Deputy Minister of National Revenue v. Quebec Hydro-Electric Commission Et Al., [1968] CTC 329

JACKETT, P.:—This is an appeal from a Declaration of the Tariff Board that certain "‘transformers’’ are, within the meaning of paragraph (a) of Schedule V to the Excise Tax Act, "machinery and apparatus sold to or imported by manufacturers or producers for use by them directly in the manufacture or production of goods’’ and that, subject to certain conditions specified in the Declaration, such ‘‘transformers’’ are consequentially subject to certain lesser rates of tax’’ under that Act.

The Declaration in question was made by the Tariff Board by virtue of the powers vested in it by Section 57(1) of the Excise Tax Act, which reads:

57. (1) Where any difference arises or where any doubt exists as to whether any or what rate of tax is payable on any article under this Act and there is no previous decision upon the question by any competent tribunal binding throughout Canada, the Tariff Board constituted by the Tariff Board Act may declare what amount of tax is payable thereon or that the article is exempt from tax under this Act.

The appeal to this Court is authorized by Section 58(1) of the Excise Tax Act, which reads:

58. (1) Any of the parties to proceedings under section 57, namely,

(a) the person who applied to the Tariff Board for a declaration,

(b) the Deputy Minister of National Revenue for Customs and Excise, or

(c) any person who entered an appearance with the Secretary of the Tariff Board in accordance with subsection (2) of section 57,

may, upon leave being obtained from the Exchequer Court of Canada or a judge thereof, upon application made within thirty days from the making of the declaration sought to be appealed, or within such further time as the Court or judge may allow, appeal to the Exchequer Court upon any question that in the opinion of the Court or judge is a question of law.

Leave was granted under Section 58 by order of this Court dated January 11, 1968, to appeal upon the following question of law :

(1) Did the Tariff Board err as a matter of law in deciding that the transformers in issue are "machinery and apparatus sold to or imported by manufacturers or producers for use by them directly in the manufacture or production of goods” within the meaning of paragraph (a) of Schedule V of the Excise Tax Act?

This question of law is subject to the same comment as that made concerning the question of law dealt with in Canadian Lift Truck Co. Ltd. v. Deputy Minister of National Revenue for Customs and Excise (1956), 1 D.L.R. (2d) 497, by Kellock, J. speaking for the Supreme Court of Canada at page 498:

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 instructed, to reach the conclusion it did.

While the construction of a statutory enactment is a question of law, and the question as to whether a particular matter or thing is of such a nature or kind as to fall within the legal 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 as to the law and acting judicially, could have reached the particular determination, the Court may proceed on the assumption that a misconception of law has been responsible for the determination; Edwards v. Bairstow, [1955] 3 All E.R. 48.* [1]

There has been no attack in this appeal on the findings of fact of the Tariff Board. The appellant’s contention in this Court is, in effect, that, on the facts as found by the Tariff Board, the transformers in question do not fall within the meaning of the words used in paragraph (a) of Schedule V to the Excise Tax Act when the meaning of those words, as used in relation to the particular subject matter, has been correctly ascertained. This would therefore appear to be the sort of question of law considered by the Supreme Court of Canada in Rogers-Majestic Corporation Limited v. City of Toronto, [1943] S.C.R. 440, Vaal v. The Queen, [1960] S.C.R. 913, and Sikyea v. The Queen, [1964] S.C.R. 642.

The tax that gave rise to the application to the Tariff Board is the 9 per cent consumption or sales tax imposed by Section 30(1) of the Excise Tax Act on the "‘sale price” of all "‘goods’’ that have been inter alia ‘‘ produced or manufactured in Canada” or "imported into Canada’’. Certain exceptions to the generality of the tax imposed by Section 30(1) are created by Section 382, which reads in part:

32. (1) The tax imposed by section 30 does not apply to the sale or importation of the articles mentioned in Schedule III.

(3) There shall be imposed, levied and collected only three- ninths of the tax imposed by section 30 on the sale or importation of the articles enumerated in Schedule V, and with respect to any such articles delivered to the purchaser or imported or taken out of warehouse for consumption after March 31, 1968, the tax imposed by section 30 shall not apply.

The particular exception with which the Tariff Board Declaration appealed from is concerned is subsection (3) of Section 32, which was enacted by chapter 79 of the Statutes of 1966-67, when read with that part of Schedule V to the Excise Tax Act, which reads :

The following articles:

(a) machinery and apparatus sold to or imported by manufacturers or producers for use by them directly in the manufacture or production of goods;

Reference should also be made to paragraphs 8 and 4 of Part VI of Schedule III, which reads as follows:

3. Electricity.

4. Fuel oil for use in the generation of electricity except where the electricity so generated is used primarily in the operation of a vehicle.

Before coming to the facts, it should be noted that, while Section 30 imposes the tax in question on the sale price of "goods” in which context the word goods” would appear to be used in the common sense of merchandise or wares (which probably includes all moveable tangible property), it is common ground that the word " goods”, both in Section 30 and, what is more important from the respondent’s point of view in this case, in paragraph (a) of Schedule V, must be construed as including "‘electricity'' which, according to the Shorter Oxford English Dictionary (Third Edition), according to the view now current, is "‘a peculiar condition of the molecules of a body or of the ether surrounding them’’,* [2] even though this ‘‘peculiar condition” could hardly be regarded as falling within any sense in which the word goods” is ordinarily used in the English lan-

œuage. The reason why the parties are agreed on the view that the word " goods ‘ ‘ in these provisions must be read as including "electricity’’ is that, by virtue of Section 32(1), the tax imposed by Section 30 does not apply to the sale or importation of the

e articles” mentioned in Schedule III, and one of the "‘articles’’ mentioned in that schedule is ‘‘electricity’’ (see paragraph 3 of Part VI of Schedule III). The parties are in agreement that the reasoning in Dominion Press, Limited v. Minister of Customs and Excise, [1928] A.C. 340, is applicable to constrain one to the conclusion that the word ‘‘goods’’ in the charging section (Section 30) must be read as including all the things enumerated as "‘articles’’ in the schedule referred to in the exempting provision (Section 32(1)) and that, therefore, the same word “goods”, when used in another provision that is part of the same taxation scheme—i.e. Schedule V—must also be read as including « electricity”. As the parties to this appeal are agreed upon this view, I adopt it for the purposes of this appeal, without expressing any opinion as to its soundness. It should be noted, however, that it is the fact that electricity has none of the ordinary characteristics of the tangible moveable property that is normally referred to by the words "‘article’’ and "" goods” that vives rise to the special difficulties encountered in applying paragraph (a) of Schedule V to the problem raised by this appeal.

Having accepted the view, for the purpose of this case, that ^electricity” is ‘‘goods’’ within the meaning of that word in Section 30 and in Schedule V, it becomes necessary to reach a conclusion as to the sense in which the word "‘electricity’’ is employed in this connection. It is clear from reading the Board’s Declaration that the word "‘electricity’’ is used in the evidence given in this case in two different senses, viz.:

(a) electric energy, and

(b) electric current.

What Section 30(1) imposes a tax on is the "‘sale price’? of ""goods”. As used in that subsection, and therefore in Schedule V, ‘‘goods’’ are something that is sold. What an electric power company produces and sells is electric power in the sense of electric energy.* [3] It is, therefore, in my view, "‘electricity’’ in the sense of electric energy that is ‘‘goods’’ within Schedule V. What, therefore, is necessary, if the Declaration appealed from is correct, is that the transformers in question are machinery or apparatus sold to or imported by manufacturers or producers for use by them directly in the manufacture or production of electric energy.

I have expressed this view as to the meaning of the word ^goods’’ in the relevant portion of Schedule V at this point because, as will subsequently appear, as I appreciate the facts found by the Board, the electric energy generated in a generating plant is unchanged when it passes via a transformer from one circuit to another while the electric current in the primary circuit of a transformer is transformed by the transformer into a completely different and altered electric current in the secondary circuit. It is this change in the electric current upon which the Board, as I understand its Declaration, bases its conclusion that a transformer at the end of a transmission line is used in the production of the electric energy that is sold. It is important to the appreciation of the balance of these reasons to keep it in mind that they are based upon the view that I have expressed that the ‘‘electricity’’ that falls within the word ‘‘goods’’ is electric energy and upon my appraisal of the Board’s findings of fact that electric energy is not changed by a transformer.

IT turn now to the facts as found by the Tariff Board.

As I appreciate the Tariff Board’s Declaration, the findings of fact are contained in the following portion thereof:

The applicant’s principal business is the manufacture or production and the sale of electricity to municipalities, industries and individuals. The electricity sold to the customers is measured, by an appropriate meter, in kilowatt hours; for lighting and ordinary appliances, the electricity is generally sold to customers at 120-240 volts, though many customers, particularly municipalities and industries, may purchase electricity at considerably higher voltages.

The evidence reveals that, at its generating stations, the applicant produces electricity from a source of energy that is not electricity, for example water power or thermal energy; the electrical power generated at these stations is usually generated at a voltage considerably higher than that used by the applicant’s household customers and lower than that used by some of its other customers ; for purposes of transmission over distances, the voltage of the electric power delivered by the generator is almost invariably transformed to a much higher voltage; at this very high voltage electric power is generally not of use to the great majority of the applicant’s customers; consequently, it is usually transformed to a lower voltage, frequently at one or more substations, and, in any event, at some point in the system in the proximity of the consuming customer, to the voltage normally purchased by him. Though this is the pattern for the greatest number of consumers, there are certain customers who require high voltages; for their purposes the electricity may be transformed to higher instead of lower voltages or, in very exceptional cases, there could be direct transmission from a generating station to such customers without any transformation.

The transformation of voltage, upwards or downwards, is performed by a device known as a transformer. Exhibit R-4, filed by the respondent, is a publication of the American Institute of Electrical Engineers, approved by the American Standards Association, entitled "Definitions of Electrical Terms, Group 15, Transformers, Regulators, Reactors and Rectifiers”; paragraph 15.00.100, on page 6 of Exhibit R-4, defines a transformer as "an electric device, without continuously moving parts, which by electromagnetic induction transfers electric energy from one or more circuits to one or more other circuits at the same frequency, usually with changed values of voltage and current”. The Quillet Encyclopédie Pratique de Mécanique et d’Electricité, published in 1956, in Volume 1, at page 1291, defines a transformer as an ‘appareil statique a induction destiné à transformer un système de courants alternatifs en un autre système de courants alternatifs d’intensité et de tension généralement différentes.” According to the Larousse du XX Siècle dictionary “intensité” is measured in amperes (Vol. 4, p. 86, vo. intensité) and “tension” is measured in volts (Vol. 6, p. 640, vo. tension).

Essentially, the transformer consists of a core of ferric metal around which are wound two coils of wire, electrically insulated from the core and from each other, known as the primary coil and the secondary coil. The primary coil or winding is connected to a source of alternating current; in this instance the source is either the applicant’s generator or its transmission line. The secondary coil or winding is connected to the secondary circuit; in this instance, for simplicity of example, the secondary circuit is taken to be the circuit that conducts the alternating current delivered to and used by the applicant’s customer.

Even when the customer is not using power, a negligible alternating current flows through the primary circuit sufficient to develop a magnetic flux within the ferric core; this magnetic flux, in turn, induces a voltage at the terminals of the secondary coil. When the secondary circuit is closed and power is being used to perform work for the applicant’s customers, an induced alternating current flows in the secondary circuit and secondary coil.

The current in the primary coil consists of a flow of electrons in the primary circuit of which the primary coil is part; the current in the secondary coil consists of a flow of electrons in the secondary circuit of which the secondary coil is part; because the wires conducting each current are insulated, no flow of electrons, and therefore no current, is conducted between the primary circuit and the secondary circuit nor between either circuit and the core of the transformer.

Except for negligible inefficiencies in the transformer, certain relationships exist between the magnitudes of the electrical characteristics of the two circuits. The frequency or cycle of alternation is the same in both circuits; the number of watts, which measures the amount of electrical energy actually being used in the secondary circuit, is equal to the number of watts being expended in the primary circuit. However two important differences do exist, one in the number of volts and one in the number of amperes; the volt is the unit of pressure or of electromotive force and the ampere is the unit of current flow; the number of watts, or units of energy consumed, is the product of the number of volts and the number of amperes; thus, because the number of watts remains unchanged, any change in the number of volts or of amperes involves a corresponding change in the other. In the transformer, the ratio of the number of volts induced in the secondary coil to the number of volts in the primary coil is equal to the ratio of the number of turns of wire in the secondary coil to the number of turns of wire on the primary coil; similarly, the ratio of the number of amperes in the secondary circuit to the number of amperes in the primary circuit is the reciprocal of this same ratio of the number of turns of wire on the two coils.

Consequently, when power is being used, though the number of watts of power or energy expended in the secondary circuit is equal to the number of watts expended in the primary circuit, nevertheless the number of volts and the number of amperes in the two circuits are different. In other words, the transformer changes the voltage and the amperage.

It is clear from the evidence that without transformations of voltage at one or more appropriate places, the electric energy produced by the applicant at its generating stations would seldom be a product usable by its customers or saleable to them.

In the view of the witness Haber! and the witness Wildi, both experts in the field, the operation of transformation results in the production or generation of electricity in the secondary coil of the transformer; in Haberl’s opinion electricity is produced by a generator from a source of energy that is not electrical and is equally produced by a transformer through a source of energy that is electrical, namely, the primary current in the first coil of the transformer and, in both cases, the electricity is produced by the same method: electromagnetic induction. This opinion was confirmed by the witness Wildi. The witnesses did not view the action of the transformer as the mere transmission of existing electricity in a modified form but rather as the production of new electricity in a different form.

The respondent filed as Exhibit R-3, a publication of the American Institute of Electrical Engineers, approved by the American Standards Association, entitled "Definitions of Electrical Terms, Group 35, Generation, Transmission and Distribution" ; both the oral evidence and paragraph 35.10.065, on page 5 of Exhibit R-3, establish that a "generating station” produces electricity from some other form of energy. This production of electricity at a generating station, as in the transformer, is done by electromagnetic induction initiated by a form of energy which is not electrical as it is in the transformer.

Both the witnesses Haberl and Wildi were called by the appellant. The witness Kidd was called by the respondent. All three were men learned in the technical aspects of this appeal. Though their evidence was largely consistent, there were nevertheless certain differences in extent, stress or interpretation of fact or theory.

Kidd rather considered the transformers to be links in the T and D (transmission and distribution) system. He expressed the following opinions:

At page 240 of the transcript:

A. Well, in the commercial sense, in the sense in which these words are usually recognized in the electrical utility business, I cannot agree that electrical energy is produced in a transformer. The common concept is that electrical energy is produced from other sources of energy in a generating station and that a transformer does no more than transfer electrical energy, unchanged in value, from one circuit to another, its principal objective being concerned with the changing of voltage or pressure, but not in any way modifying the amount of electrical energy which goes through it, other than a certain amount of inevitable loss of energy in the device, which is very small.

At page 257 :

A. Yes. Well, as I have indicated previously, it is my view and my belief that it is the common concept in the electrical utility business that electrical energy is produced in a generating plant and that electrical energy, when it leaves the generating plant, is in that form and is not further added to or supplemented from that point forward.

At page 283 :

Q. Now, a little further on, my friend referred you to some of the evidence which we heard yesterday, and specifically he referred to an answer or a statement, which one of the witnesses made yesterday, to the effect that electricity is produced in a transformer, and he asked you to comment on that statement. You said, according to my notes, "I cannot agree that electrical energy is produced in a transformer.”

Now, I put it to you that none of the witnesses who were here yesterday, who gave testimony, said that electrical energy is produced in a transformer. I put it to you that what they said was that electricity, in the sense of an electric current, was produced, or if you like induced, in the secondary winding of a transformer.

A. U-huh.

Q. Now, taking that statement in that form, would you agree?

A. Yes, I would.

From the evidence it appears that the current in the primary coil of a transformer is electrically insulated from the core of the transformer and from the secondary winding of the transformer. By electromagnetic induction, initiated by the electrical energy of the primary alternating current, a new and separate alternating current is produced in the secondary winding of a transformer. The current in the secondary circuit usually differs, not in the number of watts or of cycles, but in the number of volts and of amperes. However the operation of a transformer is no mere transmission in the sense of causing the primary current to pass, go or be conveyed or conducted from the primary circuit of the secondary circuit.

These findings may, I think, for present purposes be summarized as follows:

(1) The respondent produces electricity, in the sense of electric energy, from a source of energy that is not electricity (for example, water power or thermal energy) at its generating stations.

(2) The electric energy generated at generating stations is usually generated "at a voltage” considerably higher than that used by household customers and lower than that used by some other customers.

(3) For purposes of transmission over distances, the "‘volt- age’’ of the electric energy delivered by the generator is almost invariably transformed to a much higher voltage at which voltage it is generally not of use to the great majority of customers.

(4) The electric energy, after being transmitted, is usually transformed at some point or points in the system in the proximity of the consuming customer, to a ""voltage” required by the customer, which may be higher or lower than that at which it was transmitted.

(5) The transformation of voltage is performed by a device known as a transformer, which has been described as a device, without continuously moving parts, which by electromagnetic induction transfers electric " " energy ‘ ‘ from one circuit to another, usually with changed values of voltage and current, and has also been described as an apparatus intended to transform one system of alternating currents into another system of alternating currents generally of different "‘intensité’’ and "‘tension’’.

(6) The transformer consists of a core of ferric metal around which are wound two coils of wire, electrically insulated from the core and from each other, known as the primary coil and the secondary coil. The primary coil is connected to a source of alternating current (a generator or a transmission line). The secondary coil is connected to the secondary circuit (e.g. the circuit that conducts the alternating current to a customer).

(7) The current in the primary coil consists of a flow of electrons in the primary circuit of which the primary coil is part, and the current in the secondary coil consists of a flow of electrons in the secondary circuit of which the secondary coil is part. Because the wires conducting each current are insulated, no flow of electrons, and therefore no current, is conducted between the primary circuit and the secondary circuit, nor between either circuit and the core.

(8) The amount of electric energy (which is measured in watts”) actually being used in the secondary circuit is approxi- mately equal to that expended in the primary circuit, but the number of volts (which is the unit of pressure or of electromotive force) and number of amperes (which is the unit of current flow) are different—these varying with the number of turns of wire in the respective coils.

(9) Without the transformation of voltage, the electric energy produced by the respondent at its generating stations would seldom be usable by its customers or saleable to them.

In addition, it seems to me to be implicit in the Board’s findings, although not clearly expressed as findings of fact, that the Board had concluded

(a) that it was the electric energy generated in the respondent’s generators that ultimately reached its customers, and

(b) that a transformer produces a new and different electric current and, in that sense, new and different electricity, but does not produce new or different electric energy ;

and I think that it is a necessary inference from the Board’s findings that the same electric energy is conveyed by one or more electric currents of different voltages from one place to another. This seems to me to be clear from the fact that the last piece of evidence quoted by the Board (supra) before completing its findings of fact was a concession wrung from the appellant’s expert witness on cross-examination by counsel for the respondent, who obtained the witness’s agreement to the following question :

Now, I put it to you that none of the witnesses who were here yesterday, who gave testimony, said that electrical energy is produced in a transformer. I put it to you that what they said was that electricity, in the sense of an electric current, was produced, or if they like induced, in the secondary winding of a transformer.

The appellant’s witness, so cross-examined, said that he would agree with "‘that statement in that form’’, and the Board quoted that part of his evidence immediately before completing their findings of fact by a passage that indicates, as it seems to me, that they accept the statement so proposed by counsel for the respondent and accepted by the expert witness for the appellant. It follows, as it seems to me, that, if electric energy is not produced in the transformer, the electric energy that reaches the consumer must have been produced in the generating plant and must have been conveyed by means of various electric currents from that plant to its place of user. It also follows, as it seems to me, that, when the findings speak of power or energy of a particular “voltage”, the reference is to power or energy that is being transmitted by an electric current of that “voltage”.

The respondent’s (applicant’s) position before the Tariff Board is summarized in the Board’s Declaration as follows:

The applicant's position is that the electricity, either in the form produced at its generating stations or in the form existing in its long distance transmission lines, is not generally suitable for sale or consumption and that it is not in fact generally sold or consumed; rather, the applicant urged, the electricity which is sold by it and used by the customer is the electricity which is induced in the secondary winding of its transformers in proximity to its customer and delivered from there to the customer; thus, it further urged, the usable electricity sold and delivered is produced by such transformers and the transformers are, therefore, ‘‘used . . . directly in the manufacture or production of goods”.

The position of the appellant (respondent) before the Board at that time is summarized in the Board’s Declaration as follows:

The respondent’s position is that the electricity sold and delivered by the applicant is manufactured or produced, within the meaning of “manufacture and production of goods” as used in paragraph (a) of Schedule V of the Excise Tax Act, only at the applicant’s generating station and not by the transformers in proximity to the applicant’s customer or at intermediate substations; he urged that such transformers are used in the transmission or distribution of electricity and to increase or decrease the voltage of the electricity but not to manufacture or produce it; thus, he further urged that it was not the intention of Parliament to lessen the taxation on machinery and apparatus used in the distribution of goods or in such a modification or transformation of the electricity manufactured or produced at the generating station. In his brief, the respondent argued that all transformers, except those installed at the generating station in close proximity to and for use in conjunction with the generating equipment, serve rather in the transmission and distribution of power than in its manufacture or production.

The problem that I find most difficult in deciding this appeal is that of determining whether the process, to which I shall refer at a later point in these reasons, whereby the Board reached its conclusion, involves certain findings of fact in addition to those that I have already summarized. If it does involve such additional findings of fact, such findings are binding on this Court. If, on the other hand, all that the Board is doing by such process of reasoning, is applying its understanding of the statute (considered in the light of its application by the courts to other sets of facts) to the basic facts that I have already summarized, it is this Court’s duty to decide whether the Board’s reasoning in so doing was valid, and, if it concludes that it was not, to substitute its own view of the proper application of the statute to the basic facts as found by the Board.

That being so, it seems appropriate for me to put in my own words the problem facing the Board, as I understand it, on the facts as found by the Board. On the one hand the respondent produces electricity, electric energy or electric power (which terms I am using as more or less interchangeable and without definition) by generating it at its generating plants by the use of other kinds of energy or power. This electric energy is transmitted from the generating plant through a transmission line by means of an electric current at a voltage value at which it could not be delivered to the customer. The electric energy is transferred from the transmission line for delivery to the customer by a ‘‘transformer’’ that does not transfer the electric current from the transmission line to the distributor line, but induces a new electric current at a different voltage value that is acceptable to the customer. If what the respondent is doing is producing electric energy and selling that electric energy to its customers, and the various transformations in current that take place are merely changes that are incidental to transmission or to varying uses and that do not change the nature of the electric energy that is being sold, then the transformer has no part in the manufacture or production of what is sold. If, on the other hand, what the respondent is selling is electric current of defined specifications, and if the transformation from a current at one voltage to a current at another voltage is the creation of something that is, from a commercial point of view, something new, then the transformer has played a part in the manufacture or production of that which the respondent sold.

The Board dealt with this problem in the following parts of its Declarati :

The definitions of transformer quoted earlier—that from Exhibit R-4 and that from Quillet—appear to differ in one respect. In the definition from Exhibit R-4, the transformer transfers electric energy from one circuit to another at the same frequency but with changed values of voltage and current; the stress appears to be on the mere transfer of electric energy from one circuit to another, where the energy—measured in watts—is unchanged but the current—measured in amperes—and the voltage are changed. In the Quillet definition the transformer transforms an alternating current system to another alternating current system of generally different current and voltage; the stress is not on mere transfer but rather on the change in form, the metamorphosis or in the words used by the Shorter Oxford Dictionary to define “transformation”: “Change of a current into one of different potential, or different type, or both, as by a transformer.”

The Board, faced with the stress in the definition of transformers in Exhibit R-4 on the one hand and the stress given by both Quillet and the Shorter Oxford Dictionary on the other, goes beyond the concept of mere transfer and accepts that of production. Because this production is done in the transformers and by the transformers, they are apparatus sold to or imported by the applicant for use by it directly in the manufacture or production or goods.

It is clear from the evidence that this change of the electrical energy from an unusable form to a usable form is effected in and by the applicant’s transformers. Prior to being changed in the transformers, the “goods”—the electricity—are not generally suitable for sale, use or consumption; it therefore appears to be an ineluctable conclusion that this process of transformation is a process of manufacture or production and that the apparatus used in the process—the transformers—is consequently used directly in the manufacture or production of the electricity, a product which is included within the meaning of “goods” in the Act.

The electrical energy produced by the applicant is not a commodity which is ordinarily used by or sold to its customer until it has been transformed; it exists, prior to such transformation, in a form which is not generally marketable because it is unsuited for the use of most customers. The action of transformers such as the applicant’s, whether or not it produces an electricity new and separate from that in the primary circuit, has been held to be a productive or manufactory action in both the case of City of Louisville v. Howard and the case of Curry v. Alabama Power cited above.

Because it is the transformation in issue that turns the electrical energy into a form that can be used by the customer, this transformation must be considered to be part of the manufacture and production of electricity. Because the transformation of voltage is done exclusively in the transformers and by the transformers, they are apparatus sold to or imported by the applicant for use by it directly in the manufacture or production of goods.

In the Board’s view, as I understand it, the transfer of electric energy from an electric current at one voltage to an electric current at another voltage is the change of the electrical energy from an ‘‘unusable form’? to a ‘‘usable form’’. If that is a finding of fact based on the evidence before the Board, in my view, I am bound by that finding. Even if it is a finding of fact, however, I must, nevertheless, consider whether it is a finding that leads one to a conclusion that the ‘‘change’’ in “form” is “manufacture or production’’ of electric energy within the meaning of the words ‘‘manufacture or production’’ as interpreted by previous decisions.

If I were to decide the case on my understanding of the Board’s basic findings of fact and apart from the conclusion of the Board to which I have just referred, I should have concluded that what the respondent produced and sold was electric energy, and that the electric current was the means of transmitting such energy but not the thing sold. As I understand the Board’s basic findings of fact on the evidence, electric energy may be transferred quite freely from one electric current to another with a different voltage value (by the use of a transformer) and the electric energy that is finally sold, as long as it remains in course of transmission to the point where it is ultimately converted into some other manifestation such as light, heat or work, is, both before and after it is sold, capable of being transported by currents of either higher or lower voltage values and, from that point of view, can never be said to have been put into an ultimate state of ‘‘manufacture’’ or a final “form”. It is a matter of convenience, having regard to what is being done with electric energy (transmission or ultimate use) as to whether it is conveyed by means of an electric current at one voltage value or another. I do not understand the Board to have held that a transformer effects any change in the electric energy, which, on their findings, as it seems to me, is the thing sold (apart from a certain wastage by reason of the inefficiencies of transmission ).

To put it another way, repeating in substance what I said at an earlier stage of these reasons, as I understand the Board’s basic finding of facts, what is ‘‘sold’’ is the electric power or electric energy, and not electric current, which is the means by which the electric energy or power is transmitted. If that is right, the word ‘‘electricity’’ in Schedule III to the Excise Tax Act means the electric energy or power (because clearly Sections 30 and 32 are dealing with that which is ‘‘sold’’) and does not mean the electric current which is merely the means of transmission. When, therefore, a transformer changes the character of electricity in the sense of electric current, but does not change the character of the electric power or energy that is transferred by means of it, it does not change the character of “goods” within the meaning of Schedule V, paragraph (a), and is not, therefore, ‘‘for use . . . in the manufacture or production of goods”.

My next problem is to consider whether the conclusion reached by the Board on this question (as to there being a change in the form of the electricity) is a finding of fact or an application of the statutory provision to the basic facts as they found them before reaching this conclusion.

I have reached the conclusion that the part of the Declaration where the Board reached the conclusion that there was a change in the ‘‘form’’ of the ‘‘electricity’’ does not constitute a finding of fact based on the evidence given before the Board.

After the Board had, by the portion of the Declaration that I have quoted at length, set out in detail what were clearly its findings on the evidence, the Board turned to an examination of decisions of other courts on similar questions arising under other statutes, and quoted at length from such decisions. It also referred to two United States decisions that ‘‘reached opposite conclusions’’ and stated that it was ‘‘not adopting the majority opinions expressed in these two cases’’. In addition, it expressly gave reasons why it felt justified in adopting ‘‘the same reasoning” as was used by the Tax Appeal Board in an income tax appeal. This review of legal authorities preceding the portion of the Declaration where the Board dealt with the nub of the problem indicates, as it seems to me, that the Board did not regard it as something that could be solved by a finding on the evidence adduced before it.

The Board then attacked the problem by contrasting a definition of a transformer that described a transformer as something that ‘‘transfers electric energy’’ from one circuit to another with changed values of voltage, commenting that the stress there appeared ‘‘to be on the mere transfer of electric energy from one circuit to another where the energy—measured in watts—is unchanged, but the current—measured in amperes—and the voltage are changed’’ (the italics are mine), with a definition that says that the transformer “transforms an alternating current system’’, commenting that the stress was there not on mere transfer but rather on change of form, and with a definition of “transformation” as ‘‘Change of current into one of different potential, or different type, or both, . . .” The Board then said that it, faced with these two different stresses, ‘ goes beyond the mere concept of transfer and accepts that of production’’. Here it is clear that the conclusion that there was ‘‘production’’ rather than mere ‘‘transfer’’ was based on two definitions (Quillet and Shorter Oxford), both of which spoke of transforming or changing a ‘‘current system” or a ‘‘current’’ into another current system or current. There was no reference in such definitions to a transformation of electricity in the sense of electric energy, which clearly on the evidence adopted by the Board passes unchanged from one circuit to the other. Nevertheless, and this is where I find it difficult to follow the Board’s reasoning, after a reference to a submission by counsel for the respondent, the Declaration proceeds with the statement that ‘‘It is clear from the evidence that this change of the electrical energy from an unusable form to a usable form is effected in and by the applicant’s transformers’’. It is certainly clear from the evidence that ‘‘this change’’ from one electric current to one of a different character is effected in and by the applicant’s transformers. What the Board has done at this point and in the remainder of its reasoning on this question is, as it appears to me, to identify the electric energy and the electric current as being one and the same thing. If that were the correct view of the matter, I would have no difficulty in accepting the Board’s conclusion. However, in view of the Board’s acceptance of the evidence that the electric energy is transferred from one circuit to another unchanged while a completely new electric current of different character is produced in the transformer, I have difficulty in accepting the Board’s language in the concluding part of its judgment where it speaks of ‘‘electrical energy’’ being a “commodity” that is not ordinarily used until it has been ‘‘transformed’’, having existed prior to ‘‘transformation’’ in a ‘‘form which is not generally marketable”, and finally concludes:

Because it is the transformation in issue that turns the electrical energy into a form that can be used by the customer, this transformation must be considered to be part of the manufacture and production of electricity. Because the transformation of voltage is done exclusively in the transformers and by the transformers, they are apparatus sold to or imported by the applicant for use by it directly in the manufacture or production of goods.

This conclusion, that the transformation turns the ‘‘electrical energy into a form’’ different from what it was, is, as it seems to me, incompatable with the case put forward by the respondent and accepted by the Board that it was the electric current and not the electric energy that was changed in character by the transformer. If, as it seems to me, the electric energy, which is the thing sold, was not, according to the Board’s findings of fact, manufactured or produced by the transformer in question, it follows that the transformer was not used in the manufacture or production of ‘‘goods’’ within the meaning of the exempting provision in question.

However, even if I accept it that the Board’s conclusion that what happens when a transformer is used to change the voltage at which energy is being transmitted is to change the electrical energy “from an unusable form to a usable form” is a finding of fact that I must accept, I am of opinion that what happens when a transformer is so used is not manufacture or production of electric energy within the meaning of those words as reflected in the decisions to which the Board refers.

The decisions to which the Board refers in that connection are The King v. Vandeweghe Ltd., [1934] S.C.R. 244; [1928-34] C.T.C. 257; Biltrite Tire Co. v. The King, [1937] S.C.R. 364: [1935-37] C.T.C. 306; The King v. Plotkins, [1939] Ex. C.R. 1; [1938-39] C.T.C. 138; M.N.R. v. Dominion Shuttle Co. Ltd. (1934), 72 Que. S.C. 15; Gruen Watch Co. Ltd. v. Attorney General of Canada, [1950] C.T.C. 440; Hiram Walker v. Corp. of Town of Walkerville, [1933] S.C.R. 247 ; City of London v. John Labatt Ltd., [1953] O.R. 800; Greenmelk Co. Ltd. v. Township of Chatham, [1955] O.W.N. 757; Dominion Distillery Products Ltd. v. The King, [1928] Ex. C.R. 170; [1935-37] C.T.C. 364; Admiral Steel Products Ltd. v. M.N.R., 40 Tax A.B.C. 322. In all those cases the process concerning which a question was raised as to whether it was manufacture or production was a process that created something that, from a commercial point of view, was not previously in existence. In some cases, something ready to be used for a certain purpose—e.g. usable tires, or cross arms—had been created from something that could not be used for that purpose—e.g. worn-out tires or raw material that could have been put to any one of many different uses, such as sawn lumber. In other cases, one step further had been taken in the sequences of steps of a manufacturing or productive character whereby raw materials are gradually advanced from being in a state of nature to being incorporated or transformed into some economically desirable object—e.g., by the dressing and dyeing of furs or by the slitting, flattening, shearing and edging of strip steel. In all these cases, a definitive change has been made in the character of the material or materials that went into the process. In all these cases, whether or not it is physically possible to reconvert the product of the process to the materials that went into the process, there is no intention ever to make such a reconversion because the whole object of the process was to create something that was commercially new and usable either as completely or partially manufactured goods.

Turning to electric energy and what happens to it when it becomes available in a current of one voltage instead of another voltage, the most significant thing is that, whatever the real nature of the change that is effected (and I frankly admit my lack of any real grasp of the nature of that change), the product of the process can quite readily be changed back to the thing with which the process started by the use of another and somewhat different transformer. As I understand the Board’s findings of fact, it is inherent in the very nature of electric energy that it can quite readily be changed from one voltage to another, and is in fact changed from one voltage to another, in the generating plant, during the course of transmission, and, indeed, very frequently, by a purchaser after he has taken delivery of it. In other words, if I correctly appraise the Board’s findings, a change in voltage is not a change in the character of electrical energy but is merely a manifestation of one of its inherent characteristics. Just as a plastic material is not changed in character when it is shaped to fit containers for the purpose of shipment, so electric power is not, from a commercial point of view, something different in character when its voltage is raised for transmission or, indeed, when its voltage is varied again so that it will be receivable by a particular customer’s facilities.

In the decision of the Supreme Court of Canada in The Queen v. York Marble, Tile and Terrazzo Ltd., [1968] C.T.C. 44, which has been handed down since the Board delivered its Declaration in this case, Spence, J., delivering the judgment of the Court, adopted, for the purposes of that case, a definition cited in an earlier decision, i.e., that ‘‘manufacture is the production of articles for use from raw or prepared material by giving to these materials new forms, qualities and properties or combinations whether by hand or machinery’’. Recognizing the difficulty of adapting this definition for application to a process applied to something the nature of which is as difficult to grasp as is the idea of electric energy, nevertheless, it does seem to me that electric energy that is, for the moment, by reason of having passed through a transformer, being conducted at one voltage instead of at another, but which, by reason of its inherent nature, can be readily changed to any other voltage, has not been given any new form, quality or property from a commercial point of view.

I feel more confident as to the correctness of my conclusion that what happens when electric energy passes from one current to another through a transformer is not ‘‘manufacture or production of goods’’ within the meaning of those words in Schedule V when I consider what the incidence of the consumption or sale tax would be on the interpretation of Sections 30(1) and 31(1) (d) of the Excise Tax Act that would flow from the view adopted by the Board. (I make this test as though there were no exemption for electricity because the concepts of manufacture and production in Sections 30 and 31, and in Schedule V, must be the same whether or not electricity 1s, for the moment, exempt.) Whenever ‘‘goods’’ are ‘‘manufactured’’ or “produced”, the consumption or sales tax is payable whether or not they are sold (Section 30(1)) or are ‘‘for use by the manufacturer or producer and not for sale’’ (Section 31(1) (d)). This dual nature of the tax is set out clearly in The Queen v. York Marble, Tile & Terrazzo Ltd. (supra), per Spence, J. as follows:

It should be noted that the Excise Tax Act in Section 30 imposes not only a sales tax but a consumption tax and that * ‘tion 31(1) (d) of the said Excise Tax Act makes specific provis ‘n for goods which although manufactured or produced in Canada were for use by the manufacturer or producer and not for sale. This Court in The King v. Fraser Companies Ltd., [1931] S.C.R. 490, held that a corporation which produced lumber and used the same in the performance of a building contract was liable for the tax and again, in The King v. Dominion Bridge Co. Ltd., [1940] S.C.R. 487, held that a company which produced steel members in order to fabricate them in the superstructure of a bridge was liable to the tax.

Applying the Board’s conclusion that passing electric energy through a transformer is ‘‘a process of manufacture or production” of goods within the meaning of these statutory provisions would mean that, if there were no exempting provision, a separate tax would become payable whenever the voltage had to be changed by the purchaser of the power. I find it impossible to believe that the words manufacture and production were used in a sense that would have any such result. On any view as to the meaning of the words used in the statute that would occur to any ordinary person concerned with such matters, changing the voltage of electricity is not the manufacture or production of new electric energy, but merely a normal step in the utilization of electricity having regard to its inherent nature.

I am, therefore, of the view that the appeal should be allowed with costs and that a ‘‘formal Declaration’’ should be substituted to accord with the views that I have expressed for that contained in the penultimate paragraphs of the Board’s Declaration. I shall hear the parties on the form that the Declaration should take, and on the question of costs, when the appellant moves for .judgment.