Deputy M.N.R., Customs and Excise v. Hydro-Québec
A-899-92
Marceau, Desjardins and Létourneau JJ.A.
20/6/94
44 pp.
Appeal from decision of Canadian International Trade Tribunal declaring certain articles used by Hydro-Québec on its hydro-electric network exempt from sales tax at time acquired, having regard to Excise Tax Act, s. 59(1)-Mixed question of law and fact-Articles in question purchased by Hydro-Québec between 1981 and 1984 and installed on its hydro-electric network-Tribunal declared that, from January 1, 1981 to December 31, 1984, articles in question used in "production" of electricity exempt from sales tax under Excise Tax Act, s. 29(1) and s. 1(a), (l) and (o) of Part XIII of Schedule III to Act-Whether articles which respondent acquired between 1981 and 1984, inclusive, used "directly" or, for purchases after February 16, 1984, "primarily and directly" in "production" of electricity-Appeal dismissed-Per Marceau J.A.: appellant's argument that Tribunal failed to apply rule that words of statutory provision must be given ordinary and usual meaning rather than technical and scientific meaning cannot succeed-In order to decide whether exemption applied, Tribunal had to determine what apparatus or machinery actually required in order to "cause to appear, create or generate" electrical power in marketable and consumable form-It could make this determination only on basis of testimony of informed persons, not of person on street-Appellant's argument formally rejected in Quebec Hydro-Electric Commission v. Deputy Minister of National Revenue for Customs and Excise, [1970] S.C.R. 30, in which Supreme Court of Canada found that transformers spread out along electrical lines were used directly in manufacture or production of electricity-Tribunal did not err in law when it relied on testimony of experts rather than on alleged popular belief in making determination that Hydro-Québec's electrical lines, which connect generating stations to consumers, are part of process of producing electricity that company sells to customers-Tribunal tried to understand and apply words "directly" and "primarily" without unduly restricting meaning of words and taking into account specific production process in each particular case-Since function of lines, at very least, to provide connection between generating station and cascade of transformers which have been recognized as being integral part of system of production, they must themselves be seen as playing role in production process-Appellant has not succeeded in putting forward any reason that could justify Court in interfering with determination of Tribunal-Per Desjardins J.A.: Tribunal of opinion that expression "primarily and directly" in Part XIII of Schedule III to Act had to be interpreted broadly, taking into account specific production process in each particular case: here, electricity-Experts all of opinion that electricity produced by alternating current cannot be stored-Thus Tribunal did not err in recognizing unique nature of product in issue, distinct from oil or gas-Bound by interpretation in case law, where nature of production of electricity had been selected as interpretive test-Tribunal committed no error of law in interpreting words "directly" and "primarily," since bound by decision of this Court in Deputy Minister of National Revenue for Customs and Excise v. Amoco Canada Petroleum Co. Ltd. (1985), 86 DTC 6008 (F.C.A.), which held word "directly" implied absence of any intervening medium-Once words correctly defined, it was open to Tribunal to decide particular apparatus essential to production of electricity, and accordingly used "directly" for production thereof-Per Létourneau J.A. (concurring in result): respondent submits that in technical and scientific terms its network is vast integrated production network, since in order to produce electricity there must be source, line and load-This argument must be rejected-Electricity good which unlike most other goods sold cannot be bought at market because cannot be stored-Accepting respondent's position its network simply one vast production network would lead to number of incongruities-Tribunal made finding of fact from technical and scientific evidence submitted to it that was patently unreasonable and does not correspond to reality of production, transmission, sale and distribution of electricity-It concluded wrongly that respondent's transmission and distribution lines should enjoy legal benefit of tax exemption-In Quebec Hydro-Electric Commission v. Deputy Minister of National Revenue for Customs and Excise, Supreme Court held that in legal terms electrical transformers are apparatus for use directly in manufacture of goods-Lines and accessories that supply them part of process of producing usable finished product-Second aspect of respondent's argument, based on theory of consumable finished product, sound-Excise Tax Act, R.S.C. 1970, c. E-13, ss. 27, 29(1), 59(1), Schedule III, Part XIII (as am. by S.C. 1985, c. 3, ss. 36(1), 48).