A-486-80
Deputy Minister of National Revenue for Customs
and Excise (Appellant)
v.
Kipp Kelly Limited (Respondent)
Court of Appeal, Urie and Le Dain JJ. and Kerr
D.J.--Ottawa, June 1 and 8, 1981.
Customs and excise — Appeal from decision of Tariff
Board that diesel engines imported by respondent were used
for manufacturing generating sets, and could therefore be
imported duty free — Respondent is a dealer and distributor
of American generators — Respondent imported basic compo
nents, added bases, switches and controls which were pur
chased locally and installed the completed units — Board held
that these functions constituted manufacturing for the pur
poses of the tariff item — Whether respondent merely
assembles generating sets — Appeal dismissed — Customs
Tariff R.S.C. 1970, c. C-41, Schedule A, item 42865-1, as
amended.
Appeal from a declaration of the Tariff Board wherein it was
held that diesel engines imported by the respondent were used
in the manufacture of electricity generating sets, and therefore
could be imported duty free. The respondent imported the basic
components, added bases, switches and controls, which it pur
chased locally, and installed the completed units on the prem
ises of the purchasers. The Board held that these functions
constituted manufacturing. The appellant submits that the
respondent merely assembled generating sets. The question is
whether the Board erred in deciding that the respondent's
operations constituted manufacturing.
Held, the appeal is dismissed. While the Board must decide
whether or not the goods in issue are generating sets it must
also decide whether or not the diesel engines are for use in the
manufacture of generating sets no matter what their nature.
While the Board did not refer to the italicized phrase and, as a
consequence, to that extent inaccurately described what it had
to ascertain from the evidence, in the context of the whole of its
reasons, it is clear that the Board was fully aware of what it
was required to do. Moreover, the Board was clearly right in its
appreciation of the effect of the change in the wording of the
tariff item. The change did not affect the meaning of "manu-
facture". It simply enlarged the kinds of generating sets to
which the tariff item would apply. The question the Board is
called upon to decide on the issue as to whether or not the use
of the engines is in the manufacture of generating sets is one of
mixed law and fact. With respect to the question of law, the
Board clearly considered two judgments of the Supreme Court
of Canada that it had before it. Thus, it properly instructed
itself as to the law. With respect to the finding of fact aspect of
the Board's decision, it is not within the competence of this
Court to interfere with it, if there was material before the
Board on which it could reasonably have based its finding. It
was open to the Board, on the facts adduced in evidence before
it to find that the operations performed by the respondent were
in the manufacture of generating sets and not merely in the
assembly thereof from component parts. That being so this
Court should not disturb that finding.
Deputy Minister of National Revenue for Customs and
Excise v. Research-Cottrell (Canada) Ltd. [1968] S.C.R.
684, referred to. Canadian Lift Truck Co. Ltd. v. Deputy
Minister of National Revenue for Customs and Excise
(1956) 1 D.L.R. (2d) 497, referred to. R. v. York Marble,
Tile and Terrazzo Ltd. [1968] S.C.R. 140, referred to.
The Dentists' Supply Co. of New York v. The Deputy
Minister of National Revenue (Customs and Excise)
[1956-1960] Ex.C.R. 450, applied.
APPEAL.
COUNSEL:
W. I. C. Binnie, Q.C. for appellant.
M. E. Corlett, Q.C. for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Maclaren, Corlett, Tanner & Greenwood,
Ottawa, for respondent.
The following are the reasons for judgment
rendered in English by
URIE J.: This is an appeal from a declaration of
the Tariff Board in Appeal No. 1479 wherein it
was held that three Allis-Chalmers diesel engines
imported by the respondent were classifiable under
tariff item 42865-1, as amended on December 22,
1977 by P.C. 1977-3599 [SOR/78-19], on the
basis that the respondent used the imported
engines in the manufacture of electricity generat
ing sets, (hereinafter, for convenience, to be
referred to as "gen sets").
The Tariff Board had held, on July 20, 1977 in
its declaration in Appeal No. 1182, that similar
diesel engines were used in the manufacture of gen
sets and that, therefore, they fell within the scope
of tariff item 42865-1 as it then read and could
therefore, be imported into Canada duty free.
Before the amendment, made on December 22,
1977, item 42865-1 appeared as follows:
Diesel and semi-diesel engines;
Diesel dual fuel engines;
L.P.G. engines;
Four-cycle gasoline internal combustion engines not less than
four horsepower nor greater than forty horsepower;
Reciprocating natural gas engines;
When of a class or kind not made in Canada and for use in
the manufacture of electricity generating sets consisting essen
tially of an internal combustion engine and one or more genera
tors mounted on a common base [emphasis added].
Upon issuance of Order in Council P.C. 1977-
3599 the underlined words were deleted and the
item thus now reads as follows:
Diesel and semi-diesel engines;
Diesel dual fuel engines;
L.P.G. engines;
Gasoline internal combustion engines;
Reciprocating natural gas engines;
When of a class or kind not made in Canada; parts thereof; all
of the foregoing for use in the manufacture of electricity
generating sets classifiable under tariff item 42701-1
[emphasis added].
It is appellant's contention that the diesel
engines in issue are not used by the respondent in
the manufacture of gen sets and that, therefore,
they are not exempt from duty pursuant to tariff
item 42865-1. Rather, in his submission, the
respondent is a distributor of gen sets which it does
not manufacture but which it merely assembles in
its plant at Winnipeg. Therefore, in his view, the
proper tariff item in respect of the diesel engine
imports is item 42815-1 upon which a duty of 15%
is applied and which item reads as follows:
Diesel and semi-diesel engines, and complete parts thereof,
n.o.p.
Before examining the merits of the appeal the
submission of counsel for the respondent that the
matter, as between the parties, is res judicata,
should be dealt with. In Tariff Board Appeal No.
1182 the Board held that the respondent manufac
tured gen sets. In Appeal No. 1479, the same
parties were involved, the same production func
tions were employed by the respondent, and, in
counsel's view, the same tariff item was applicable
because in both the original and amended versions
of item 42865-1 it was necessary to ascertain
whether or not the diesel engines were imported
"for use in the manufacture of electricity generat
ing sets."
Quite aside from the very real doubt as to the
applicability of the principle of res judicata in
administrative law' with respect to orders or deci
sions of even quasi-judicial bodies, the doctrine is
not applicable in the case at bar. Res judicata, in
one of its several aspects, may be raised as a
defence where a judgment has been pronounced
between parties and findings of fact are involved as
a basis for that judgment. All the parties affected
by the judgment are then precluded from disputing
those facts, as facts, in any subsequent litigation
between them. That is the aspect in which, as I
understood him, counsel for the respondent plead
ed res judicata. However, while undoubtedly in
Tariff Appeal No. 1182 the Board found as a fact
that the diesel engines there in issue were for use
in the manufacture of gen sets that finding was
made, as. the Board's reasons disclose, in the light
of the tariff item as it then existed. Its finding was
thus on a question of mixed law and fact. What
the Board was called upon to decide in Tariff
Appeal No. 1479 was, in essence, whether that
finding of mixed law and fact was affected by the
change in the wording of the tariff item. The
matter thus was not, in my view, res judicata as
between the parties.
I turn now to the merits of the appellant's
appeal. Briefly the relevant facts, which are not in
dispute, are these. The respondent has been for
some years the Manitoba dealer and distributor
for ONAN, an American manufacturer of gen
sets. ONAN manufactures the generator, the
engine and the control panel. It exports 2,000 gen
sets annually to the respondent. A gen set is a
generator (frequently described also as an alterna
tor) driven by an engine mounted on a base with
certain controls. According to appellant's memo
randum of fact and law, a distributor, dealer and
installer of gen sets performs the following func
tions, the description of which is not disputed by
the respondent:
(a) uncrates the gen sets and attaches the controls and
control panel which cannot be shipped assembled to the gen
set;
' See: de Smith's Judicial Review of Administrative Action,
4th ed., pp. 107-108.
(b) tests the gen set on load banks to ensure that it is
performing in accordance with its specifications;
(c) adjusts and repairs the imported gen set as is necessary.
The Respondent's employees are factory-trained by ONAN
at its United States headquarters;
(d) mounts the gen set to the customer's specifications such
as on a pad, on a floor, or on a trailer;
(e) if the gen set is to be placed in a building,
(i) connects the gen set to the commercial power;
(ii) attaches the transfer switch to the wall or to the base
of the gen set (the transfer switch starts the gen set when
the commercial power fails); and,
(iii) installs the heat exchange and exhaust mechanisms
for the gen set as specified by the customer.
ONAN does not manufacture engines able to
turn the largest generators that it manufactures so
that it purchases engines with sufficient power
output to operate those generators from engine
manufacturers such as Allis-Chalmers Ltd. Some
times the respondent purchases the engines, along
with the generators, from ONAN. On other occa
sions, such as in the case of the three units in issue
in this appeal, it purchases the engines directly
from Allis-Chalmers Ltd. The control panels were,
in each case, imported with the generator. Trans
fer switches, control devices and shut down
switches are purchased from a Winnipeg supplier
and, at least in some cases, are designed by the
respondent. The following additional operations,
inter alia, are performed by the respondent at its
Winnipeg plant and are said to be of a manufac
turing nature:
(a) connects the generator with the engine and
instals, where necessary, the control panel and
transfer switches, control devices and shut down
switches;
(b) manufactures the base which consists of two
steel channels with a platform upon which the
gen set is welded;
(c) manufactures the battery rack;
(d) paints the assembled set;
(e) tests the assembled set on the load banks;
(f) instals the gen set in the building of the
customer with a cooling system and exhaust
system according to the customer's require
ments.
The labour time expended by the respondent in all
of the foregoing operations for the three gen sets
varied from 58.15 hours to 75.85 hours.
On the above facts, the Board made the follow
ing finding:
The Board notes that a condition for classification under
42865-1 is that the imported diesel engines be for use in the
manufacture of electric generating sets. Formerly this tariff
item defined a generating set as having three components, a
combustion engine and one or more generators mounted on a
common base. In the amended tariff item these requirements
have been removed so that the nature of a generating set must
now be determined from the evidence.
As in Appeal No. 1182 the evidence was that the appellant
imported the basic components, added bases, switches and
controls, which it purchased locally, and installed the com
pleted units on the premises of the purchasers. There is no
dispute that the finished installations were generating sets
within the meaning of that term as it is understood by suppliers
and users.
In the opinion of the Board these functions were no less
manufacturing than they were in the previous case, Appeal No.
1182. There is no provision in the Customs Tariff that a
manufacturer of generating sets also be a manufacturer of
generators. The end use provision in tariff item 42865-1
requires only that the imported diesel engine be for use in the
manufacture of electricity generating sets.
The appellant attacked the Board's finding on
the ground that it erred in considering that the
operations outlined above constituted manufactur
ing. His contention was that the respondent's oper
ations were rather an assembly of component
parts, only the construction of the base and the
battery rack being manufacturing operations.
Counsel submitted further that while the same
type of diesel engines were the subject of Appeal
No. 1182, the ruling was made pursuant to tariff
item 42865-1 as it read in 1977. In his view the
words deleted from that item by the amendment
thereto made in December 1977, supra, following
the Board's July decision, had the effect of
restricting the meaning of the word "manufac-
ture" as used in the tariff item. The removal of the
restricting words thus restored to the word "manu-
facture" its ordinary meaning. The Board in the
decision here under appeal therefore erred in find
ing that the appellant was still a manufacturer of
gen sets.
Undoubtedly, the use of the phrase "nature of
the generating set" in the last sentence of the first
paragraph above quoted does not fully describe the
function that the Board is called upon to perform.
While it must decide that the goods in issue are
gen sets it also must decide whether or not the
diesel engines are for use in the manufacture of
gen sets no matter what their nature. While the
Board did not refer to the italicized phrase and, as
a consequence, to that extent inaccurately
described what it had to ascertain from the evi
dence, in the context of the whole of its reasons,
including the quoted passages, it is clear that the
Board was fully aware of what it was required to
do. Moreover, in my view, if that premise is
accepted the Board was clearly right in its
appreciation of the effect of the change in wording
of tariff item 42865-1. The change did not affect
the meaning of "manufacture". It simply enlarged
the kinds of gen sets to which the tariff item would
apply, it no longer being limited to, for example,
sets mounted on a common base.
On the question as to whether or not the diesel
engines were for use in the manufacture of gen sets
as distinct from being used in the assembly thereof
from component parts, it has been held by the
Supreme Court of Canada that the assembly of
parts may, in certain circumstances, constitute
manufacture but not necessarily so. 2
As earlier pointed out the question the Board is
called upon to decide on the issue as to whether or
not the use of the engines is in the manufacture of
gen sets is one of mixed law and fact. Kellock J. in
Canadian Lift Truck Co. Ltd. v. Deputy Minister
of National Revenue for Customs and Excise' put
that proposition in this way:
The question of law above propounded involves at least two
questions, namely, the question as to whether or not the Tariff
Board was properly instructed in law as to the construction of
the statutory items, and the further question as to whether or
not there was evidence which enabled the Board, thus instruct
ed, to reach the conclusion it did.
2 The Deputy Minister of National Revenue for Customs
and Excise v. Research-Cottrell (Canada) Limited [1968]
S.C.R. 684 per Martland J. at p. 693.
3 (1956) 1 D.L.R. (2d) 497 at p. 498.
While the construction of a statutory enactment is a questior
of law, and the question as to whether a particular matter of
thing is of such a nature or kind as to fall within the lega
definition is a question of fact, nevertheless if it appears to the
appellate Court that the tribunal of fact had acted either
without any evidence or that no person, properly instructed ai
to the law and acting judicially, could have reached the particu
lar determination, the Court may proceed on the assumption
that a misconception of law has been responsible for the
determination .. .!. [Emphasis added.]
With respect to the question of law, the Board
had before it, as its reasons disclose, the judgments
of the Supreme Court of Canada in both the
Research-Cottrell case, supra, and in The Queen
v. York Marble, Tile and Terrazzo Limited 4 case,
the latter of which, for purposes of that appeal,
adopted the definition of "manufacture" [at page
145] as "... the production of articles for use from
raw or prepared material by giving to these ma
terials new forms, qualities and properties or
combinations whether by hand or machinery."
Clearly, it considered them in drawing its conclu
sion with respect to the appellant's operations in
this case, and, in particular, had in mind the York
Marble case because it referred to the argument of
the appellant here (the respondent before the
Board) that no new form or new quality was
brought about by Kipp Kelly Limited. Thus, it
seems to me, that it properly instructed itself as to
the law.
With respect to the finding of fact aspect of the
Board's decision, the duty of an Appellate Court
with respect thereto was expressed in the following
manner by Thorson P. in The Dentists' Supply
Company of New York v. The Deputy Minister of
National Revenue (Customs and Excise) 5 :
If the decision of the Tariff Board was a finding of fact and
there was material before it on which it could reasonably have
based its finding it is not within the competence of this Court to
interfere with it, no matter what its conclusion might have been
if a right of appeal de pleno from the decision had been
conferred by the Customs Act. There is no right of appeal from
the decision of the Tariff Board on findings of fact and it seems
to me that the same is true in respect of findings of mixed law
and fact. The only right of appeal conferred by section 45 of
the Customs Act is an appeal upon a question that in the
opinion of this Court or a judge thereof is a question of law
and, even in such a case, only after leave to appeal on such
4 [1968] S.C.R. 140.
5 [1956-1960] Ex.C.R. 450 at p. 455.
question has been obtained. Thus, to the extent that the decla
ration of the Tariff Board in the present case was a finding of
fact, this Court has no right to interfere with it unless it was so
unreasonable as to amount to error as a matter of law. But it
cannot be too strongly stressed that this does not mean that
there was error in the finding of fact merely because the Court
might have found otherwise if a full right of appeal had been
conferred. Thus, this Court has no right to substitute its own
conclusion for the finding of the Tariff Board if there was
material before it from which it could reasonably have found as
it did.
Applying that test to the case at bar it was open
to the Board, on the facts adduced in evidence
before it, as generally described earlier herein, to
find, as it did, that the operations performed by
the respondent were in the manufacture of gen sets
and not merely in the assembly thereof from com
ponent parts. That being so this Court should not
disturb that finding.
Since the Board did not, in my opinion, err in
law in making its declaration, I would dismiss the
appeal with costs.
* * *
LE DAIN J.: I agree.
* * *
KERR D.J.: I agree.
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.