Section 125.1

A processor of organic sludge was paid by suppliers in the agri-food industry for taking over the sludge, which it then treated and transformed, using electricity, into residual fertilizer material. It in turn paid companies (the "Receivers") to acquire the materials, which they recovered for composting, agricultural land application or as an energy source. It profited by paying significantly less to the Receivers than it received from its sludge suppliers.

Whether it was denied input tax refunds under the Quebec Sales Tax Act for the QST on its electricity purchases turned on whether it used the electricity “to produce movable property … intended for sale” within the meaning of s. 17(aa) of the Quebec Retail Sales Tax Act (“RSTA”) The Court of Quebec had followed C.R.I. Environnement in finding that this exemption did not apply. C.R.I. Environnement on similar facts had found that the goods were not intended for “sale” because Article 1708 of the Civil Code of Quebec defined a sale as “a contract by which a person, the seller, transfers ownership of property to another person, the buyer, for a price in money which the latter obligates himself to pay,” whereas there, there was no monetary consideration received from the persons to whom the goods were transferred.

In reversing the decision below, and finding that the exemption applied, Marcotte JCA noted that “sale” was broadly defined in s. 2(9) of the RSTA to include “any other contract whereby, for a price or other consideration, a person delivers or binds himself to deliver, to another, movable property.” After quoting Waddams, The law of contracts, as to the meaning of “consideration” under the common law, she stated (at para. 57, TaxInterpretations translation):

In this case, by transferring its environmental obligations to the Receivers, the Appellant relieved itself of various environmental obligations or liabilities. In my view, this relief conferred a benefit on the Appellant and … constituted valuable consideration that may be characterized as "any other consideration" within the meaning of section 2(9) of the RSTA.

The taxpayer, who in consideration for a charge made by it to its customers, sorted, consolidated and reshipped industrial waste produced by them, in consideration for fees paid by them, was found to have under the Quebec Civil Code contracts for services with them rather than contracts of sale, so that it was not eligible for the allowance, given that the definition of sale in the Civil Code required that monetary consideration be received for a sale.

The Federal Court of Appeal noted that the same result likely would have been reached under the common law.

The taxpayer, which sprayed automobile and truck parts with a corrosion inhibitor and specially packed them in kits before shipping the kits to plants in third-world countries for assembly there as automobiles, was found to be engaged in the processing of goods for sale. Without the taxpayer's input in assembling the kits, the offshore manufacturers could not have produced a vehicle, and it was not relevant that the taxpayer did not own the parts (the car manufacturers did).

In finding that refund interest received by the taxpayer following a successful appeal of a substantial assessment represented business income and, therefore, was eligible for the manufacturing and processing deduction, Rip TCJ. stated (at pp. 2170-1):

"If the money used for the overpayment was business income that was intended for use in the business, then, once the courts have decided there was an overpayment of tax, the overpayment is no longer a tax but reverts to the time of overpayment to property owned by the taxpayer for use in its business and interest on that property is business income."

The taxpayer carried on a uniform rental business under which it agreed to lease uniforms to customers for a period generally of five years and, in that connection, would make alterations to affix identification tags and company crests and to wash and dry garments that it acquired for the lease. In finding that the taxpayer was processing goods for lease in Canada, O'Connor TCJ. found that these activities represented an operation of altering the form of the garments, making them more marketable.

The production of asphalt for use in the paving of driveways, parking lots and small public roadways was found not to qualify as use for contracts for sale, rather than contracts for work and materials.

The making of artificial snow by a ski resort operator ("Sutton") did not qualify as manufacturing or processing of goods for sale or lease. "As the principal object of the contract binding a skier and Sutton concerns the use of immoveable property and the supply of services, one may not conclude that Sutton manufactured 'goods for lease' ...". (p. 1478

The taxpayer, which derived its revenues from contracts for the demolition of buildings or other works, and from the sale of materials resulting from its alleged processing activities on the demolition sites, successfully maintained its position that its recycling activities, i.e., sorting materials, cutting to size, taking out the hardware, separating various items, removing nails and screws, etc., were processing activities.

In finding that electric trucks used by a gold mine to transport crushed ore to the surface, and carbon regeneration kilns used to restore carbon for reuse in the process of separating the gold from the rock, were used in "manufacturing" for purposes of regulations pursuant to the Retail Sales Tax Regulations (Newfoundland), Gushue J.A. stated (p. 122):

"Once having commenced, everything subsequent which was an integral part of the operation, and this would certainly include the transportation of that reduced material to the cone crusher above ground, was surely part of the manufacturing process ... As for the carbon regeneration kiln, this was a money-saving aspect of the operation which obviated the necessity and expense of having to continually purchase new carbon for cleaning purposes. It is obviously a logical and essential part of the operation ..."

The sale and leasing of tapes and microfiches containing technical data on Canadian oil wells which the taxpayer had gathered, edited and organized was eligible for the deduction.

In finding that an operation of installing industrial pipes and fittings in paper mills to the detailed and intricate specifications of the owners constituted a manufacturing or processing operation, Couture C.J. stated (p. 44):

"The work performed by the appellant to install a system of pipes and to link a paper machine to energy sources to permit its use did not consist in the mere joining of lengths of pipe end to end, but in a series of operations, cuts and welding to give those pipes a very special shape in order to incorporate them in that network."

Microwave ovens and coffee brewers used by customers of the taxpayer's coin-operated vending machines in order to heat such products as hotdogs, hamburgers and pizzas, or to brew coffee, were not used for the "processing" of goods.

The taxpayer's subsidiary carried out an aerial triangulation process in order to produce and provide a map framework to the taxpayer. The taxpayer used the map frameworks to produce maps for forestry companies. In finding that both corporations were engaged in the processing of goods for sale, Brulé J. stated (p. 1066) that "the evidence shows ... that the Appellants are being asked to supply maps and frameworks for maps, not to work for the customers".

The taxpayer was found to be engaged in manufacturing when it prepared final art boards out of clear sheets of acetate and sold the boards to its customers for the printing of advertising flyers.

Fees charged by a television station to advertisers as for air time during the live telecast of hockey games and other presentations was not income from manufacturing and processing goods for sale.

It was stated in the context of the Excise Tax Act that the addition of radios by a Canadian distributor to imported motor vehicles "would not, in normal commercial usage, be considered either as an act of manufacture or production". The reason was that "there was no change in the form, qualities or the combinations of the motor vehicle", i.e., the motor vehicles could be operated just as well without the radios. (The Court went on to find that the taxpayer also did not "assemble" goods.)

The taxpayer was a bank which also was the landlord of the Royal Bank Centre in Toronto. In that capacity, it operated emergency electricity generators at the buildings for approximately 100 hours per year (consisting of 50 hours of testing and 50 hours of power interruption). In accepting the taxpayer's submission that the taxpayer's purchases of generators were exempt from sales tax under the Excise Tax Act as "machinery and apparatus sold to...manufacturers or producers for use by them directly in...the manufacture or production of goods," McIntyre J state (at pp. 143-4):

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...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”.

...I conclude that the appellant is performing the act of manufacturing electricity by the use of the generators... .

The preparation of meals and beverages by a restaurant did not constitute "manufacturing or producing" in the generally accepted commercial view of that phrase.

The respondent imported “greyish, non-descript” slabs of raw marble (sometimes as long as 16 feet) and, after finishing them, installed them in buildings as subcontractor. The finishing work included matching slabs so that the veining would match, grouting voids, rodding weakened slabs, gluing broken slabs, grinding, rough and fine polishing, cutting and finishing the edges. In finding that the finished slabs were “goods produced or manufactured in Canada” within the meaning of s. 30(1)(a) of the Excise Tax Act, R.S.C. 1952, Spence J stated (at p. 145, and quoting in the first sentence from M.N.R. v. Dominion Shuttle Co. Ltd. (1933), 72 C.S. 15 (Que. S.C.)):

“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 italics are my own.) ...[T]he 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.

After noting (at p. 146) the finding in Gruen Watch Company of Canada Ltd. v. A.G. (Canada), 1950 CanLII 77 (ON SC), [1950] C.T.C. 440 that “the simple operation of putting a watch movement into a watch case is [not] ‘manufacturing’ a watch in the ‘ordinary, popular and natural sense’ of the word, but… the plaintiffs ‘produced’ watches,” Spence J stated (at p. 147):

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.

The taxpayer purchased in bulk lots, by the pound, old and worn-out motor vehicle tires and put them through a process of repair, treatment (including being pressed and partially cooked in a boiler) and retreading, and sold the retreaded tires. Throughout the process the sidewall of the tire was not dismantled or destroyed, the numerical identification of the original tire was not destroyed, the name of the manufacturer of the original tire was still clearly marked upon its sidewalls. In finding that the restored sales when sold fell to be treated as “goods produced or manufactured” by the taxpayer under s. 86 (1) (a) of the Special War Revenue Act (R.S.C. 1927, c. 179) and were “tires manufactured or produced” by it under s. 80, Kerwin J stated (at pp. 366-7, SCR):

[I]f the appellant had purchased an old or worn-out tire which had already been treated by the vendor in the manner described above, down to and including the cutting off of the old tread…[and] then… had purchased from a third party the rubber preparation and had applied the latter and continued with the subsequent steps, could it be suggested that the article in its final condition had not been produced or manufactured by the appellant? The definitions of the words “manufacture” and “produce” as nouns or verbs, in the standard dictionaries, clearly indicate that such proceedings would constitute the appellant a manufacturer or producer. And the mere fact that the appellant has itself performed the defined operations on the old tire cannot exclude it from the operation of the section.

…It is suggested that the old or worn-out tire did not lose its identity qua tire and that, therefore, the appellant could not be said to have manufactured or produced a tire. However, when one bears in mind the various steps taken by appellant and particularly the state of the article when the tread was removed, it would appear that appellant cannot be any less the manufacturer of a tire because it started with something that had once been a usable tire than if, as suggested in the preceding paragraph, it had commenced with two substances purchased from different sources.

The "gross revenues ... from sales" of a newspaper included its advertising revenues.