Supreme Court of Canada
Royal Bank of Canada v. Deputy Minister of National Revenue for Customs and Excise, [1981] 2 S.C.R. 139
Date: 1981-10-06
The Royal Bank of Canada Appellant;
and
The Deputy Minister of National Revenue for Customs and Excise Respondent.
1981: May 7; 1981: October 6.
Present: Martland, Ritchie, Dickson, McIntyre and Lamer JJ.
ON APPEAL FROM THE FEDERAL COURT OF APPEAL
Customs and excise—Interpretation—Bank owner and operator of a commercial building—Installation by the bank of four electrical generators for back-up power—Contractual obligations to its tenants—Appellant qualifies as a manufacturer—Impossible to apply any restrictive definition—Excise Tax Act, R.S.C 1970, c. E-13 as amended, ss. 27(1), 29(1), Schedule III, Part XIII, s. 1.
Appellant bank, the owner of a building complex containing banking facilities and leased space, installed four diesel-powered electrical generators to supply emergency or back-up power. The generators were capable of producing approximately ten per cent of the peak electrical requirement of the building and were operated for about one hundred hours per year. Appellant applied to the Tariff Board under s. 59 of the Excise Tax Act for a declaration that the generators were exempt, by virtue of s. 29(1), from the taxation imposed by s. 27(1). The application was dismissed and an appeal to the Federal Court of Appeal failed.
Held: The appeal should be allowed.
Electricity comes within the meaning of the word “goods” in Schedule III, Part VI, s. 3 of the Act and to be eligible for the exemption under s. 29(1) the appellant must be a manufacturer or producer of goods, and the generators must be machinery purchased and used directly in the manufacture of goods.
Appellant’s position as owner and operator of a commercial building, and not as a banker, was a significant consideration as the expenditures made for the generators were a highly important step in the performance of its contractual obligations to its tenants and an important part of its business as a building operator. The fact that the generators produced only a small portion of the electricity supplied was of no significance.
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The words of the Act clearly brought the appellant within the exemption provisions. The appellant manufactured electricity when its generators were in operation. It was impossible to apply any restrictive definition to the term “manufacturing” since the Act itself did not do so.
R. v. York Marble, Tile and Terrazzo Ltd., 1967 469 (SCC), [1968] S.C.R. 140; Bank of Nova Scotia v. The King, 1929 75 (SCC), [1930] S.C.R. 174, referred to.
APPEAL from a judgment of the Federal Court of Appeal[^1], which dismissed the appeal of the appellant seeking to quash the decision of the Tariff Board. Appeal allowed.
H. Lorne Morphy, Q.C., and Charles F. Scott, for the appellant.
Eric Bowie, Q.C., and Deen C. Olsen, for the respondent.
The judgment of the Court was delivered by
MCINTYRE J.—In this appeal from the Federal Court of Appeal the appellant seeks to have the Court declare that it is a manufacturer or producer of electrical energy in the circumstances about to be described. Such a declaration would entitle the appellant to an exemption from the consumption or sales tax levied in s. 27(1) of the Excise Tax Act, R.S.C. 1970, c. E-13 (the Act), by virtue of the combined effect of s. 29(1) of the Act and s. 1 of Part XIII of Schedule III to the Act.
The appellant bank is the owner of the Royal Bank Plaza (the Plaza), a building complex in Toronto, in which certain banking offices and facilities are contained and in which space is leased to tenants for retail, commercial and office use. The appellant procures its principal electrical supply for the Plaza from Toronto Hydro, the municipal utility. The voltage at which this power is delivered to the Plaza exceeds that which is required for the electrical services in the building. It is reduced to the required levels by the use of seventeen primary transformers for distribution within the building. Where necessary, it is further reduced by secondary transformers throughout the
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building. The appellant has also installed four diesel-powered electrical generators in the building together with ancillary equipment. The purpose of these generators is to supply emergency or back-up power to operate elevators, water pumps, emergency lighting in hallways and public areas, and alarms in the event of an interruption of the regular service. Prior to the installation of the generators, ten of the primary transformers had been purchased and installed in the Plaza. The generators are capable of producing approximately ten per cent of the peak electrical requirement of the Plaza and are capable of use as a supplement to normal supply. The main purpose of the generators is to provide a stand-by power source and they are operated for about one hundred hours per year, fifty hours for testing and fifty hours for production. It is these generators which are the subject-matter of this appeal.
The appellant applied to the Tariff Board under s. 59 of the Act for a declaration that the generators were exempt from the taxation imposed by s. 27(1) of the Act by virtue of the provisions of s. 29(1). The application was dismissed and an appeal to the Federal Court of Appeal failed. The appeal to this Court is pursuant to leave.
The statutory provisions are set out below:
s. 27. (1) (as amended):
- (1) There shall be imposed, levied and collected a consumption or sales tax of twelve per cent on the sale price of all goods
(a) produced or manufactured in Canada
s. 29. (1):
- (1) The tax imposed by section 27 does not apply to the sale or importation of the articles mentioned in Schedule III.
Schedule III; Part XIII; s. 1 (as amended):
- All the following:
(a) machinery and apparatus sold to or imported by manufacturers or producers for use by them directly in
(i) the manufacture or production of goods,
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(ii) the development of manufacturing or production processes for use by them, or
(iii) the development of goods for manufacture or production by them;
It was common ground that electricity comes within the meaning of the word ‘goods’ in Schedule III, Part VI, s. 3 to the Act. It was not questioned that the generators were machinery sold to the appellant and subject to tax under s. 27(1) of the Act unless exempted under s. 29(1) and the aforesaid provisions of Schedule III.
It is apparent at once that to be eligible for the exemption under s. 29(1) of the Act the appellant must be a manufacturer or producer of goods, and the generators must be machinery purchased and used directly in the manufacture of goods. The Court of Appeal held that the appellant could not be considered to be a manufacturer within the meaning of the Act and therefore declined to make the exempting declarations sought. The Court reached this conclusion on a consideration of the Act as a whole and, while it recognized that on the plain meaning of the words ‘producer and manufacturer’ the appellant would qualify, the fact that the use of the generators was so limited and formed only an incidental part of the appellant’s operation indicated that it could not have been the parliamentary intention to allow an exemption in these circumstances. Urie J., for the Court, said:
While undoubtedly, applying these definitions [standard dictionary definitions of manufacturer and producer] very broadly, the Appellant’s use of generators for emergency electricity could be described as manufacturing, using the definitions in the context of the Act and Schedule leads me to conclude that the purpose for which they are used is much too limited in scope and duration to qualify for the exemption available to true manufacturers or producers.
In approaching this case it is important, in my opinion, to consider the appellant’s position in the matter as that of an owner and operator of a commercial building and not as a banker. This is important because the expenditures made by the appellant for the generators and their installation were made in the construction and operation of the
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building. The supply of electrical power to the tenants of the building is accordingly much more than an incidental part of the appellant’s operation. It is a highly important step in the performance of its contractual obligations to its tenants and an important part of its business as a building operator. The fact that the generators produce only a small portion of the electricity supplied by the system seems to me to be of no significance. The generators form a part of the total system and their services when needed are available for the tenants on the same footing as the regular power supply, and the provision of such an emergency or back‑up service is no more than a prudent step taken to complete a total electrical service.
The vital question here is: Can the appellant qualify as a manufacturer or producer? The appellant argues that the generation of electric current by the generators, when in operation, constitutes the manufacture of goods (electricity) and says there is nothing in the Act to justify the restricted interpretation of its plain words adopted by the Court of Appeal. The words of the Act, it is asserted, clearly bring the appellant within the exemption provisions.
There can be no doubt in my mind that the appellant is manufacturing electricity when its generators are in operation. Indeed, this was scarcely contested. I find it impossible to apply any restrictive definition to the term ‘manufacturing’ since the Act itself does not do so. There is no definition of manufacturing or manufacture in the Act, but I accept a definition given by Spence J. in R. v. York Marble, Tile and Terrazzo Ltd.[^2], where he said, at p. 145:
For the present purposes, I wish to note and to adopt one of the definitions cited by the learned judge, [Archambault J. in Minister of National Revenue v. Dominion Shuttle Company Limited (1933), 72 Que. S.C. 15] 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”.
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Of even greater significance on this question is the case of Bank of Nova Scotia v. The King[^3], where this Court held that a bank operating a stationery department for the production (for its own use and that of its various branches) of stationery, including various banking forms and books and other banking documents, was a manufacturer as a result of such efforts. This conclusion was reached notwithstanding the fact that the product of the stationery department was used exclusively by the bank itself, whereas in the case at bar the electricity produced by the generators in question, when in operation, is supplied for the benefit not only of the appellant but, in addition, the tenants and those frequenting the tenants’ premises, which fact it would seem would strengthen the appellant’s contention that it is a manufacturer of electrical current. In my view, these cases support the appellant’s argument, and I conclude that the appellant is performing the act of manufacturing electricity by the use of the generators and, being unable to find anything in the Act to dictate otherwise, I conclude that the appellant becomes a manufacturer by producing electric current by the operation of the generators.
The appellant advanced an alternative argument asserting that even if the operation of the generators did not constitute it as a manufacturer, the operation of the seventeen transformers required to reduce the voltage of the power supplied by Toronto Hydro to levels suitable for use in the building had that effect. In view of the conclusion which I have reached, it is not necessary to deal with that argument.
I would allow the appeal and make the declarations sought to the effect that the appellant is entitled to the exemption provided in the Act and to its costs throughout.
Appeal allowed with costs.
Solicitors for the appellant: Tory, Tory, Deslauriers & Binnington, Toronto.
Solicitor for the respondent. R. Tassé, Ottawa.
[^1]: (1979), 33 N.R. 431.
[^2]: 1967 469 (SCC), [1968] S.C.R. 140.
[^3]: 1929 75 (SCC), [1930] S.C.R. 174.