Order UT96-02 - UT93101 - Sales Tax Appeal - Maritime Dredging Limited v. Provincial Tax Commissioner (Jun 7, 1996)

Note:
Elements of this Order were appealed to the Appeal Division of the P.E.I. Supreme Court.
The Court's findings on the appeal can be located here (PDF File).

Docket UT93101
Order UT96-2

IN THE MATTER of an appeal by Maritime Dredging Limited against a decision of the Provincial Tax Commissioner, dated December 1, 1992.

BEFORE THE COMMISSION

on Friday, the 7th day of June, 1996.

Linda Webber, Chair
Anne McPhee, Commissioner
Deborah MacLellan, Commissioner

Order

Contents

Appearances & Witnesses

Reasons for Order

Introduction

Jurisdiction

Introduction

Trial de Novo

New Issues

Grounds of Appeal

Exemption Pursuant to Paragraph 12.(1)(u) of the Act

Goods Not Consumed in the Province

Exclusive Federal Jurisdiction

Production of Goods for Sale

Conclusion

Disposition

Order

Appearances & Witnesses

1. For the Appellant - Maritime Dredging Limited

Counsel:
Geoffrey Connolly

Witness:
William Wellner

2. For the Respondent - Provincial Tax Commissioner

Counsel:
Roger B. Langille, Q.C.
Ruth DeMone

3. For the Island Regulatory and Appeals Commission

Counsel:
Thomas A. Matheson

Staff:
Donald G. Sutherland
Director, Technical Services Division

Heather Walker
Recording Secretary

Reasons for Order

1. Introduction

Maritime Dredging Limited (the "Appellant") is a body corporate with its head office located at Charlottetown, Prince Edward Island. By assessment dated October 16, 1992, the Minister of Finance assessed, pursuant to the Revenue Tax Act, R.S.P.E.I. 1988, Cap. R-14 (the "Act"), taxes on purchases of certain goods and services by the Appellant. Total tax due was given as $27,980.30. Interest of $12,633.14 was added to that amount for a total assessment due of $40,613.44.

By Notice of Objection dated October 22, 1992, the Appellant objected to the assessment of tax. In the Notice of Objection the Appellant made several points:

1) the taxed materials were used by a commercial vessel licensed by the Federal Department of Transport and Canada Customs;

2) The tax violated s.12(1)(u) of the Act;

3) Other commercial vessels, such as Marine Atlantic and Northumberland Ferries' vessels, operate in the same or similar water and are tax exempt; and

4) Nova Scotia and New Brunswick do not tax dredges. If Prince Edward Island taxes dredges, the Appellant will be at a competitive disadvantage.

By letter dated December 1,1992, the Provincial Tax Commissioner confirmed the assessment of tax referred to above. The letter stated that:

. . .

Tax Application on Dredges

Section 12.(1)(u) of the Revenue Tax Act states that a consumer is not liable to pay tax in respect to the consumption of the following goods:

'commercial vessels or boats that normally operate in extra-territorial waters, and repairs thereto, but excluding boats used for recreational or sporting purposes and yachts.'

I am advised that your dredges do not normally operate in extra-territorial waters, rather spend the majority of the time in and around P.E.I. waters. Since they do not come under the provisions of Section 12.(1)(u) of the Revenue Tax Act, they are not tax exempt and therefore no adjustment is warranted.

[Excerpt from Dec. 1, 1992 Letter, Exhibit A-1]

The Appellant admits making the purchases in question but takes the position that such purchases are not taxable.

By Notice of Appeal dated December 21, 1992, the Appellant appealed the decision of the Provincial Tax Commissioner to the Island Regulatory and Appeals Commission. The grounds of appeal cited in the Notice of Appeal were as follows:

(1) Paragraph 12.(1)(u) of the Act provides that:

12. (1) A consumer is not liable to pay the tax in respect of the consumption of the following goods:

. . .

(u) commercial vessels or boats that normally operate in extra-territorial waters, and repairs thereto, but excluding boats used for recreational or sporting purposes and yachts.

The Appellant submits that it operates commercial vessels and that its operations are normally in extra-territorial waters. All goods purchased for the purpose of repairing such vessels are therefore exempt from taxation.

(2) In addition, the Appellant submits that it did not consume goods in the Province and as such in accordance with Section 4 of the Act no tax is payable with respect to such consumption.

(3) In the alternative, the Appellant submits that all, or substantially all, work performed by it related to works under the exclusive jurisdiction of the Federal Government and as such the Province does not have jurisdiction to tax the same.

(4) In the further alternative, the Appellant submits that the equipment when not used on works of a Federal nature was used directly in the production of goods for sale and, therefore, is exempt from tax pursuant to paragraph 12.(1)(i) of the Act.

[Excerpt from pp. 2-3 of Exhibit A-1]

The appeal was heard in Charlottetown on November 16 and 17, 1995.

2. Jurisdiction

2.1 Introduction

The Provincial Tax Commissioner raised a preliminary objection in connection with the grounds of appeal set out in the Notice of Appeal to the Commission.

The Respondent takes the position that new grounds have been filed in the appeal to the Commission and that the Commission lacks jurisdiction to deal with any grounds of appeal not raised before the Provincial Tax Commissioner. The Appellant argues that there are no new grounds raised and, alternatively, that the appeal hearing is in the nature of a trial de novo. As such, the Appellant submits that the Commission is not limited to issues raised before the Provincial Tax Commissioner. Both parties filed authorities on this issue.

Since this issue is one that has been raised on several appeals, the Commission has taken some time to investigate it. In what follows, we will review the authorities on this point in detail before turning to the issues raised in connection with the assessment itself.

2.2 Trial de Novo

The first question that must be answered is: What is the nature of the appeal pursuant to the Revenue Tax Act? "The nature and scope of the 'appeal' or 're-hearing' must be determined from the language used and a reading of the Act as a whole." This was the principle cited in Re Newterm Ltd. (1988), 70 Nfld. & P.E.I.R. 216 (Nfld. S.C. - T.D.), where it was held that an appeal from a decision of the Assessment Review Court to the Supreme Court of Newfoundland, Trial Division, was a hearing de novo.

Section 5 of the Island Regulatory and Appeals Commission Act, R.S.P.E.I. 1988, Cap. I-11, provides that:

5. The functions of the Commission are

. . .

(c) to hear and decide appeals from decisions of

. . .

(iii) the Provincial Tax Commissioner under the Revenue Tax Act, R.S.P.E.I. 1988, Cap. R-14.

[Emphasis added.]

The word "appeals" is not defined in the legislation.

Provisions regarding the appeal process are found in the Revenue Administration Act, R.S.P.E.I. 1988, Cap. R-13.2 and amendments thereto. Sections 9 and 10 of that legislation provide as follows:

OBJECTION AND APPEAL

9. (1) Where a person considers that he is not liable to taxation under a revenue Act or disputes liability for the amount assessed against him, he may, within sixty days of the date of service or mailing of the notice of assessment serve on the Commissioner a notice of objection setting out the reasons for the objection and all relevant facts.

(2) A notice of objection is sufficiently served if delivered to the office of the Commissioner or sent by registered mail addressed to the Commissioner.

(3) The Commissioner shall, within sixty days of receipt of the notice of objection, reconsider the assessment or estimate and vacate, confirm or vary it, and he shall thereupon notify the objector of his decision by registered mail.

10. (1) If the taxpayer or collector is dissatisfied with the decision of the Commissioner under subsection (3), he may, within thirty days from the date of mailing of the decision, appeal to the Island Regulatory and Appeals Commission hereafter referred to as the "Commission."

(2) Any appeal shall be commenced by serving upon the Commission a notice of appeal in writing setting out the grounds of the appeal and stating briefly the facts relative thereto.

(3) A notice of appeal is sufficiently served if delivered to the office of the Commission or sent by registered mail addressed to the Commission.

(4) On the hearing of the appeal both the appellant and the Commissioner are entitled to appear and be heard and to submit further evidence.

(5) The Commission may, in writing, designate a person to act on its behalf and hear an appeal under this section and any reference in this section or section 11 to the Commission includes a person so designated.

(6) Upon any appeal, the Commission may affirm, vary or reverse the decision of the Commissioner and shall give the appellant written notice of its decision by registered mail.

[Emphasis added.]

The word "appeal" is not defined in the legislation.

What the authorities make quite clear is that the use of the word appeal in and of itself does not signify any particular form of hearing. In the words of Reid and David in Administrative Law and Practice, 2^nd ed. (Toronto: Butterworths, 1978) at pp. 449-51:

A warning has already been sounded against the unfounded assumption that there is some general state or quality with objective existence called 'appeal jurisdiction' that invests appeal and review tribunals with uniform powers. There is not. The only appeal jurisdiction that any tribunal, be it a court or tribunal, and be it high or low, can have is that given to it by some statute. It must be provided by express statutory language or by necessary implication. … It follows that the existence, scope, and nature of appeal jurisdiction are really matters of the construction of statutes. All these issues may be clouded by the inadequacy of statutory language.

. . .

VARIOUS KINDS OF APPEAL

Rights of appeal conferred by statute from administrative tribunals are common. These may be to law-courts, to other administrative tribunals, to ministers of the Crown, or their deputies, or even to federal or provincial cabinets. Apart from problems of interpretation, there are other difficulties inherent in the creation of such appeals. The provinces are under a disability in conferring rights of appeal in that they are constitutionally incapable of investing tribunals of their own creation with appellate jurisdiction equivalent to that of the law Courts.

[Emphasis added.]

This latter point-the constitutional implications of limiting the Commission's role to appellate jurisdiction equivalent to that of the law Courts-was one referred to in Stafford v. Newfoundland Milk Marketing Board (1987), 67 Nfld. & P.E.I.R. 198 (Nfld. S.C. - T.D.), where the court considered the scope of review on administrative appeals involving an appeal from an order of the Milk Marketing Board to an Appeal Tribunal:

Aside from the constitutional implications of concluding that the function of the Appeal Tribunal was the same as a court, the effect of limiting the role of the Appeal Tribunal would be contrary to the legislative scheme of the Act. If one examines the scheme created by the Natural Products Marketing Act, 1973 and the regulations, it is clear that the Appeal Tribunal must have been intended to exercise its own discretion though it may choose to give weight to the decision of the Milk Marketing Board.

(Cameron, J. at p. 202)

The emphasis, however, in that case-as in many others-is on the character of the proceeding envisioned by the legislation. Whether or not the statute provides that the appellate forum can hear witnesses and compel the production of documents is an important factor in determining the nature of the appeal-usually supporting the procedure as a trial de novo:

Considering the make-up and constitution of the Appeal Board, its powers to call witnesses, to order production of documents, to compel attendance of witnesses and to compel the production of documents, only a rehearing can be contemplated. Particularly this is so where there is no requirement for making a record nor for the forwarding of the 'record' to the Board. (Calgary General Hospital Board v. Williams (1982), 42 A.R. 1 (C.A.), per Moir, J.A., C. J. at p. 5).

These points were also referred to in Superintendent of Real Estate v. Harder (1980), 28 A.R. 210 (Alta. Q.B.), where the respondent was denied a salesman's license by the Superintendent of Real Estate. The Appeal Board there had refused to consider certain additional evidence the superintendent had wanted to introduce. Miller, J. stated at p. 219:

It seems apparent from this section that the legislators intended to ensure that a majority of the members of the Appeal Board would be persons knowledgeable in the real estate industry who could bring to any hearing the benefit of their special expertise. This was undoubtedly designed to make certain that the rights of an individual, either in the industry or wishing to become part of it, would be largely judged by his peers rather than by outsiders.

If the form of the appeal to the Appeal Board were restricted only to a consideration of the record from the Superintendent's decision, it seems apparent that such a record could be either almost non-existent or, at best, might only contain material supporting the Superintendent's view of the situation. This form of appeal would tend to negate the desire of the legislators to provide access to the special expertise of the Appeal Board, especially if the record is incomplete.

I am of the view that the fairest and best procedure designed to make the fullest use of the Appeal Board's special expertise is to have the hearing before it in the form of a de novo procedure. In this way both sides will have a full opportunity to present all of the evidence which they think is applicable up to the date of the hearing and neither side will be proscribed by what took place, or didn't take place, before the Superintendent. This will then enable the Appeal Board to conduct the fullest examination and to be appraised [sic] of all relevant facts in order to be able to protect, not only the individual applicant, but also to protect the public interest.

[Emphasis added.]

One distinguishing factor between that case and the case before the Commission is the composition of the board-other persons knowledgeable in the industry who could bring to the hearing the benefit of their special expertise. While, in the instant case, the Commission does not have the same characteristics, there is an element of similar public interest in the appointments made, pursuant to the Island Regulatory and Appeals Commission Act, of persons with qualifications in certain areas:

3. (1) The Commission shall be composed of

. . .

(d) not more than five part-time Commissioners who shall be knowledgeable in one or more of the following areas:

accounting, agriculture, municipal planning, engineering, business, environmental matters, finance, economics, law, utilities, taxation, consumer protection.

An element of similar public interest also exists in the powers of the Commission to hire such experts as may be required to obtain the special expertise necessary to deal with specific statutory responsibilities:

7. (1) The Commission may

(a) appoint such staff and define their duties;

(b) engage such consultants or other assistants,

as it considers necessary to perform its functions.

Of similar importance is the issue of how one could hear an appeal on the "record" when there is no record, or where the record is from one point of view only. The latter point brings out another issue: The appeal to the Commission is, in fact, the first opportunity for a taxpayer to present his argument before an independent third party. Not only is the Provincial Tax Commissioner not independent, there is no obligation upon him to hold any kind of hearing. All these points support the argument that the appeal to the Commission must have been intended by the legislature to be in the nature of a trial de novo.

A number of Prince Edward Island cases have dealt with this issue and provide guidance on this point. They show that the court here has specifically recognized an "appeal" jurisdiction to be that of trial de novo in relation to both the Highway Traffic Act (Smith v. Registrar of Motor Vehicles (1980), 30 Nfld. & P.E.I.R. 215 (P.E.I.S.C.)) and the Civil Service Act (Jenkins v. Government of Prince Edward Island (1983), 43 Nfld. & P.E.I.R. 114 (P.E.I.C.A.)). The court sustained appellate tribunals that exercised "appeal" functions by way of trial de novo (Re Milk Marketing Board (P.E.I.) (1993), 109 Nfld. & P.E.I.R. 296 (P.E.I.S.C.-T.D.)) relating to the Natural Products Appeals Tribunal, and Re Butler (1977), 20 Nfld. & P.E.I.R. 469 (P.E.I.S.C.) and Dennis Construction Limited v. P.E.I. Land Use Commission et al. (1984), 48 Nfld. & P.E.I.R. 342 (P.E.I.S.C.) relating to the Land Use Commission.

The Supreme Court of Prince Edward Island, in considering whether its own powers under appeal were that of a trial de novo, reviewed, in Jenkins, supra, sections of the Civil Service Act. Some of those sections were as follows, (pp. 116-117):

52. (5) A permanent employee who was dismissed by Order of the Lieutenant Governor in Council has the right to appeal to the Supreme Court of Prince Edward Island in the following manner

. . .

(c) at the time and place appointed the Supreme Court may hear the evidence and allegations presented on behalf of the appellant and on behalf of the Executive Council and the procedure shall be informal, and the order of proceedings shall be in the discretion of the Supreme Court,

. . .

MacDonald, J. then concluded that the appeal to the Supreme Court was in the form of a trial de novo and went on to say, at p. 121:

. . . the jurisdiction given to the Supreme Court on appeal is very wide. The jurisdiction of the court on appeal is equivalent to that of a trial by way of a hearing de novo. That the Legislature intended the appeal would be by way of a de novo hearing is evident from the fact that the court may hear the 'evidence and allegations' presented on behalf of both parties (s.53(5)(c)). These wide powers given to the court hearing the appeal satisfy me that a full and fair hearing on the merits is possible under the Civil Service Act. Of course, if the court hearing the appeal were not to give the widest interpretative scope of the Act to the appellant, these could well be grounds for stating the appeal did not provide a fair hearing to the appellant.

Further, clause (c) of s.53(5) provides that the order of proceedings shall be in the discretion of the Supreme Court. This discretion enables the court to place the burden of proving the correctness of the decision upon the respondent thereby overcoming the disadvantage that factor would have upon the appellant receiving a fair hearing on the appeal if he were to have the burden of proving the incorrectness of the first decision.

[Emphasis added.]

Further support for considering the hearing before the Commission to be by way of trial de novo is indirectly found in the case of Eastisle Restaurants (1986) Ltd. v. Prince Edward Island (Minister of Finance) (1990), 82 Nfld. & P.E.I.R. 48 (P.E.I.S.C. - T.D.). In that case, McQuaid, J. found that the changes to the Revenue Tax Act-which repealed the detailed provisions regarding the appeal to the court-altered the process from a trial de novo to one where the evidence was restricted to that before the Minister, except that evidence arising after the Minister's ruling could be adduced without leave and other evidence could be adduced with leave. After citing the earlier provisions (found in the Revenue Tax Act, R.S.P.E.I. 1974, c.R.-14) at pp. 50-51, McQuaid, J. stated his reasoning at p. 51:

It is obvious to me that what was contemplated at the judicial appeal level was a full trial de novo, having regard particularly to subsections (1), (8), and (9) of s.30. Not only was evidence taken before the Minister to be deemed to be evidence taken before the appeal judge, but additional evidence as well, arising out of discovery or otherwise, was to be receivable under those enabling provisions.

In 1987, however, those sections above noted were massively repealed. What appeared as s.30 above, was totally repealed; 31 is the present 33; 32 is now 34; and 33 is now 35. All of those provisions which provided for, by implication if not in so many words, a trial de novo before the judge on appeal no longer formed a part of the legislation.

It was argued, and possibly with some validity, that the intended affect of the amending legislation was to require the appellant to bring his full case before the Minister (assuming that he had the constitutional authority to conduct such an appeal) and to permit the Minister to arrive at a fully informed opinion based on all the evidence which either party was able to muster, rather than expect him to act on selective evidence only, which, if it should prove to be insufficient, enabled the aggrieved party to have a second go at it, this time employing all of his evidentiary resources.

[Emphasis added.]

The relevance to the instant case is that, subsequently, the Revenue Tax Act was again amended, this time to put the Commission in the place of the Minister. The above comments, therefore, fully support a hearing de novo at the Commission's level.

The Respondent relied heavily upon comments made in the case of McKenzie v. Mason (1992), 96 D.L.R. (4th) 558 (B.C.C.A.), a case involving an appeal to the court from a decision of the Chief Gold Commissioner. In that case, as in the case of Sherman v. Abbotsford School District No. 34 (1987), 47 D.L.R. (4th) 106 (B.C.C.A.)-upon which it relies-the statutory rights of appeal referred to are: (1) to the court and (2) make no reference to the right to hear evidence, call witnesses, or demand the production of documents. These are significant distinctions from the instant case.

While there is certainly not a general rule that can resolve all cases of interpretation of statutory rights of appeal, the fundamental requirement that the "character" of the appeal may well be evident from the wording of the statute is of great importance. In the McKenzie case, supra, there were no such statutory indications of a hearing de novo. Other distinctions, such as the potential for constitutional problems and the more independent position of the Chief Gold Commissioner-who adjudicates between competing parties and not on a matter of interest to himself-simply reaffirm the view that such a case cannot be considered authority for the proposition the Respondent is trying to support.

A brief summary of the points made by the above cases reveals the following factors in support of the conclusion that the appeal to the Commission is by way of a trial de novo:

1. The appellate jurisdiction of the Commission includes the power to compel witnesses and the production of documents;

2. There are potential constitutional problems in attempting to argue that the Commission is of the same nature as an appellate court;

3. This is the first opportunity being awarded the Appellant to be heard by an independent third party;

4. If a broad interpretation is not placed upon the Act, the Appellant might be able to argue he was not awarded a fair hearing; and

5. The Minister, previously given the responsibility to hear appeals, had power to hold hearings by way of trial de novo and the Commission now has the responsibility previously given to the Minister to hear appeals.

All of this leads the Commission to conclude that the appeal, pursuant to s.10 of the Revenue Administration Act, is an appeal by way of trial de novo.

2.3 New Issues

While the court is generally-but not always-reluctant to allow the hearing of new issues before a court of appeal, the situation is different for trials de novo. The principle reason for the difference is that, on an appeal on the record, the opposing party may be prejudiced by the raising of a new issue, since that party did not have the opportunity of introducing all of the evidence that may have been relevant to that new issue. On a trial de novo, however, any new evidence required can be heard at that level, since all of the evidence is being introduced on the appeal.

Cases involving the Federal Court on appeals under the Income Tax Act appear to have resolved this matter. In Midwest Oil Production Ltd. v. The Queen, [1982] 2 F.C. 357 (Federal Court - T.D.), Mahoney, J. found that an appeal to the Federal Court from the Tax Review Board is a trial de novo and that a taxpayer cannot be estopped from raising any issue the taxpayer wishes in an appeal to the Federal Court under subsection 172(2) of the Income Tax Act solely because an issue is raised for the first time by the pleadings. He states at pp. 362-64:

The Act provides:

165. (1) A taxpayer who objects to an assessment under this Part may, within 90 days from the day of mailing of the notice of assessment, serve on the Minister a notice of objection in duplicate in prescribed form setting out the reasons for the objection and all relevant facts.

172. . . .

(2) Where a taxpayer has served a notice of objection under section 165, he may, in place of appealing to the Tax Review Board under section 169, appeal to the Federal Court of Canada at a time when, under section 169, he could have appealed to the Tax Review Board.

Section169 prescribes an identical condition precedent to the right to appeal to the Tax Review Board and there are a number of decisions by that tribunal to the effect that it has no jurisdiction to hear an appeal on an issue not raised in the notice of objection. For example, and it is extreme, in Spence v. M.N.R., the issue raised in the notice of objection was whether a company of which he was a shareholder had conferred a benefit on a taxpayer by paying the amount of a settlement of a damage action against him as well as the incidental legal expenses. The taxpayer sought, before the Board, to claim as a deduction from income certain alleged farm losses which he had not claimed in his original return and in respect of which he had sought to file an amended return only after his original return had been assessed and the appeal taken. Another example, certainly less extreme, is Rosenberg v. M.N.R., where the Minister had disallowed the taxpayer's deduction of a $3,550 loss on a loan to a company of which he was a shareholder and also disallowed the deduction of $2,450 he had paid under his guarantee of the company's bank loan. The taxpayer dealt only with the $3,550 item in his notice of objection and the Board refused, for want of jurisdiction, to hear him on the $2,450 item.

This Court appears not to have dealt with this question directly. In Goldman v. M.N.R., Thorson P. was concerned with whether an appeal to the Exchequer Court from a decision of the Income Tax Appeal Board was a trial de novo. After a lengthy review of the legislation then in effect and that which it had replaced, he concluded:

All these considerations lead to the conclusion that the appeal to this Court from a decision of the Income Tax Appeal Board, whether by the taxpayer or by the Minister, is a trial de novo of the issues involved, that the parties are not restricted to the issues either of fact or of law that were before the Board but are free to raise whatever issues they wish even if different from those raised before the Board and that it is the duty of the Court to hear and determine such issues without regard to the proceedings before the Board and without being affected by any findings made by it.

[Emphasis added.]

The Supreme Court of Canada, in dismissing an appeal from that judgment, did not deal with that particular issue. The relevant provisions of the Act have since been extensively amended; however, the conclusion that an appeal to this Court from a decision of the Tax Review Board is a trial de novo remains valid. That being so, I do not see that this Court can be without jurisdiction to deal with an issue not raised in the notice of objection when the appeal is brought directly to the Court under subsection 172(2).

I do not think that a taxpayer can be estopped, in any technical sense of that term, from raising any issue it wishes in an appeal to this Court under subsection 172(2) of the Act only because the issue was not raised in its notice of objection or, if applicable, before the Tax Review Board. It is to be emphasized that it is the Minister's assessment, not his reasons for it, that is the subject-matter of the appeal.

[Emphasis added.]

There are revenue cases from New Brunswick and Nova Scotia that support this same proposition.

In Zellers Inc. v. New Brunswick (Minister of Finance) (1993), 16 C.P.C. (3d) 312 (N.B.Q.B.), the appellant filed a notice of appeal to the court from a tax assessment under the Revenue Administration Act (N.B.) after having been unsuccessful in appeals at the commissioner and ministerial levels. The notice of appeal set out various grounds attacking the validity of the assessment and, alternatively, the method used in determining the fair value of the items in question. The respondent applied to have struck from the notice of appeal certain grounds of appeal, inter alia, the validity of the assessment itself, which he contended had not been raised at earlier stages of the appeal process. The application was dismissed. At pp. 314-15, Dickson, J. stated:

On behalf of the minister it is contended essentially that the sole issue in dispute in regard to the objection to the Commissioner and at the ministerial appeal related to the determination of 'fair value' as defined in the Social Services and Education Tax Act and did not concern the validity of the assessment itself, and that consequently it would be 'contrary to the rules of natural justice' to permit the appellant to raise new grounds on the present appeal.

In my view the application by the minister must fail. Section 18 of the Act [Revenue Administration Act] provides:

18. The judge shall hear the appeal and the evidence adduced before him by the appellant and Her Majesty in a summary manner, and shall decide the matter of the appeal.

This section together with procedural provisions contained within s.15 of the Act providing for discovery of documents, examination for discovery, the taking of evidence and depositions of witnesses before hearings, etc., clearly connotes that the hearing of the appeal before the judge is in fact intended to be a hearing de novo. It would be remarkable indeed that a taxpayer could be prohibited at the [sic] stage from raising a question as to the validity of an assessment. Furthermore, there is nothing whatever in the relevant statutory provisions to impose any impediment on raising new grounds of appeal at the level of the judicial appeal.

The same principle appears to have been applied or endorsed in Campbell v. Prince Edward Island (Minister of Finance), 24 Nfld. & P.E.I.R. 345 (P.E.I. T.D.); Eastisle Restaurants (1986) Ltd. v. Prince Edward Island (Minister of Finance) 3 T.C.T. 5140; Goldman v. Minister of National Revenue, [1951] C.T.C. 241; DeConnick v. R. (1985), 1 C.T.C. 36 (Fed. T.D.); and Midwest Oil Production Ltd. v. R., [1982] C.T.C. 107. In all of these cases the appeal procedures were substantially similar to those pertaining here.

As a general principle it may also be said that a party may raise additional issues and arguments at any stage of the proceedings as long as they were relevant to the issue to be decided by the court and do not prejudice the other party.

[Emphasis added.]

In Continental Seafoods Ltd. v. Nova Scotia (Minister of Finance) (1993), 121 N.S.R. (2d) 176 (N.S.C.A.), reversing (1992), 112 N.S.R. (2d) 361 (N.S.S.C. - T.D.), the plaintiff's application for a refund of health services tax on refrigeration equipment was denied in part by the Provincial Tax Commissioner. The plaintiff appealed and the Minister of Finance allowed a partial exemption. The plaintiff appealed to the Nova Scotia Supreme Court - Trial Division. At that stage of the proceedings, counsel for the Minister argued that the plaintiff was not entitled to the exemption because the tax had been paid directly by contractors who installed the equipment, and so they would be the only parties entitled to a refund. The plaintiff protested that this was a new matter-not presented by the parties or considered by the Commissioner or the Minister-and so it was not a proper consideration on an appeal. The trial judge agreed. He was overruled by the Court of Appeal, where, at p. 179, Clark, C.J.N.S. stated:

The issue of Continental's noneligibility for a refund was argued before the Chambers judge. Continental was put on notice that it would be. The Chambers judge decided that it was a new ground that had not been submitted to the Provincial Tax Commissioner, or to the Minister of Finance; therefore, he refused to consider it. He considered his status was the same as a Court of Appeal. With respect, we do not agree in the circumstances that exist here. Although s.19(4) refers to the judge hearing 'the appeal', it quite clearly provides that a judge shall hear the evidence adduced before him by the appellant and Her Majesty in summary manner and then decide the issue. Thus the scope of the proceeding before the judge of the Supreme or County Court is very broad. The judge may hear evidence unlike the traditional function of an appeal court. The word 'appeal' in s.19(4) is a misnomer in the traditional appeal court sense because the breadth and thrust of the section empowers the judge to conduct a proceeding more akin to a trial de novo. The submission of the appellant that the Act does not permit Continental to seek a refund was raised before the Chambers judge, as it could be. That he rejected the submission does not prohibit the appellant from advancing it as a ground of appeal to this Court. [Emphasis added.]

All of the above cases support the position taken by the Appellant in this matter. The Commission therefore finds that, as the appeal before the Commission is in the nature of a trial de novo, the Appellant is free to raise issues before the Commission that were not raised in the objection to the Provincial Tax Commissioner. Therefore, all of the issues raised on behalf of the Appellant are properly before the Commission.

The Commission's conclusion on this issue means that it is not necessary to decide whether or not, in fact, new issues have been raised by the Appellant in his Notice of Appeal to the Commission. The Commission makes no finding on that point.

3. Grounds of Appeal

3.1 Exemption Pursuant to Paragraph 12.(1)(u) of the Act

The Revenue Tax Act provides for the following exemption:

12. (1) A consumer is not liable to pay tax in respect of the consumption of the following goods:

. . .

(u) commercial vessels or boats that normally operate in extra-territorial waters, and repairs thereto, but excluding boats used for recreational or sporting purposes and yachts;

The Appellant's position is that the machinery used in connection with its dredging operations falls within this exemption. Two machines are mentioned: one is registered as a ship with the Federal Department of Transport, evidenced by a Certificate of Registry with Official Number 392496; the other is a Komatsu tractor.

The Commission accepts the evidence put forward with respect to the registered ship as being a "commercial vessel" within the meaning of the Act. It is designed to operate only in water; operates below the low-water mark; and is used for commercial purposes.

The Komatsu tractor was put forward as part of the dredging operation in that it was purchased for the purpose of moving the debris dug up by the dredging vessel. Most of the debris is transported by way of a tube from underwater to land where it accumulates in piles. The tractor is needed to remove the debris as it piles up.

The Commission agrees with the position taken by the Respondent that the tractor is not a "commercial vessel" within the meaning of the Act. While the Appellant argued that the tractor was essential to the dredging operation, the Commission finds that the exemption set out in the Act does not provide an exemption for dredging as an economic activity. The exemption is limited to commercial vessels or boats-no matter what activity they are engaged in-so long as those vessels or boats operate in extra-territorial waters and are not used for recreational or sporting purposes. The tractor does not fit within the description of "vessel" or "boat" and therefore does not fall within this exemption.

The second issue to be addressed is whether or not the Appellant's vessel normally operates in extra-territorial waters. The position of the Appellant is that its contract work with the federal government for dredging is always extra-territorial: any Prince Edward Island public harbours in which it dredges are the property of the federal government and, where public harbours are not involved, the work is below the low-water mark and so beyond the territorial limits of the province.

The Respondent's position is that the dredging work done by the Appellant is mostly in Prince Edward Island, harbours being provincial property and the province having legally assumed jurisdiction beyond the low-water mark.

The work completed by the Appellant for the audit work in question is as follows:

Dollar Value % of Total

North Lake $235,614 27.5

Fortune $ 76,000 8.8

Mussel Mud $159,200 18.6

Shag Harbour, N.S. $221,389 25.8

Souris $165,990 19.3

TOTAL $858,193

The above is excerpted from the information provided in Exhibit A-6. While there was some debate about analyzing the work of the Appellant by way of comparing the dollar value of each contract, no serious objection to this methodology was put forward by the Respondent.

The Respondent admits that the work done in Shag Harbour, Nova Scotia, is not work done within the province. It argues, however, that all other work was done in the province. The Appellant admits that the mussel mud work took place in the province.

The Appellant's position is that all the goods in question were either consumed on the job site or used to keep the dredge vessel ready to operate when needed. The Appellant submits that the vessel needed to be kept repaired and ready to operate at all times.

The Appellant put forward the following positions regarding the law relevant to extra-territoriality:

1) at common law, the low-water mark represents the outer boundary of the territory of a province; and

2) pursuant to s.108 of the Constitution Act, 1867, 30 & 31 Vict., c. 3 (U.K.), and the Terms of Union between Prince Edward Island and Canada, all public harbours at the time Prince Edward Island joined Confederation became the property of the federal government.

The Respondent countered these arguments with the following:

1) the areas in which the Appellant worked did not involve any public harbours transferred pursuant to s.108 of the Constitution Act, 1867;

2) even if some of the areas dredged by the Appellant were public harbours transferred pursuant to s.108, the province retained concurrent jurisdiction over these harbours; and

3) a province could extend its boundaries beyond the low-water mark by legislating specifically to that effect, and this was done by Prince Edward Island before Confederation and the additional land remains part of the territory of the Province of Prince Edward Island.

There would appear to be no argument that at common law the territory of a province ends at the low-water mark. Reference Re Ownership of Off-Shore Mineral Rights (1967), 65 D.L.R. (2d) 353 (S.C.C.), dealt with this issue. That case extensively reviews the history of the law on this point, confirming that the territory of "the realm" ended at the low-water mark; extensions of jurisdiction from this low-water mark into the high sea are the product of concessions from international law which are not subject to the common law; an act of the Legislature (Federal/Crown) could confer such international law rights upon a province or colony, but the conferring of such a right must be shown through historical records.

Dispute can arise over the location of the low-water mark where land boundaries adjacent to the sea contain severe indentations in the form of natural bays, harbours and channels. Land intra fauces terrae can be fundamental to a finding of Crown property in right of the Province.

However, this, too, is subject to the s.108 transfer of public harbours to Canada at the time Prince Edward Island joined Confederation.

Are any of the waters in question public harbours, pursuant to s.108? An article entitled "The Meaning of 'Public Harbours' in the Third Schedule to the British North America Act, 1867," by G.V. LaForest, The Canadian Bar Review, Vol. XLI, p. 519, investigates this subject. There are no clear guidelines and the courts have only decided this issue on a case by case basis, as required.

Overall, LaForest concludes that, to be a public harbour, an area must be more than simply a shelter that protects from wave and wind from many directions, with sufficient depth and free from rocks and shoals. It can have all of these attributes but, if its mouth is too wide, the area becomes no more than a "roadstead". Overall, use is paramount. He cites the Privy Council case of Attorney-General of Canada v. Ritchie Contracting and Supply Co., [1919] A.C. 999 at pp. 1003-1004 per Lord Dunedin, as follows:

. . . the extreme view . . . that every indentation of the coast to which the public have right of access, and which by nature is so sheltered as to admit of a ship lying there, is a public harbour, has been argued by the Appellants in this case and rightly, as their Lordships think, rejected by all the learned judges in the courts below. Potentiality is not sufficient; the harbour must be, so to speak, a going concern. 'Public harbour' means not merely a place suited by its physical characteristics for use as a harbour, but a place to which on the relevant date the public had access as a harbour, and which they had actually used for that purpose. In this connection the actual user of the site both in its character and extent is material. [Emphasis added.]

Use by the public was then further elaborated upon to mean use for commercial purposes, as distinguished from use for navigation only. Another likely necessity is the expenditure of public funds or the existence of government activity or involvement, especially in connection with wharves. And these activities must relate to harbours in existence before Confederation.

There does not appear to be any disagreement between the parties that s.108 of the Constitution Act, 1867 applies to Prince Edward Island through the Terms of Union between Prince Edward Island and Canada.

The evidence produced by the Appellant in support of a declaration that the areas in which dredging occurred were public harbours-and so the property of Canada-consists of:

1. Tables from Journals of the Legislative Assembly from 1863 to 1874 showing exports and imports into the Port of Colville Bay (Souris), number and tonnage of vessels entered and cleared at each port in the Colony of Prince Edward Island, with reference to Colville Bay;

2. Pages from the Journals of the Legislative Assembly from 1863 to 1874 showing moneys spent on wharves and harbours, showing items of expenditure on the Bay Fortune Wharf, the Souris Breakwater, the Bay Fortune Wharf and Buoying Harbour, and the sides of the Souris River;

3. A chapter entitled "Fortune Bay" from the book Ship Building on Prince Edward Island, (1787-1920), by Nicolas DeJong and Moore, describing the "significant contribution" made by shipbuilding in this area to the Island's early shipbuilding industry and calling Bay Fortune and Rollo Bay "the most active shipbuilding areas along this coastline," (p. 311);

4. A chapter entitled "Souris" from the DeJong and Moore book referred to above, referring to Colville Bay as the best area for shipbuilding along the coast from Souris to Basin Head "because it had a depth of water sufficient to accommodate large vessels", (p. 317). The river's limitations are noted and then followed by the following comment:

Despite the limitation of the River, Colville Bay gradually became one of the most important inlets at the eastern end of the Island. The expansion of the area's agricultural and fishing industries led to the emergence of Souris as a major transshipment point. (p.317);

5. A chapter entitled "East Point" from the DeJong and Moore book referred to above describes the area around North Lake as follows:

The lack of sheltered inlets along the more rugged north side was as difficult to contend with as were the sand dunes along the south shore. Admiral Bayfield described the coastline from St. Peters to East Point as 'unbroken, formed of red sandstone cliffs, with occasional patches of sandy beach at the mouths of small streams where boats can land only in fine weather or off-shore winds.' (p.324);

and

6. Excerpts from Ten Farms Become a Town, A History of Souris, by Adele Townsend describes shipbuilding along the Souris River, as well as exports along the River. There are also descriptions of wharves in the area before 1873, as well as the sea-related activities out of the harbour:

In the early years, Souris River was called The Harbour as indeed it was a haven for all vessels in the area those days. Larger ships anchored out in Colville Bay were safe from all but a strong southerly wind. Besides numerous bustling shipyards, there were several jetties or wharves along the river shore where sailing vessels unloaded their precious cargo of rope, canvas, salt, molasses, tea and, of course, Jamaica rum and took over such mundane things as lumber, fish, potatoes and grain. (p.27)

The evidence presented supports the designation of Souris and Fortune as public harbours at the time Prince Edward Island joined Confederation. As a result, the Commission accepts the Appellant's argument that, pursuant to s.108 of the Constitution Act, 1867, these harbours became the property of Canada in 1873.

The Respondent argues that, even if Souris and Fortune are public harbours, this does not prevent the province from retaining legislative control over the areas. The case apparently relied upon for this proposition is Re Rush and Tompkins Construction Ltd., (1961), 35 W.W.R. 264 (B.C.S.C.). In that case, the Glacier National Park, a National Park of Canada whose boundaries are described in the National Parks Act, lies wholly within the boundaries of the Province of British Columbia. A question arose as to the province's powers to tax goods consumed in the park. However, that case turned upon a special agreement between Canada and British Columbia that allowed British Columbia to retain the right to tax within national park property:

16. The Parliament of Canada shall have exclusive legislative jurisdiction within the whole area included within the outer boundaries of each of the said parks, notwithstanding that portions of any such area may not form part of the park proper, and the laws now in force within such areas shall continue so in force only until changed by the Parliament of Canada or under its authority, provided, however, that all laws of the Province now or hereafter in force, which are not repugnant to any law or regulation made applicable within the said areas or any of them by or under the authority of the Parliament of Canada, shall extend to and be enforced within the same, and that all general taxing Acts passed by the Province shall apply within the same unless expressly excluded from application therein by or under the authority of the Parliament of Canada.

[Emphasis added.]

In the Commission's view, this case cannot assist us, as no similar agreement exists between Prince Edward Island and Canada as to its harbours.

While the Commission accepts the Respondent's point that concurrent jurisdiction is often possible, there is no evidence that such should be found to exist in this case. The Respondent's reference to the case of Hamilton Harbour Commissioners v. City of Hamilton et al., (1978), 91 D.L.R. (3d) 353 (Ont. C.A.), is not of assistance. In that case, there was no argument that the harbours being dealt with were public harbours. Moreover, land use control within harbours was found to have both provincial and federal aspects:

Neither the Commissioner nor the Attorney General of Canada contend that in 1867, the Hamilton harbour was a public harbour within the meaning of s.108 and the third schedule of the B.N.A. Act. By the joint operation of s.108 and Schedule III any harbours falling within the category of public harbours became the property of the Crown in right of the Dominion. (p.356)

This is such an important feature distinguishing that case from the instant case that we are unable to derive any guidance from the Hamilton Harbour case.

The Respondent further argues that the province retains the property it controlled at the time it joined Confederation and that, at that time, it controlled beyond the low-water mark. The law on this point cited by the Respondent includes the reference case Re Ownership of Off-Shore Mineral Rights, supra. The relevant principles of that case are summarized in the headnote relating to Question 1 - Territorial Sea:

Question 1 - Territorial Sea

At common law the realm of England and of any British Colony ends at the low-water mark. The territorial waters beyond the low-water mark are not part of the realm. Under international law the British Parliament by legislation could make the territorial waters of England or of any British Colony part of the realm of England or of that Colony. However, this was not done with respect to the Colony of British Columbia prior to its entering Confederation in 1871; nor has British Columbia since acquired ownership or property in the territorial sea.

The power with respect to Canadian territorial waters remained in the British Parliament until Canada became a sovereign State. Canada acquired its sovereignty in the period between its separate signature of the Treaty of Versailles in 1919 and the Statute of Westminster, 1931, 1932 (Can.), p. v. Section 3 of the Statute of Westminster provides in an absolutely clear manner and without any restrictions that the Parliament of a Dominion has full power to make laws having extra-territorial operation. Now it is Canada that is recognized by international law as having rights in the territorial sea adjacent to the Province of British Columbia. Canada has full constitutional capacity to acquire new areas of territory and new jurisdictional rights which may be available under international law. The territorial sea now claimed by Canada is defined in the Territorial Sea and Fishing Zones Act of 1964. The effect of that Act, coupled with the Geneva Convention of 1958, is that Canada is recognized in international law as having sovereignty over a territorial sea three nautical miles wide. It is part of the territory of Canada.

The sovereign State which has the property in the bed of the territorial sea adjacent to British Columbia is Canada. At no time has British Columbia, either as a Colony or a Province, had property in these lands. It is the sovereign State of Canada that has the right, as between Canada and British Columbia, to explore and exploit these lands, and Canada has exclusive legislative jurisdiction in respect of them either under s.91(1A) (am. 1949 (U.K.), c.81, s.1) of the B.N.A. Act or under the residual power in s.91. British Columbia has no legislative jurisdiction since the lands in question are outside its boundaries. The lands under the territorial sea do not fall within any of the enumerated heads of s.92 since they are not within the Province.

The only exception allowed with respect to British Columbia-as opposed to Canada-having legislative rights was authority previously delegated by the British Parliament to British Columbia that was acted upon in legislation by British Columbia.

Fishing rights do not appear to be sufficient to establish proprietorship by a province:

The question was raised in the Privy Council in A-G.B.C. v. A-G. Can. (Re British Columbia Fisheries), 15 D.L.R. 308, [1914] A.C. 153, 5 W.W.R. 878, but it was left unanswered at p. 319:

In the argument before their Lordships much was said as to an alleged proprietary title in the province to the shore around its coast within a marine league … their Lordships feel themselves relieved from expressing any opinion on the question whether the Crown has a right of property in the bed of the sea below low-water mark, to what is know as the three-mile limit, because they are of opinion that the right of the public to fish in the sea has been well-established in English law for many centuries, and does not depend on the assertion or maintenance of any title in the Crown to the subjacent land. (p.361) [Emphasis added.]

This case makes it clear that, only where

(1) there is specific legislation by a country claiming territorial jurisdiction over water beyond the low-water mark, and such a claim is recognized internationally by other countries; or

(2) a country with territorial jurisdiction over water beyond the low-water mark conveys this jurisdiction by law to another legislative entity, such as a colony or a province,

will such a claim give a proprietary right.

Examples of this type of claim being supported are given at p. 368:

1) In connection with the Conception Bay case, Direct United States Cable Co. v. Anglo-American Telegraph Co. (1877), 2 App. Can. 394, there is the following summary:

First, there was legislation of the Imperial Legislature, 59 Geo. III, c.38, which asserted exclusive domain over the bay. This legislation had never been questioned by any foreign state and, by 35-36 Vict., c.45, the Imperial Legislature conferred upon the Legislature of Newfoundland the right to legislate with regard to Conception Bay as part of the territory of Newfoundland.

This is the ratio of the case and it does not carry with it any general delegation by the British Crown over the territorial sea surrounding Newfoundland.

2) R. v. Burt (1932), 5 M.P.R. 112, was concerned with the seizure of a ship carrying a cargo of intoxicating liquor off Chance Harbour in the County of Saint John within approximately one and three-quarter miles from shore. The Appellate Division of the Supreme Court of New Brunswick held that the locus of the seizure was the province of New Brunswick and that the offence, as set forth in the conviction under appeal, was committed within the Province of New Brunswick and within the body of a county.

This case is within the principle of the Conception Bay case. It is based upon the fact that [p. 117]:

'By the Royal Instructions issued to Governor Carleton upon the separation of what is now the Province of New Brunswick from the Province of Nova Scotia, the southern boundary of the new Province was defined as "a line in the centre of the Bay of Fundy from the River of Saint Croix aforesaid to the mouth of the Musquat (Missiquash) River" clearly indicating the claim of Great Britain at that time to the whole of the Bay of Fundy as a portion of her territory.'

These examples show the extent to which the Court requires specific evidence of a clear legislative delineation of specified areas below the low-water mark as being part of the territory of a province. Just as the onus of proof in determining that a harbour is a public harbour appears-pursuant to s.108 of the Constitution Act, 1873-to be on the person making that assertion (see LaForest, supra, at p. 531), so, too, the onus of proof that territory below the low-water mark has been specifically given status as part of the territory of a province appears-from the Reference Re Ownership of Off-Shore Mineral Rights case, supra-to be upon the person making the assertion.

In this case, the Respondent makes this assertion. The evidence provided in support is as follows:

1) A photocopy of An Act to regulate the Fisheries of this Island, 5^th George IV, Cap. XII;

2) A photocopy of An Act for the security of navigation and for preserving all ships, vessels and goods, which may be found on shore wrecked or stranded, upon the coasts of this Island, and for punishing persons who shall steal shipwrecked goods, and for the relief of persons suffering loss thereby, 10th George IV, Cap. XI; and

3) A photocopy of An Act relating to the fisheries, and for the prevention of illicit trade in Prince Edward Island, and the coasts and harbours thereof, 6th Victoria, Cap. XIV.

As noted earlier, actions taken in support of fishing rights do not give proprietary rights over territorial water. There is no indication in any of these statutes that specific legislative authority or proprietorship had been granted by the British Parliament to Prince Edward Island. There is reference in the third statute referred to of a convention made "between His late Majesty King George the Third, and the United States of America" and a suggestion that this law is being passed to assist in the enforcement of that convention. However, this would appear to be an independent act by the Island Legislature as opposed to a specific transfer of authority from the British Parliament.

While the case of Gavin v. The Queen (1956), 3 D.L.R. (2d) 547 (P.E.I.S.C.), suggests that an implied delegation may be sufficient to give legislative jurisdiction over extra-territorial water, this suggestion does not appear consistent with the Supreme Court of Canada's later comments in Re Ownership of Off-Shore Mineral Rights, supra. In addition, there does not appear-in the instant case-to be any legislation similar to that relied upon in Gavin from which one could even imply delegation.

Finally, with respect to North Lake, the Respondent put forward the proposition that the inter fauces terrae rule applied to find that the waters there were between two headlands and so "within the province"-not below the low-water mark. The Commission finds that, for work done outside the entrance to North Lake, insufficient evidence was provided to support the application of this principle. Work carried on inside the entrance to North Lake-an area not proven by the Appellant to fall within the requirements for designation as a public harbour-would be work carried out within the province.

In summary, the Commission finds that work done in connection with Souris and Fortune, Prince Edward Island, and Shag Harbour, Nova Scotia, was work done extra-territorially. Part of the work done at North Lake was also done extra-territorially. This along with the testimony of Bill Wellner, president of Maritime Dredging, as to the nature of the business in which the dredging machine is used, results in a finding by the Commission that the goods in question were consumed by a commercial vessel that normally operates in extra-territorial waters.

This finding relates to the four-year audit period in question. If the Appellant's activities change, the balance could shift such that the vessel no longer normally operates extra-provincially.

3.2 Goods Not Consumed in the Province

The case law makes it clear that the purpose and intent of the Act must be ascertained in order for it to be interpreted properly. In order to determine that purpose and intent, we must look at the overall structure of the Act.

The principal section outlining the purpose and intent of the Act is Section 4:

4. Every consumer of goods consumed in the province shall, at the time of taking delivery, pay to the Minister for the raising of revenue for provincial purposes, a tax at the rate of ten percent of the fair value of the goods.

[Emphasis added.]

Who is a consumer? Section 1 states:

1. In this Act,

. . .

(b) "consumer" means a person who

(i) utilizes or intends to utilize within the province goods for his own consumption, or for the consumption of another person at his expense, or

(ii) utilizes or intends to utilize within the province goods on behalf of or as agent for a principal who desired or desires to so utilize the goods for consumption by the principal or by any other person at the expense of the principal, . . . [Emphasis added.]

And "consumption" is defined in ss.1 (c) as including "use".

Read together, these sections clearly indicate that the intention of the legislature was to tax goods used "within the province". Therefore, goods purchased in Prince Edward Island but not used-or intended to be used-in Prince Edward Island are not taxable.

Once again, this forces us to review the operations of the Appellant to determine whether or not the goods consumed were actually consumed in the province.

The above analysis of the territorial boundaries of Prince Edward Island is part of the foundation required in order to answer the question: Are the goods consumed in Prince Edward Island?

As a result of the analysis above, the Commission finds that goods consumed by the Appellant in connection with the work completed at Fortune and Souris, Prince Edward Island, and Shag Harbour, Nova Scotia, were consumed outside the province, and that some of the goods consumed in connection with work done at North Lake were consumed outside the province. There is no explicit provision in the Act for apportioning tax in a circumstance such as the one described to the Commission in this case. Here we have a piece of machinery that is primarily used for out-of-province work but occasionally used for work within the province.

The exemption created by paragraph 12.(1)(u) of the Act eliminates the need for an apportionment in a situation such as the one faced here. Perhaps that was the reason for the exemption. However, accepting that this is an alternative argument that could apply to the Appellant's situation, we conclude that the only reasonable way in which to attain the objective of the Act-taxation of goods consumed in the province-is to apportion the goods consumed to the in-province work and tax on that basis.

Since evidence and argument were not heard on this point, we will reserve a determination on this item-if one is necessary-until after hearing evidence and argument.

3.3 Exclusive Federal Jurisdiction

The Appellant puts forward as a ground of appeal:

That all, or substantially all, work performed by it related to works under the exclusive jurisdiction of the federal government and as such the province does not have jurisdiction to tax the same.

While the Appellant put forward evidence-through the verbal testimony of Mr. Wellner-that the dredging work completed by the Appellant was work for the federal government, no evidence was put forward that this work was in the nature of a federal undertaking and so exclusively within federal jurisdiction. While this issue may in any event be unnecessary for the disposition of this appeal, the Commission finds that insufficient evidence was put forward by the Appellant to support this proposition separate and apart from what was provided to establish the exemption pursuant to s.12(1)(u) of the Revenue Tax Act.

3.4 Production of Goods for Sale

In the alternative, the Appellant has argued that the work done in connection with the mussel mud operation in Hillsborough River was exempt pursuant to clause 12.(1)(i) of the Act:

12. (1) A consumer is not liable to pay the tax in respect of the consumption of the following goods:

. . .

(i) machinery, apparatus and complete parts therefor, as defined by regulation, used directly in the manufacture or production of goods for sale and where partly used in such manufacture or production of goods for sale and partly used for other purposes, the exemption conferred by this clause shall be determined on the basis of the proportion of the time in which the machinery or apparatus is used in such manufacture or production;

Section 35 of the Regulations passed pursuant to the Act is also relevant:

35. For the purpose of clause 12.(1)(i) of the Act machinery, apparatus and parts therefor means those items prescribed as at December 31,1990, in Part XIII of Schedule III of the Excise Tax Act (Canada) R.S.C. 1985, Chap. E-15.

The case cited by the Appellant in support of his argument is Campbell v. Minister of Finance (1980), 26 Nfld. & P.E.I.R. 288 (P.E.I.C.A.). That decision found bulk milk tanks to be exempt. We find the legislation today worded somewhat differently from how it was worded in that case but, for our purposes, the wording change is not material.

The conclusion of that case is relevant.

One other point that has been laid to rest by the Irving Oil case is that the exemption does not have to do with something done by the manufacturer or producer. In the Irving Oil case one of the appellants was Canaport Limited which owned the storage facility area where certain of the goods were held to be exempt. It is the total integrated process of manufacture or production which must be looked at. (Per MacDonald, J. at p. 316.)[Emphasis added.]

The dredging machine used by the Appellant is specially designed for its work. It is hydraulically operated and moved on the road in tractor-trailer trucks when disassembled. Designed to operate in the water, it moves-a process called "walking"-by an anchor system. For work in the Hillsborough River, it is launched at the wharf in Charlottetown and pushed up the river by boat. The dredge operates by agitating the material to be moved, then sucking it with a pump and moving it through a pipe to the location desired by the customer.

For the mussel mud operation, Mr. Wellner testified that the process involved identifying the mussel beds, determining a land site for de-watering, obtaining a permit from environment, and doing test probes to determine the quality of the product. Test probe samples were sent "to agriculture".

This process is in many ways similar to the process described in the Campbell case, supra, where it was found that the hauling of milk in bulk tanks required pre-testing and was part of the entire production process. In addition, a review of the Excise Tax Act, Schedule III, suggests that, so long as machinery is specially designed for dealing with a raw material, it will be considered exempt. For example, the exemptions cited therein include:

1. All the following:

. . .

(e) self-propelled trucks mounted on rubber-tired wheels for off-highway use exclusively at mines and quarries;

(f) internal combustion tractor, other than highway truck tractors, for use exclusively in the operation of logging, the operation to include the removal of the log from stumps to skidway, log dump, or common or other carrier;

. . .

The Commission finds that the dredging machinery used by the Appellant in its mussel mud operation falls within the definition set out in clause 12.(1)(i) of the Act and is therefore exempt from sales tax. We find, as well, that the Komatsu tractor-insofar as it was involved in this mussel mud operation-also falls within the exemption set out in clause 12.(1)(i) of the Act.

Since that clause calls for an exemption in proportion to "the time in which the machinery or apparatus is used in such manufacture or production", the Commission will need to hear evidence on this point before it can make the required apportionment.

4. Conclusion

Based on the foregoing discussion, the Commission finds and concludes as follows:

1) The dredging machine operated by the Appellant normally operates in extra-territorial waters and therefore the goods consumed in connection with the commercial vessel, registered as no. 392496, are not taxable, pursuant to clause 12(1)(u) of the Revenue Tax Act.

The tax in question was part of the four-year assessment referred to in the Notice of Assessment dated October 16, 1992 indicating a total assessment due of $40,613.44. During the hearing, at one point the parties appeared to agree that, of the $27,980.30 tax due in accordance with that assessment, $3,732.15 related to the cost of goods consumed as part of the dredging vessel.

However, at another point, Mr. Wellner testified that the Appellant paid between eighteen and nineteen thousand dollars of tax "on dredging supplies" during the audit period. The Commission is unsure about whether or not this amount properly relates to the operation of the commercial vessel exempt pursuant to s.12(1)(u) of the Act. If the parties are unable to agree on the amount at issue, the Commission will hear further evidence on this point and decide the matter.

2) The operations of the Appellant in obtaining mussel mud from the Hillsborough River were part of the process of production of mussel mud and are therefore exempt from taxation to the extent allowed, pursuant to s.12(1)(i) of the Revenue Tax Act.

Two of the Appellant's machines were used in this operation: a dredging vessel; and a Komatsu tractor. The dredging vessel is, because of the findings in number 1 above, fully exempt from tax and need not be dealt with again here.

The Komatsu tractor is exempt in the proportion that the mussel mud work bears to its overall activities for the period in question. If the parties are unable to agree upon this calculation the Commission will hear evidence on this issue.

3) Any taxes paid in error relating to matters separate from those dealt with by the Notice of Assessment dated October 16, 1992 and the Notice of Objection dated October 22, 1992 require either a separate Notice of Objection or should be sought pursuant to section 19 of the Revenue Administration Act:

19. (1) Where a person

(a) has paid an amount as tax that is not payable as tax; or

(b) has paid an amount as tax that is in excess of the amount payable as tax,

the Minister shall repay to that person the amount wrongly paid or the amount of the excess if application for refund has been made within four years of the date the overpayment was made.

(2) Notwithstanding subsection (1), where an amount is paid as tax and it is subsequently determined that the amount was paid under a mistake in law, no action shall be maintainable against the Government for return of the amount so paid.

(3) For the purposes of subsection (2), a mistake in law includes an incorrect interpretation or application of any of the provisions of this Act or a revenue Act, or the regulations.

(4) A collector shall not be entitled to claim a refund under this Act or a revenue Act, or to commence an action claiming a refund in respect of any amount collected and remitted by the collector as an agent of the Minister.

5. Disposition

An Order allowing the appeal will therefore issue.

Order

UPON the appeal by Maritime Dredging Ltd. against a decision of the Provincial Tax Commissioner, dated December 1, 1992;

AND UPON hearing the evidence adduced as well as what was alleged by Counsel at hearings conducted in Charlottetown on November 16 and 17, 1995;

NOW THEREFORE, for the reasons given in the annexed Reasons for Order;

IT IS ORDERED THAT

1. The appeal is allowed;

2. The Decision of the Provincial Tax Commissioner, dated December 1, 1992 is varied as follows:

2.1 The goods consumed in connection with the commercial vessel, registered as no. 392496, are not taxable, pursuant to clause 12(1)(u) of the Revenue Tax Act;

2.2 The operations of the Appellant in obtaining mussel mud from the Hillsborough River are exempt from taxation to the extent allowed, pursuant to s.12(1)(i) of the Revenue Tax Act;

2.3 Any taxes paid in error relating to matters separate from those dealt with by the Notice of Assessment dated October 16, 1992 and the Notice of Objection dated October 22, 1992 require either a separate Notice of Objection or should be sought pursuant to section 19 of the Revenue Administration Act.

3. Additional evidence on outstanding issues identified in the annexed Reasons for Order will be heard by the Commission at a date to be fixed, upon the Commission receiving a written request from either party that such a hearing is necessary for a resolution of outstanding matters.

DATED at Charlottetown, Prince Edward Island, this 7th day of June, 1996.

BY THE COMMISSION:

Linda Webber, Chair

Anne McPhee, Commissioner

Deborah MacLellan, Commissioner

NOTICE

Section 12 of the Island Regulatory and Appeals Commission Act reads as follows:

12. The Commission may, in its absolute discretion, review, rescind or vary any order or decision made by it or rehear any application before deciding it.

Parties to this proceeding seeking a review of the Commission's decision or order in this matter may do so by filing with the Commission, at the earliest date, a written Request for Review, which clearly states the reasons for the review and the nature of the relief sought.

Sections 13.(1) and 13(2) of the Act provide as follows:

13.(1) An appeal lies from a decision or order of the Commission to the Appeal Division of the Supreme Court upon a question of law or jurisdiction.

(2) The appeal shall be made by filing a notice of appeal in the Supreme Court within twenty days after the decision or order appealed from and the Civil Procedure Rules respecting appeals apply with the necessary changes.