



COURT 
    OF APPEAL FOR BRITISH COLUBIA




Citation:


Teck 
          Cominco Metals Ltd. v. British Columbia (Minister of Revenue),







2009 
          BCCA 3



Date: 20090109





Docket: CA036490

Between:

Teck 
    Cominco Metals Ltd.

Respondent

(
Petitioner
)

And

Her 
    Majesty the Queen in Right of

The 
    Province of British Columbia

Appellant

(
Respondent
)










Before:


The 
          Honourable Mr. Justice Frankel




(In 
          Chambers)








A.H. 
          Dalmyn


Counsel for the Appellant




K.L. 
          Cook


Counsel for the Respondent




Place 
          and Date of Hearing:


Vancouver, British Columbia




December 10, 2008




Place 
          and Date of Judgment:


Vancouver, British Columbia




January 9, 2009



Reasons 
    for Judgment of the Honourable Mr. Justice Frankel:

Introduction

[1]

The Crown is applying for leave to appeal the decision of Madam Justice 
    Satanove of the Supreme Court of British Columbia, holding that a replacement 
    conveyor belt, purchased for a conveyor system at a mine operated by a partnership 
    in which Teck Cominco Metals Ltd. has an interest, is not subject to provincial 
    sales tax under the
Social Services Tax Act
, R.S.B.C. 1996, c. 431.  
    The Crowns position is that the chambers judge, in interpreting the applicable 
    tax exemption, adopted too broad a definition of the word parts.

[2]

For the reasons that follow, I have concluded that there is no prospect 
    of this appeal succeeding.  Accordingly, leave to appeal is refused.

Factual Background

[3]

Highland Valley Copper Partnership operates a mining and milling business 
    for the production of copper and molybdenum concentrates, in Logan Lake, British 
    Columbia.  The mining operation uses a number of conveyor-belt systems.

[4]

In August 2000, Highland Valley Copper ordered a new conveyor belt 
    for Conveyor #2-2, from B.C. Belt Ltd., in Delta, British Columbia.  That 
    belt was ordered to fit the exact specifications of Conveyor #2-2; it was 
    3,268 feet long, five feet wide, and weighed 90,000 pounds.  Because 
    of the belts size and weight it had to be cut into three pieces to be transported 
    to the mine site.  The process of installing the belt is described as follows 
    in the affidavit of Highland Valley Coppers mill maintenance general foreman:

11.

The three pre-manufactured segments of the Conveyor Belt are installed 
    at the site.  Each of the three segments is laid out next to the Conveyor 
    and the segments are then joined together through a splicing process.

12.

The splicing process simply involves separating and fusing the layers 
    of one belt segment with the adjoining section of the other belt segment.  
    The splicing involves overlapping 10 feet from one layer on the end of one 
    segment to approximately 10 feet from the alternate layer on the end of an 
    adjoining segment.

13.

Apart from the splicing of the ends, there is no change to the properties 
    of the Conveyor Belt.

14.

Once the three segments have been joined, the old belt is cut, and 
    the new belt is clipped to the old belt.  The Conveyor is run to pull the 
    new belt into the system.  As the new Conveyor Belt is fed into the system, 
    the old belt is taken off.  Once the new Conveyor Belt is in place, the ends 
    are spliced together to complete the loop.

[5]

In early 2004, Teck Cominco increased its interest in Highland Valley 
    Copper by acquiring an additional 33.5% from the other partner.  As, for provincial 
    sales tax purposes, the purchase of a partnership interest is treated as the 
    purchase of a proportionate interest in the tangible personal property (T.T.P.) 
    and other assets of the partnership, Teck Cominco was required to pay sales 
    tax on all T.T.P. it acquired, subject to any applicable exemptions.  Being 
    of the view that the replacement conveyor belt is tax exempt, Teck Cominco 
    did not pay tax with respect to it.

[6]

On February 2, 2005, the Commissioner of Social Service Tax issued 
    a notice assessing Teck Cominco over $260,000.00 for sales tax and interest 
    owing with respect to its acquisition of the replacement conveyor belt.  Teck 
    Cominco filed an appeal to the Minister of Revenue under s. 118 of the
Social 
    Services Tax Act
.  On December 8, 2006, the Minister affirmed the assessment.  
    Teck Cominco then appealed to the Supreme Court, pursuant to s. 119 of the
Act
.  That appeal was allowed on September 2, 2008:  2008 BCSC 1131.

Relevant Statutory Provisions

[7]

Social Service Tax Act
:

76
(1)    Subject to
section
92.2 (4), 
    the following are exempted from taxes imposed by sections 5 to 25 and 112.3:

(k)    prescribed 
    machinery or equipment purchased or leased by a prescribed manufacturer or 
    other prescribed person for a prescribed use;

79.1
An exemption provided 
    under this Act for tangible personal property does not apply to tangible personal 
    property used to make that property.

[8]

Social Service Tax Act Regulations
, 
    B.C. Reg. 85/58, as amended:

Division 
    13  Exemptions for Production Machinery or Equipment

13.1

manufacture

means

(d)    the 
    extraction or processing of minerals, petroleum or natural gas.

13.5
(1)       
    For
the
purposes of section 76(1)(k) of the Act and subject to sections 13.9 and 13.10, 
    machinery or equipment is exempt from tax if purchased or leased by a person 
    who, for commercial purposes, regularly engages in exploration for minerals 
    or the development of mines and that machinery or equipment is for use exclusively 
    in the exploration for minerals or the development of mines.

13.10.2
(1)      
    Parts purchased or leased for use on machinery or equipment that is exempt 
    from tax under this Division are exempt from tax if purchased or leased by 
    a person who is eligible to purchase or lease machinery or equipment exempt 
    from tax under this Division.

Ministers Decision

[9]

In denying Teck Comincos appeal, the Minister, the Hon. Rick Thorpe, 
    accepted that Conveyor #2-2 is itself tax-exempt machinery or equipment under 
    Regulation 13.5(1).  However, he opined that the conveyor belt supplied by 
    B.C. Belt Ltd. was not a tax exempt part under Regulation 13.10.2(1).  With 
    respect to whether something is a part, the Minister stated:

Bulletin 
    SST 081,
Mining Industry
(February 2003), clearly states that the exemption 
    for parts does not extend to materials used to make parts if the materials 
    must be modified before use.  The bulletin further states that such materials 
    include conveyor belt material that requires fitting and processing.  Ministry 
    policy, since the inception of the exemption, has always been that purchases 
    of bulk material are not exempt.  A part is a pre-manufactured piece of tangible 
    personal property that is designed to replace an integral piece of the machinery 
    or equipment that requires replacement.
To qualify as a part under the 
    exemption, the part must be capable of installation with minimal adjustments 
    such as, screwing on, tightening, or otherwise affixing or fastening together.
Materials used to make parts are excluded from the exemption because, at the 
    time of purchase, the materials are not parts which are suitable for use on 
    the qualifying machinery and equipment.  The materials must first be modified 
    or manufactured into another product before being suitable for such use.

[Emphasis added]

[10]

Turning to conveyor belts in general, and the replacement belt for 
    Conveyor #2-2 in particular, the Minister stated:

A conveyor 
    belt may be purchased as an exempt part when the conveyor belt does not require 
    any modification after purchase and does not have to be processed or fitted 
    to be secured to the conveyor system.
Conveyor belts that do not meet these conditions are taxable material, not 
    parts.  For example, conveyor belt material purchased in bulk that needs to 
    be cut to length or otherwise altered before it is suitable for use as a part 
    is taxable.  Conversely, conveyor belt material pre-cut to a specified 
    length that does not need to be cut or otherwise altered before it is suitable 
    for use as a part, but that requires lacings or adhesive agents to be installed, 
    qualifies for the exemption.

During the 
    review of the appeal, you provided a description of the belt and the procedure 
    for installing it on the #2-2 conveyor.  The belt at issue in this appeal 
    was purchased specifically for the #2-2 conveyor and is 3,268 feet long.  
    Because of its size, the belt was shipped in three sections which were subsequently 
    spliced together at the mine site.  In the splicing process employed by Teck, 
    layers of the belt are separated and fused with the layers from the other 
    end of the belt.  Teck acknowledges that some cutting was necessary as part 
    of the splicing process which produced some excess material as waste.
Therefore, 
    the splicing process employed by Teck not only required cutting in order for 
    the belt to be installed onto the conveyor, but also required separating and 
    fusing the ends of each section of the belt.  The belt therefore required 
    fitting and processing and does not qualify for the exemption.

[Emphasis added]

Chambers Judges Decision

[11]

The only issue before the chambers judge was whether the conveyor belt 
    in issue is a part, as this word is used in Regulation 13.10.2(1).  Part 
    is not defined in either the
Act
or the
Regulations
.

[12]

To resolve this question, the chambers judge had regard to the principles 
    applicable to the interpretation of taxing statutes, as discussed in
Ted 
    Leroy Trucking Ltd. v. British Columbia (Minister of Revenue)
, 2008 BCCA 
    285, 79 B.C.L.R. (4th) 59, i.e., if a contextual analysis of legislation reveals 
    an ambiguity, then the context, scheme, and purpose of the legislation must 
    be examined to determine its meaning.

[13]

The chambers judge found instructive
330651 B.C. Ltd. v. British 
    Columbia
, 2003 BCCA 658, 20 B.C.L.R. (4th) 163, involving the interpretation 
    of the exemption in s. 75(b) of the
Social Service Tax Act
, for 
    aircraft powered by a turbine and parts for these aircraft.  The issue in 
    that case was whether equipment installed on helicopters to make them useable 
    for logging, heli-skiing, and aerial photography, qualified as tax-exempt 
    parts.

[14]

In
330651 B.C. Ltd.
the Minister disallowed the exemption claimed 
    by the company.  That decision was affirmed on appeal to the Supreme Court 
    of British Columbia.  In reaching his decision, the Supreme Court judge relied 
    on several dictionary definitions of the word parts.  On further appeal, 
    this Court also held that the company was not entitled to an exemption.  In 
    so doing, Mr. Justice Low stated:

[19]      
    In my opinion, in ordinary usage of the English language there is a distinction 
    to be made between parts for machines and optional attachments or accessories 
    to them.  While it might be difficult to determine on which side of the distinction 
    particular items fall, the items in question clearly are attachments to the 
    helicopters, not essential or standard parts of them.  To apply the
Shorter 
    Oxford Dictionary
definition provided by the appellant to the chambers 
    judge (¶ 16 of his reasons above), the items when purchased by the appellant 
    were not assembled together to make a machine.  Nor were they replacement 
    parts of a previously assembled machine.  To apply the
Websters Dictionary
definitions referred to by the chambers judge in ¶ 19 of his reasons above, 
    the subject items were not essential to, integral to, or constituent members 
    of the helicopters when purchased.  Nor were they components of the helicopters.

[15]

In the case at bar, the chambers judge found that, in light of the 
    context in which parts is used and the legislative history of the provision, 
    that word should be given its ordinary dictionary meaning.  She opined that 
    the intention of the legislation was to exempt equipment and machinery used 
    at a mine site from sales tax, and to extend that exemption to parts for 
    such equipment and machinery.  In this regard, she referred to the definitions 
    of part, cited in
330651 B.C. Ltd.
:

New Shorter Oxford English Dictionary
, 4th ed.:  any of the manufactured objects 
    that are assembled together to make a
machine
or instrument, esp. a motor vehicle; 
    a component.

Websters New Collegiate Dictionary
, 11th ed.:  an essential portion or integral 
    element; a constituent member of a machine or other apparatus also:  a spare 
    part.

[16]

The chambers judge rejected the Crowns contention that to qualify 
    as an exempt part an item has to be designed and manufactured to the exact 
    specifications of a particular machine.  She noted that prior to February 
    of 2002, the parts exemption had been more restrictive, in that it had been 
    limited to parts designed for use on exempt equipment and machinery.

[17]

She also rejected the Crowns contention that what Highland Valley 
    Copper had purchased from B.C. Belt Ltd. was non-exempt material which was 
    later used to manufacture a conveyor belt:

[25]      The 
    Supreme Court of Canada in
R. v. York Marble, Tile and Terrazzo Limited
, 
    [1968] S.C.R. 140, 65 D.L.R. (2d) 449 defined the word manufacture to involve 
    an activity that changed the form, quality and properties of the original 
    object.

[26]      
    I find on the evidence in the affidavits and cross examination transcripts 
    before me that the conveyor belt was not used to make something else.  It 
    retained its form, qualities and properties as a conveyor belt.  The only 
    difference between the conveyor belt at the factory and the conveyor belt 
    in the conveyor system was that the three pieces had been joined and installed 
    so that the belt fulfilled its proper function in the system.  The method 
    of installation of the conveyor should be irrelevant; it is the use of it 
    that defines its character as a part for social services tax purposes.

[18]

In conclusion, the chambers judge stated:

[29]      
    In my view, a textual, contextual and purposive analysis of the legislation 
    leads to the same result:  the conveyor belt fits within the concept of a 
    part as that term is used in Regulation 13.10.2.

[30]      
    It fits within the ordinary meaning of the word as an essential or integral 
    element of the conveyor and it is a manufactured object that is assembled 
    together with other objects to make it a conveyor, that is, it is a component 
    of it.

Analysis

[19]

Section 119(6) of the
Social Services Tax Act
, provides that 
    an appeal lies from a decision of the [Supreme Court of British Columbia] 
    to the Court of Appeal with leave of a justice of the Court of Appeal.  The 
    test for granting leave is set out in the judgment of Mr. Justice Taggart 
    in
Queens Plate Developments Ltd. v. Vancouver Assessor, Area 09
(1987), 
    16 B.C.L.R. (2d) 104 (Chambers) at 109, which was adopted in
Omineca Enterprises 
    Ltd. v. British Columbia (Minster of Forests)
, 2000 BCCA 591, 91 B.C.L.R. 
    (3d) 74 at para. 11.  Recently, in
Ontrea Inc. v. British Columbia
(7 July 2008), No. CA036112 (B.C.C.A. Chambers), Madam Justice Levine 
    summarized the factors to be considered in deciding whether leave should be 
    granted (at para. 9):

[W]hether 
    the proposed appeal raises a question of general importance as to the extent 
    of jurisdiction of the tribunal appealed from; whether the appeal is limited 
    to questions of law; whether there was a marked difference of opinion in the 
    decisions below and sufficient merit in the issue put forward;
whether 
    there is some prospect of the appeal succeeding on its merits, that is, are 
    there substantial questions to be argued
; whether there is any clear benefit 
    to be derived from the appeal; and whether the issue on appeal has been considered 
    by a number of appellate bodies.

[Emphasis added]

[20]

In the present case the critical factor is whether the proposed appeal 
    raises substantial questions to be argued.  In
Omineca Enterprises
, 
    Madam Justice Southin opined that those words require that the grounds on 
    which leave is being sought are not wholly devoid of merit:  para. 16.  
    More recently, in
Joint Industry Electric Steering Committee v. British 
    Columbia (Utilities Commission)
, 2005 BCCA 330, 42 B.C.L.R. (4th) 245, 
    both Mr. Justice Hall (at para. 93), and Madam Justice Levine (at para. 99), 
    opined that there is no substantial difference between a substantial question 
    to be argued and some prospect of the appeal succeeding on its merits.  
    Appeals are taken against orders, not reasons for judgment:
Jiwan v. Davis 
    & Co.
, 2008 BCCA 494 at para. 38.  Therefore, the question I must 
    answer is whether there is some prospect that the Crown will be able to persuade 
    a division of this Court to set aside the order of the chambers judge that 
    allowed Teck Comincos appeal from the Ministers decision.

[21]

The Crown, in its memorandum, says that it has been able to identify 
    the following errors of law in the chambers judges reasons:

a)         
    it was wrong to pick one of several inconsistent dictionary meanings of the 
    word parts; it was necessary instead to find the plain language meaning, 
    in common commercial use;

b)         
    it was wrong to read the word parts of [
sic
] out of the context of 
    parts purchased or leased for use on exempt machinery.  The word parts has 
    a clear meaning when used in a section which refers to parts for machinery.

c)         
    it was wrong to expand the exemption to all expenses incurred to purchase 
    TTP for use in repairing and maintaining exempt machinery by reading parts 
    as TTP used to make components of a machine in the course of repairing a machine;

d)         
    it was wrong:

i)          
    to consider that the distinction between an exempt part and bulk material 
    was whether an item had been manufactured to as finished a state as it could 
    be for transportation purposes; and

ii)         
    to consider that any manufactured item that could be made into a part was 
    a part in the context of Division 13.

e)         
    it was wrong to consider the Minister of Finances explanation for the amendment 
    of Paragraph 77(c) of the
SSTA
or the introduction of s. 13.10.2(1) 
    of the Regulation in 2002 as evidence that the Regulation was intended to 
    exempt expenses to purchase bulk material to be used in the repair and maintenance 
    of machinery from [provincial sales tax];

f)          
    it was wrong to interpret s. 79.1 of the
SSTA
as not restricting the 
    scope of the [production machinery and equipment] exemption.

[22]

The essence of the Crowns submission, as developed both in its memorandum 
    and in oral submissions, is that an item is an exempt part only if it is 
    capable of being used as a spare part without being modified.  The Crown says 
    that even if the replacement belt for Conveyor #2-2 had been shipped to the 
    mine site in one piece, it would still not be a part because of what had 
    to be done to install it.  In the Crowns view what occurred here is that 
    Highland Valley Copper purchased bulk material and used it to make what became 
    a part, in the sense a component.  By reason of s. 79.1 of the
Act
, 
    such bulk material is not tax exempt.

[23]

The Crown also takes the position that to be a tax-exempt part an 
    item must, prior to being purchased, have been manufactured and available 
    in the market place, ready for installation  what I would call an off-the-shelf 
    purchase.  It says any item that is custom ordered for use on tax-exempt equipment 
    or machinery is taxable.  The Crown draws a distinction between the replacement 
    conveyor belt in this case, and, for example, a generic fan belt purchased 
    from existing stock, and installed in a tax-exempt truck.

[24]

The Crown submits that by interpreting parts to include bulk material, 
    the chambers judge has expanded the scope of the parts exemption, and that 
    this will have a significant impact on government revenues.  In this regard, 
    the Crown filed an affidavit by the Director of the Appeals and Litigation 
    Branch of the Ministry of Small Business and Revenue, which refers to exemptions 
    that are currently being claimed for a wide variety of items including steel 
    pipe and fittings, air and oil filters, bearings and bushings, explosives, 
    saw teeth, tires, hoses, and roller chains.  In some cases, refund claims 
    in the hundreds of thousands of dollars have been submitted.

[25]

Teck Comincos position is that there is no possibility that this appeal 
    will succeed.  It says that the chambers judges decision is well reasoned, 
    and consistent with the authorities.  It further says that this case is restricted 
    to its own facts, and that no single decision can resolve the question of 
    what is, or is not, a tax-exempt part.

[26]

In considering whether leave sought be granted, I have found instructive 
    the following statements by Lord Halsbury, L.C.:

[The 
    requirement of leave to appeal] is intended as a check to unnecessary or frivolous 
    appeals.

Lane 
    v. Esdaile
, [1891] A.C. 210 (H.L.) 
    at 212

[E]very judgment must be read as applicable to the particular 
    facts proved, or assumed to be proved, since the generality of the expressions 
    which may be found there are not intended to be expositions of the whole law, 
    but governed and qualified by the particular facts of the case in which such 
    expressions are to be found.  a case is only an authority for what it actually 
    decides.

Quinn v. Leathem
, [1901] A.C. 495 (H.L.) at 506

[27]

A judge hearing a leave application serves a gatekeeper function; his 
    or her task is to ensure that judicial resources are not expended on matters 
    that do not merit the attention of a division of the Court.  One situation 
    in which leave is not warranted is when there is no prospect that the order 
    being challenged will be reversed on appeal.  This is such a case.

[28]

For ease of reference I will repeat paragraph 26 of the chambers judges 
    reasons, which I take as being the crux of her decision:

[26]      
    I find on the evidence in the affidavits and cross examination transcripts 
    before me that the conveyor belt was not used to make something else.  It 
    retained its form, qualities and properties as a conveyor belt.  The only 
    difference between the conveyor belt at the factory and the conveyor belt 
    in the conveyor system was that the three pieces had been joined and installed 
    so that the belt fulfilled its proper function in the system.  The method 
    of installation of the conveyor should be irrelevant; it is the use of it 
    that defines its character as a part for social services tax purposes.

[29]

In my view, there is no prospect that a division of this Court will 
    disagree with those findings of fact, and the legal conclusion that this particular 
    replacement conveyor belt is a part for the purpose of Regulation 13.10.2(1).  
    I see no merit in the Crowns submission that Highland Valley Copper purchased 
    taxable bulk material (i.e., supplies) that it then used to make a component 
    for Conveyor Belt #2-2.

[30]

Further, I do not accept the Crowns submission that this appeal should 
    be allowed to go forward on a question of principle, i.e., on the basis that 
    the chambers judge has interpreted the exemption in Regulation 13.10.2(1) 
    to mean that anything that goes into a tax-exempt piece of equipment or machinery 
    will be considered a tax-exempt part.  In light of the facts, that is not 
    what the chambers judge decided.

[31]

I accept that the Crown has legitimate concerns regarding the interpretation 
    and application of Regulation 13.10.2(1).  However, those concerns will have 
    to be addressed having regard to the particular facts on which an exemption 
    claim is based.  It would be unfair to require Teck Cominco to bear any costs 
    relating to an appeal when there is no prospect that a decision by this Court 
    would affect the exemption it has successfully claimed on one particular item.

Conclusion

[32]

Leave to appeal is refused.

The Honourable 
    Mr. Justice Frankel

Correction - January 12, 2009: the word "Hyland" 
    was replaced with the word "Highland", throughout.  The correction 
    has been incorporated into this replacement judgment."


