Nova Scotia (Finance) v. RKO Steel Ltd.

Nova Scotia (Finance) v. RKO Steel Ltd. Court Court of Appeal Date 1997-01-16 Citation 1997 NSCA 35 Docket CA 131735 Judge/Registrar/Adjudicator Flinn, Edward J. (Honourable Justice); Bateman, Nancy J. (Honourable Justice) (CA); Chipman, David (Honourable Justice) Document Type Decision Decision Content C.A. No. 131735 NOVA SCOTIA COURT OF APPEAL Cite as: Nova Scotia (Finance) v. RKO Steel Ltd., 1997 NSCA 35 Chipman, Bateman and Flinn, JJ.A. BETWEEN: ) ) MINISTER OF FINANCE ) John W. Traves ) for the Appellant Appellant ) ) - and - ) ) RKO STEEL LIMITED ) Allan MacPherson ) for the Respondent Respondent ) ) ) ) ) Appeal Heard: ) January 16, 1997 ) ) ) Judgment Delivered: ) January 16, 1997 THE COURT: The appeal is dismissed with costs as per oral reasons for judgment of Chipman, J.A.; Bateman and Flinn, JJ.A., concurring. The reasons for judgment of the Court were delivered orally by: CHIPMAN, J.A.: This is an appeal by the Minister of Finance, Province of Nova Scotia, from a decision of the Nova Scotia Utility and Review Board (the Board) varying an assessment pursuant to the Health Services Tax Act, R.S.N.S. 1989, c. 198 made by the Provincial Tax Commissioner upon the respondent. An appeal to this Court lies from an order of the Board on any question as to its jurisdiction or upon any question of law: s. 30(1) Utility and Review Board Act, 1992, c. 11. The respondent manufactures structural steel products. Some of the products are sold as such, others are used by the respondent in their incorporation into structures on real property pursuant to contracts with third parties. Some contract specifications require that steel beams be galvanized or painted before installation. The respondent does not have the means of performing this work and when it is required, the respondent sends the beams out to other firms to have it done. When the respondent sells its products, it collects tax under the Act on the sale price. The sale price includes the cost of painting or galvanizing when that is done. The Act, by s. 5 imposes a tax on every purchaser at the rate of 11% of the purchase price of tangible personal property. Tangible personal property is defined in s. 2(t) of the Act and includes repairs services. Where a manufacturer incorporates tangible personal property manufactured by him into any structure, a deemed sale takes place as a result of the combined operation of ss. 5(2), 2(c) and 2(x) of the Act: 5 (2) For the purposes of this Act, every user and consumer shall be deemed to have purchased the tangible personal property from a vendor at a sale in the Province, and such property shall be deemed to have passed at the sale. 2 In this Act, . . . (c) "consumption" or "use" includes the provision by way of promotional distribution of any tangible personal property and the incorporation into any structure, building or fixture, of tangible personal property including those manufactured by the consumer or further processed or otherwise improved by him; . . . (x) "user" or "consumer" means any person who within the Province utilizes any tangible personal property for his own consumption or use, or for the consumption or use of other persons at his expense, or on behalf of, or as the agent for, a principal who desires to acquire such property for the consumption or use by such principal or other persons at his expense and includes any person who within the Province consumes tangible personal property acquired by him for resale, or who within the Province consumes tangible personal property manufactured, processed or purchased by him within or without the Province; The sale price at the deemed sale is determined pursuant to the definition contained in s. 2(s) of the Act: 2 (s) "sale price", "purchase price" or "fair value" includes a price in money and also the value of services rendered, the actual value of the thing exchanged and other considerations accepted by the seller or person from whom the property passes as price or on account of the price of the thing covered by the contract, sale or exchange, and includes (i) customs, excise and sales tax imposed by or pursuant to an enactment of the Parliament of Canada, (ii) a tax imposed by the Tobacco Tax Act, (iii) charges for installation of the thing sold, for interest, for finance and for service, unless such charges are shown separately on the invoice or in the contract with the purchaser, (iv) charges for transportation, unless the total charges for transportation of the thing sold relate solely to transportation within the Province and are shown separately on the invoice or in the contract with the purchaser; When the respondent incorporated in buildings steel beams which had been painted or galvanized, it reported the transaction and paid tax on the cost of the beams, excluding the painting or galvanizing process which was done by others. The Tax Commissioner conducted an audit in February, 1996, and determined that the respondent was liable on such transactions for tax on the cost of painting and galvanizing of the beams incorporated into buildings and served a Notice of Assessment in the amount of $58,726 representing the tax on the cost of treating such beams, together with interest and a penalty. On the respondent's appeal from the assessment by the Commissioner, the Board referred to relevant sections of the Act and observed that the Commissioner determined in the tax audit that tax was owing on the date the respondent received invoices for the painting or galvanizing. This, the Board, held could not be correct because the deemed sale did not occur until the actual installation of the beams in real property. The painting and galvanizing services were not "manufactured by the consumer or further processed or otherwise improved by him" within the meaning of s. 2(c) of the Act. The Board also rejected the appellant's contention that the painting and galvanizing were repair services within the meaning of s. 2(t). The appeal to the Board was allowed and the assessment varied to remove the amounts which related to the invoices for painting and galvanizing with the necessary adjustment to the penalty and interest charges. The Minister appeals to this Court claiming that the Board erred in law, particularly in its interpretation and application of s. 2(s) of the Act. The Minister no longer contends that the painting and galvanizing constituted repair services. The appellant has not shown that the Board erred in law. The Act is a taxing statute and the taxing authority, in order to succeed, must clearly bring the transaction at issue within the provisions of the Act. The painting and galvanizing, not having been done by the manufacturer, does not fall within the definition of "consumption" or "use" in s. 2(c) and is therefore not part of the subject matter of the deemed sale and thus not part of the sale price within the meaning of s. 2(s) of the Act. The appeal is dismissed with costs which we fix at $1,000.00. Chipman, J.A. Concurred in: Bateman, J.A. Flinn, J.A.