged in another operation which consisted of
registering music from a master tape onto blank
tapes for background music purposes, in other
words, reproducing copies from the master tape. In
the first operation, the tape could not be used
unless it was in a cartridge and in the second, it is
evident that a tape with music on it is quite
different from a blank tape. In both of these
operations something new was produced, possess
ing new form, qualities and properties.
In the same manner, in the case of The Queen v.
Canadian Pacific Railway Company', ties were
5 (1975) 6 N.R. 602.
6 73 DTC 5013.
7 [1971] S.C.R. 821.
creosoted by the respondent to increase their life
span by approximately twenty-five years. Ties
were also bored in order to receive spikes. The
Court held that the ties were given new form,
qualities and properties and were therefore prod
ucts which were manufactured or, if not manufac
tured, then produced in the ordinary sense in
which that word is used.
The expression "new form, qualities and proper
ties or combinations" has been used not only in
this case but in other cases such as the case of The
Queen v. Piggott Enterprises Ltd. (supra) at page
5019 and in the York Marble Tile case (supra) at
page 145.
I do not agree with counsel for the plaintiff that
all these words are to be used disjunctively nor can
I consider that the cutting of aluminum foil into
shorter lengths can be considered as giving new
form to the foil. There certainly has been no
change in the quality or in the properties of the
foil. Because of my finding that the plaintiff has
neither changed the form, the qualities nor the
properties of the material, it is perhaps not neces
sary for me to determine whether the words in that
expression are to be considered disjunctively or
conjunctively. I wish, nevertheless, to state that, in
my view, they should be considered conjunctively:
they are all applicable in all of the cases which
were referred to me and which I was able to
discover, where it has been held that the taxpayer
was either manufacturing or producing something
within the meaning of the Excise Tax Acts. The
only two words in that expression, which may be
considered as alternatives, are the words "proper-
ties" and "combinations," thus, there must be
some change in the form, in the qualities and in
the properties of the material or in the form, in the
qualities and in the combinations of the materials
used in order to constitute either manufacture or
production in the ordinary meaning of these words.
I am not referring of course to cases where the Act
might specifically define a certain operation as
being taxable.
It is trite to say that a taxing statute should be
strictly interpreted against the taxing authority
and, although the word "produced" must be con
8 R.S.C. 1970, c. E-13.
sidered as having been used in its ordinary mean
ing, it would be, I feel, grossly violating the use of
the word when employed in its usual sense to hold
that in the case at bar, the defendant is producing
aluminum foil, merely because he is packaging it
in smaller and handier packages which are capable
of cutting it without the use of scissors, and has
thus made the product more marketable or more
saleable to the ordinary consumer than if it were
sold in the original 450-foot or 900-foot rolls
weighing approximately 100 pounds.
As to the other and comparatively minor part
(about 5 per cent) of the defendant's operation
mentioned in the agreed statement of facts, where
in large uncut rolls of foil are repacked in single
boxes with a rod inserted in the roll, for sale to the
restaurant trade, since even less work was per
formed and the foil was not cut, the operation can
certainly not, in my view, be classified as the
production of aluminum foil.
For the above reasons, the action 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.