Nova Scotia (Finance) v. Casey Concrete Ltd.

Nova Scotia (Finance) v. Casey Concrete Ltd. Court Court of Appeal Date 1995-02-07 Citation 1995 NSCA 35 Docket CA 109890 Judge/Registrar/Adjudicator Chipman, David (Honourable Justice); Pugsley, Ronald N. (Honourable Justice); Roscoe, Elizabeth A. (Honourable Justice) (CA) Document Type Decision Decision Content C.A. No. 109890 NOVA SCOTIA COURT OF APPEAL Chipman, Roscoe and Pugsley, JJ.A. Cite as: Nova Scotia (Finance) v. Casey Concrete Ltd., 1995 NSCA 35 BETWEEN: ) ) MINISTER OF FINANCE ) John D. Wood ) for the Appellant Appellant ) ) - and - ) ) CASEY CONCRETE LIMITED ) John Green and ) Albert Gibson Respondent ) for the Respondent ) ) ) ) ) Appeal Heard: ) February 3, 1995 ) ) ) Judgment Delivered: ) February 7, 1995 THE COURT: The appeal is dismissed and the respondent shall have its costs of the appeal fixed at $200.00 including disbursements. ROSCOE, J.A.: This is an appeal from a decision of the Nova Scotia Utility and Review Board which allowed an appeal from the Provincial Tax Commissioner regarding the respondent's assessments pursuant to the Health Services Tax Act, R.S.N.S. 1989, c. 198. The issue is whether materials used by the respondent to build a kiln for curing concrete blocks are subject to sales tax. The kiln is a building 65 feet by 30 feet attached to the respondent's plant. It is constructed of concrete blocks, has a flat pre-cast, hollow-core concrete roof and is insulated with spun glass rigid insulation which is attached to the walls and roof with silicone caulking. The kiln is divided into four chambers. During the manufacture of concrete building blocks, a forklift is used to move racks of blocks into one of the kiln's chambers, hot steam is piped in from a boiler in another part of the plant which heats the chamber to 200 degrees Fahrenheit for twenty-four hours. The blocks are removed after they have dried. The Provincial Tax Commissioner allowed an exemption for the insulation, the silicone and the piping apparatus, but assessed sales tax on the blocks, the roof materials and a shim pack used in the construction of the kiln. In supporting documents with the Commissioner's decision the reason for the difference in treatment is explained as follows: "We agree with the vendor that the kiln operation is a manufacturing process. However, the walls and roof are a structural part of the building and not manufacturing equipment as per Sec. 12 (1) (n). Material used to convert this structure into a kiln such as extra insulation and special insulated doors have been exempted. The silicone used to install the extra insulation would thus be tax exempt. The roof trusses, shim pack for the roof and blocks for the walls form part of the structure of the building and are not tax exempt under Sec. 12(1) (n)." On appeal of the Commissioner's decision to the Utility and Review Board, the Board allowed the appeal by concluding: "The term "machinery and apparatus and parts thereof" is not defined in the Health Services Tax Act. While a building which houses machinery is clearly not "machinery and apparatus and parts thereof", it is not clear that a building could not be "machinery and apparatus and parts thereof". The exemptions under s. 12 of the Act are for classes of tangible personal property. The Provincial Tax Commission has determined that the extra insulation and the silicone used to install the insulation are "parts" of machinery and are exempt. The building materials which have been held not to be exempt are the framework to which the insulation is affixed. To use the oven analogy the inside coating on a self cleaning oven would be exempt but the outside walls, top and bottom would not be. The argument that these building materials are taxable and not subject to the exemption is based on the assumption that a building cannot be machinery. The evidence before the Board is that in the case of a kiln, a building is machinery. This kiln can be distinguished from a building which houses machinery and equipment. There is no separate machine housed within the kiln, it is one and the same. The kiln cannot perform its function as an oven without the entire structure. The Board determines that tangible personal property used to construct the kiln is exempt from tax under s. 12(1) (n) of the Act." The relevant sections of the Health Services Tax Act are as follows: Section 2: "In this Act . . . (e) 'manufacture or production' means the transformation or conversion of raw or prepared material into a different state or form from that in which it originally existed as raw or prepared material but does not include production or processing; . . . (t) "tangible personal property" (i) means personal property that can be seen, weighed, measured, felt or touched or that is in any way perceptible to the senses, . . . Section 12(1): "The following classes of tangible personal property are specifically exempted from the provisions of this Act: . . . (n) subject to the regulations, machinery and apparatus and parts thereof which are to be used or which are used in the manufacture or production of goods for sale;" The appellant argues that the Board erred in deciding that the building is exempt as machinery, essentially because the building is a fixture and as real property cannot be tangible personal property for which the manufacturing exemption is allowed. Reference is made to Construction Aggregates Limited v. Nova Scotia (Minister of Finance) (1990), 98 N.S.R. (2d) 49 (T.D.) ; 104 N.S.R. (2d) 89 (C.A.) where factors to consider when determining if something is a fixture were listed. In the Construction Aggregates case, the issue that gave rise to the discussion of fixtures, was whether on the sale of a business, certain assets, such as a shiploader, were subject to sales tax as tangible personal property. The fixture issue was not related to a question of whether the manufacturing exemption applied. The exemption granted in s. 12(1)(n) is for tangible personal property used or to be used in manufacturing. The time at which the building materials in dispute were subject to the tax, if at all, was at the time they were purchased by the respondent. (See I.M.P. Group Ltd. v. Nova Scotia (Minister of Finance) (1992), 117 N.S.R. (2d) 182.) At that point, they were tangible personal property, although later were attached to the realty in such a manner and in such a configuration so as to become real property. At the time of purchase the building materials were parts of "something" to be used in the manufacture of goods for sale. Does the fact that the "something" is constructed in such a way so as to become a permanent structure attached to the realty preclude it from this the exemption? Is the "something" machinery? There is no question that a manufacturing process takes place within the kiln. There is no machinery within the structure, it is the structure itself and the chemical process which takes place therein which completes the production of the blocks. Does the property subject to the tax have to continue to be personal property in order to be exempted? I think not. If the respondent had constructed smaller, portable kilns from the materials subject to this dispute, there is no question they would be exempt. The fact that the kiln is so large that it is called a building should not, in the absence of words in the statute to specifically prevent it, preclude the operation of the exemption. The walls and roof of the kiln are no less parts of the machinery than the insulation and pipes. In my view the Board did not err in law in concluding that the kiln is machinery and I would accordingly dismiss the first ground of appeal. The second ground of appeal is in respect to the Board's ruling regarding the penalty and interest charges. In accordance with the decision of this Court in Minister of Finance v. Joint Truss Limited, dated October 18, 1994, unreported, that portion of the Board's decision is set aside. The respondent, which not represented by counsel, shall have its costs of the appeal fixed in the amount of $200.00 including disbursements. Roscoe, J.A. Concurred in: Chipman, J.A. Pugsley, J.A.