THOMPSON BROS. (CONSTR.) LTD.
Decisions
v.
THE MINISTER OF NATIONAL REVENUE
Appeal No. AP-92-070
TABLE OF CONTENTS
Ottawa, Friday, February 26, 1993
Appeal No. AP-92-070
IN THE MATTER OF an appeal heard on October 22, 1992, under section 81.19 of the Excise Tax Act, R.S.C. 1985, c. E-15;
AND IN THE MATTER OF a decision of the Minister of National Revenue dated April 16, 1992, with respect to a notice of objection served under section 81.17 of the Excise Tax Act.
BETWEEN
THOMPSON BROS. (CONSTR.) LTD. Appellant
AND
THE MINISTER OF NATIONAL REVENUE Respondent
The appeal is dismissed.
Sidney A. Fraleigh ______ Sidney A. Fraleigh Presiding MemberArthur B. Trudeau ______ Arthur B. Trudeau Member
Desmond Hallissey ______ Desmond Hallissey Member
Michel P. Granger ______ Michel P. Granger Secretary
The appellant was engaged in the construction of four highways under contract with the Department of Transportation and Utilities of the Province of Alberta. The goods in issue are repair and replacement parts installed on construction equipment, including motor scrapers and dozers. The issue in this appeal is whether the construction equipment falls under either paragraph 1(a) or (j) of Part XIII of Schedule III to the Excise Tax Act such that the parts for this equipment would qualify for tax - exempt status under paragraph 1(l) of Part XIII of Schedule III and subsection 51(1) of the Excise Tax Act.
HELD : The appeal is dismissed. With regard to paragraph 1(a) of Part XIII of Schedule III to the Excise Tax Act, the Tribunal does not believe that the activities of the appellant constitute the manufacture or production of goods. Nor does the Tribunal believe that clay or other compactible materials, including sand, gravel or rock, qualify as "minerals" as that term is used in paragraph 1(j) of Part XIII of Schedule III to the Excise Tax Act. As the construction equipment does not fall under paragraph 1(a) or (j), the repair parts for such equipment do not fall under paragraph 1(l).
Place of Hearing: Edmonton, Alberta Date of Hearing: October 22, 1992 Date of Decision: February 26, 1993Tribunal Members: Sidney A. Fraleigh, Presiding Member Arthur B. Trudeau, Member Desmond Hallissey, Member
Counsel for the Tribunal: David M. Attwater
Clerk of the Tribunal: Dyna Côté
Appearances: Doug Densmore, for the appellant Linda Wall, for the respondent
This is an appeal under section 81.19 of the Excise Tax Act [1] (the Act) of a determination of the Minister of National Revenue (the Minister). The appellant applied for a refund of tax paid on parts to repair construction equipment used on various highway construction projects within the province of Alberta. The application was rejected and, on objection by the appellant, was varied by a decision of the Minister. The appellant's objection was allowed in part, granting a rebate of $4,706.26 and leaving an outstanding amount of $10,457.44, for which the appellant appealed to the Tribunal.
The appellant was engaged in the construction of four highways under contract with the Department of Transportation and Utilities of the Province of Alberta. The goods in issue are repair and replacement parts installed on construction equipment, including motor scrapers and dozers. Such repair parts include, but are not limited to, a hose, collar, connector, clamp, retainer, alternator, ring, bearings, manifolds and regulators.
The appellant's witness, Mr. John Thompson, described the use of motor scrapers and dozers in the construction of a highway. He noted that the first step is to clear the trees and topsoil from the highway right of way and from the borrow pit areas. Borrow pits, he explained, are used to obtain materials, including clay and other compactible materials, for the purpose of building the road. Motor scrapers are used to remove excavated materials from the borrow pits and to transport them to the road site. Within the pit area, large crawler dozer tractors are used to push the scrapers, forcing the excavated materials into the scrapers.
The relevant provisions of the Act read as follows:
51. (1) The tax imposed by section 50 does not apply to the sale or importation of the goods mentioned in Schedule III.
SCHEDULE III
PART XIII
PRODUCTION EQUIPMENT, PROCESSING
MATERIALS AND PLANS
1. All the following:
(a) machinery and apparatus sold to or imported by manufacturers or producers for use by them primarily and directly in
(i) the manufacture or production of goods,
...
(j) machinery and apparatus, including wire rope, drilling bits and seismic shot-hole casing, for use in exploration for or discovery or development of petroleum, natural gas or minerals,
...
(l) parts for goods described in paragraphs (a) to (k).
The issue in this appeal, therefore, is whether the construction equipment falls under either paragraph 1(a) or (j) of Part XIII of Schedule III to the Act such that the parts for this equipment would qualify for tax-exempt status under paragraph 1(l) of Part XIII of Schedule III and subsection 51(1) of the Act.
The appellant's representative asserted that where the majority of excavated materials used to fulfil the contractual obligations come from borrow pits, motor scrapers are being used in the production of goods and, therefore, fall under paragraph 1(a) of Part XIII of Schedule III to the Act. Motor scrapers are used primarily and directly in the production or "borrow excavation" from earth-fill "borrow pits." Such excavation refers to the specific operation where earth fill is taken from one point and moved to a second point. Motor scrapers are commonly used in the borrow excavation of earth fill where the borrow pits are located near the deposit point. The representative asserted that it is illogical to consider motor scrapers primarily as transport vehicles and that they should be viewed as excavating machines.
With respect to paragraph 1(j) of Part XIII of Schedule III to the Act, the representative asserted that the development of minerals includes the development of good quality clay, sand, gravel or combinations thereof. Several definitions of "minerals" were provided which include clay, sand or gravel. Reference was also made to the evidence of Mr. Don Scafe, a geologist with the Alberta Research Council, who described the compaction properties of clay minerals and the mineral content of various aggregates. As the excavated materials are "minerals," the removal of overburden from these deposits should fall under the meaning of "development." The equipment used in the removal of overburden should be entitled to the provisions of paragraph 1(j) and the parts thereof to those of paragraph 1(l).
Counsel for the respondent submitted that the motor scrapers are not machinery for use by the appellant in the "manufacture or production of goods." The equipment is used in the construction of highways. Moreover, the construction equipment is not used "primarily and directly" in the manufacture or production of any goods. The motor scrapers merely removed earth fill to other locations. Counsel submitted, in the alternative, that if the Tribunal finds that the appellant is a "manufacturer" or "producer" of "goods," that such manufacture or production is merely incidental to what it is engaged to do, namely, to construct highways.
With regard to paragraph 1(j) of Part XIII of Schedule III to the Act, counsel submitted that the appellant failed to show that the construction equipment was used in the development or exploration of minerals. She reiterated that the appellant is in the business of building roads and not of developing minerals.
In summary, counsel submitted that, since the construction equipment does not fall within the exemptions under paragraph 1(a) or (j) of Part XIII of Schedule III to the Act, the appellant is not entitled to the exemption in paragraph 1(l) for the parts.
With regard to paragraph 1(a) of Part XIII of Schedule III to the Act, the Tribunal does not believe that the activities of the appellant constitute the manufacture or production of goods. This point was clearly decided in an earlier decision [2] of the Tribunal. Nor does the Tribunal believe that clay or other compactible materials, including sand, gravel or rock, qualify as "minerals" as that term is used in paragraph 1(j) of Part XIII of Schedule III to the Act. As the construction equipment does not fall under paragraph 1(a) or (j), the repair parts for such equipment do not fall under paragraph 1(l).
For these reasons, the appeal is dismissed.
[ Table of Contents]
1. R.S.C. 1985, c. E-15.
2. Arthur A. Voice Construction Co. Ltd. v. The Minister of National Revenue , Canadian International Trade Tribunal, Appeal No. AP-89-133, October 24, 1990.
Initial publication: June 12, 1997