Autech Mining Pty Ltd and Commissioner of Taxation
[2011] AATA 821
•18 November 2011
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2011] AATA 821
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/2555-2559
TAXATION APPEALS DIVISION ) Re AUTECH MINING PTY LTD Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Senior Member CR Walsh Date18 November 2011
PlacePerth
Decision
The Tribunal affirms the decision under review.
...(sgd) C R Walsh...........
Senior Member
CATCHWORDS
ENERGY GRANTS CREDITS SCHEME – FUEL TAX CREDITS – entitlement to off-road credits – diesel fuel purchased for use in “mining operations” – “operations for the recovery of minerals” – “the beneficiation of ….minerals” - meaning of “beneficiation” – blending of ore – re-screening of ore - ore conditioning/moisture control - removal of scrap metal from ore by metal detector – downstream processing of ore by customers - “mining transport activity” – whether activity eligible for rebate because integral to another eligible activity – retrospective amended assessments issued by Commissioner – applicant’s reliance on Commissioner’s rulings etc. in self-assessing
LEGISLATION
Energy Grants (Credits) Scheme Act 2003 – section 11(1)(b)(i) – section 11(1)(b)(ii) – section 11(1)(c) – section 11(3) – section 11(5) – section 12 – section 18 – section 36 – section 38 – section 39 – section 51 – section 53(1) – section 53(2) – section 53(3) section 56
Fuel Tax Act 2006 – section 41.5 – Part 4
Fuel tax (Consequential and Transitional Provisions) Act 2006 – section 3 – Part 3 of Schedule 3
Taxation Administration Act 1953 – section 14ZZK(b)(i) – Part IVC - section 105-5(1)(b) – section 105-40 – section 105-50 - Schedule 1
Product Grants and Benefits Administration Act 2000 – section 15 – section 17 - section 20 – section 53
Customs Act 1901 – section 164(7) – section 164 7A - section 164(7C)
Customs and Excise Legislation Amendment Act (No 1.) 1997
Mines Safety and Inspection Act 1994 (WA) – section 4(1)
CASES
State Rail Authority of New South Wales v Collector of Customs 33 FCR 211
Abbott Point Bulk Coal Pty Ltd v Collector of Customs 35 FCR 371
Regional Director of Customs (WA) v Dampier Salt (Operations) Pty Ltd [1996] FCA 452
Freight Rail Corporation v CEO of Customs (AAT); Case [2000] AATA 175; 44 ATR 1028
Freight Rail Corporation v CEO of Customs [2000] FCA 1796; (2000) 32 AAR 335
Federal Commissioner of Taxation v Ostwald Bros Civil Pty Ltd [2008] FCAFC 99
Asciano Services Pty Ltd v Commissioner of Taxation [2009] FCAFC 28; 75 ATR 283
Canerase Pty Ltd v Commissioner of Taxation [2011] AATA 247REASONS FOR DECISION
18 November 2011 Senior Member CR Walsh Introduction
1. During the period 15 July 2003 to 30 June 2008 Autech Mining Pty Ltd (Autech) claimed off-road credits and fuel tax credits for diesel fuel purchased for use in its Komatsu WA800 articulated front-end wheel loaders, which it used to load iron ore from stockpiles within storage sheds at the Port of Esperance in Western Australia (Port) onto hoppers, which directed the ore onto conveyor belts inside the sheds, which transported the ore out to a ship berthed at Port for loading, pursuant to its contract with the Esperance Port Authority (EPA). Autech’s operations at the Port involved “blending” of the different ores stockpiled in the storage sheds as well as of ores from incoming trains with ores already stockpiled in the storage sheds.
2. Autech seeks a review of the Commissioner’s objection decision, dated 6 April 2009, which disallowed Autech’s objection against “amended claim assessments” (issued to Autech on 30 October 2008) in respect of off-road credits claimed by Autech in the period 15 July 2003 to 7 July 2006 and “net fuel amount” assessments (issued to Autech on 3 November 2008) in respect of fuel tax credits claimed by Autech in the period 1 July 2006 to 30 June 2008.
Background to Autech’s Application
3. Autech, which was established in 1985, stemmed from the family business ‘Nash Mining’ which had operated since 1964 as a mining contractor and gold mining company.
4. In January 2002 Autech entered into a five year contract with the EPA to supply wheel loader services and operators to load iron ore at the Port or Esperance, commencing 1 January 2001 (EPA Contract). On 1 May 2005, the EPA Contract was renewed for a further five years.
5. The iron ore handled by Autech in the storage sheds at the Port was mined in Koolyanobbing (approximately 580 kilometres north of Esperance in the Yilgarn region of Western Australia) by Portman Iron Ore Ltd (Portman) (now Cliffs Natural Resources Pty Ltd) (Cliffs) and was then transported from Koolyanobbing to the Esperance Port by rail by the Australian Railroad Group (ARG).
6. Once at the Port, the iron ore was unloaded from the train by a hydraulic Rotary Car Dumper (RCD), operated by the EPA, which individually inverted each of the train’s wagons, dumping the iron ore into a bin that fed a conveyor belt located beneath it. The iron ore was then carried by conveyor belt either directly onto a ship berthed at the Port or into one of the EPA’s four storage sheds for stockpiling. When there was no ship in the Port, all of the iron ore was directed into the storage sheds and was stockpiled.
7. Under its contract with the EPA, Autech provided Komatsu WA800 front-end wheel loaders (which ran on diesel fuel) and operators to transport iron ore from stockpiles on one side of the EPA’s storage sheds to the hoppers on the opposite side of the sheds. The hoppers then directed the iron ore onto the conveyor belts inside the sheds, which transported the iron ore out to the ship berthed at Port for loading. The iron ore was loaded off the conveyor belt and onto the ship by way of a ship-loader operated by the EPA.
8. In the period 15 July 2003 to 7 July 2006, Autech claimed off-road credits under the Energy Grants (Credits) Scheme Act 2003 (Cth) (EGCSA) in respect of the diesel fuel purchased by it for use in its front-end loaders at the Port in accordance with the EPA Contract. Those claims were made monthly by Autech in the period concerned, pursuant to section 15 of the Products Grants and Benefits Administration Act 2000 (PGBAA).
9. In the period 1 July 2006 to 30 June 2008, Autech claimed fuel tax credits under the Fuel Tax Act 2006 (Cth) (FTA) for the diesel fuel acquired by it for use in its front-end loaders at the Port in accordance with the EPA Contract. Those claims were made by Autech reporting its ‘net fuel amounts’ (calculated in accordance with the formula in section 60-5 of the FTA) in its quarterly business activity statements in the relevant period.
10. On 11 February 2008 the Australian Taxation Office (ATO) notified Autech that it would be conducting a fuel tax credit audit of Autech for the period 1 March 2003 to 30 September 2007 and requested information from Autech. Autech provided the ATO with that information on 5 March 2008.
11. The ATO subsequently notified Autech (on 29 April 2008) that it had expanded its audit of Autech to review Autech’s fuel tax credit, Energy Grant Credit Scheme (EGCS) and Diesel Fuel Rebate Scheme (DFRS) claims lodged by Autech in the period 1 January 2003 to 28 December 2007.
12. On 31 October 2008, the ATO wrote to Autech advising it of the outcome of the audit. That letter provided, among other things, that:
·Autech had claimed a DFRS, EGCS and fuel tax credit entitlement for diesel fuel used in loading iron ore onto ships at the Port when the activity was ineligible;
·Autech’s DFSR claims had not been amended as the legislation limits amendments of DFSR claims to within five years of the claims being made and it had been more than five years;
·Autech’s EGCS claims for the period 15 July 2003 to 7 July 2006 had been reduced to nil, resulting in a shortfall of $450,367.42;
·Autech’s fuel tax credit entitlements for the tax periods from 1 July 2006 to 20 June 2008 had been reduced to nil, resulting in a shortfall of $429,686;
·Having considered the circumstances that led to Autech’s overstated EGCS and fuel tax credit claims, the ATO had decided to remit any penalties in full; and
·After considering the circumstances of Autech’s case, the ATO had decided to remit the interest charge in part.
13. The ATO issued Autech with “amended claim assessments” (dated 30 October 2008) pursuant to section 20 of the PGBAA in relation to off-road credits claimed by Autech’s in the period 15 July 2003 to 7 July 2006, resulting in a shortfall amount of $450,367.42.
14. On 3 November 2008 the ATO issued Autech with “net fuel amount” assessments pursuant to section 105-5(1)(b) of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA) in respect of Autech’s fuel tax credit claims for the period 1 July 2006 to 30 June 2008 and advised Autech that the total amount applied to its Running Balance Account was $429,686.
15. On 22 December 2008, Autech’s lawyers (at that time) objected on its behalf against the ATO’s “amended claim assessments” in respect of Autech’s EGCS claims for the period 15 July 2003 to 7 July 2006 and its “net fuel amount” assessments in relation to Autech’s FTC claims for the period 1 July 2006 to 30 June 2008. Autech’s lawyers subsequently (on 10 February 2009) lodged submissions in support of Autech’s objection with the ATO. In summary, those submissions provided that Autech was eligible for the credits claimed under the EGCSA and the FTA as it satisfied “the requirements of use in equipment on a vessel in marine transport” within the meaning of section 36 of the EGCSA. Autech’s submissions further stated that “The operation of front end loaders to load ore onto a conveyor belt which extends to a vessel, in order to load the vessel, for the purposes of transporting ore satisfies section 36(6) of the EGCSA.” At that time, no submission was made by Autech’s lawyers, on its behalf, that Autech was entitled to the credits claimed for the reason that it had purchased the diesel fuel concerned for use in “mining operations” (including “a mining transport activity”) for the purposes of section 11(1) of the EGCSA.
16. By letter dated 8 April 2009 Autech was advised by the ATO that its objection had been disallowed in full and was provided with reasons for that objection decision. In its Reasons for Decision, the ATO concluded that Autech was not entitled to off-road credits under section 56 of the EGCSA because its “use of diesel fuel in front-end loaders [was] not in use in ‘marine transport’, in ‘mining operations’ or ‘in rail transport’.” Further, as Autech was not, in the Commissioner’s view, entitled to off-road credits under the EGCSA it was “therefore,…..also not entitled to a FTC in respect of fuel acquired for use in the period 1 July 2006 to 30 June 2008.”
17. Before the Tribunal, Autech does not seek to argue that it was entitled to the off-road credits and fuel tax credits claimed in the relevant periods on the basis that the fuel was purchased for “use” in either “marine transport” or “rail transport”. Instead, Autech’s position is that it was entitled to the credits claimed in the relevant periods for the reason that it purchased or acquired the diesel fuel concerned for use in “mining operations” within the meaning of subsection 11(1) of the EGCSA and for the purpose of subsection 53(2) of the EGCSA. Specifically, Autech argues that it was entitled to the credits claimed in the relevant periods because its operations at the Port, of “blending” the different stockpiled ores within the storage sheds, as well “blending” ores from incoming trains with stockpiled ores within the storage sheds, involved the “beneficiation” of the ore. Accordingly, Autech contends that its operations at the Port were “operations for the recovery” of the iron ore, being the “beneficiation” of that ore and, it follows, were “mining operations” for the purposes of section 11(1) of the EGCSA.
18. Consequently, the central issue for determination by the Tribunal in this application is whether what Autech’s operations in handling of the iron ore in the storage sheds at Port (including its “blending” of the ore) constituted “operations for the recovery of [the ore], being: ii. the beneficiation of [the ore]” (for the purposes of section 11(1)(b)(ii) of the EGCSA), and, it follows, “mining operations” within the meaning section 11(1) of the EGCSA.
19. This application was originally set down for hearing on 15 October 2010. However, at the request of the Commissioner and with the consent of Autech, an adjournment was granted by the Tribunal primarily for the purpose of allowing the Commissioner to obtain expert evidence in response to new material concerning the meaning of “beneficiation”, which was raised by Autech in its Statement of Facts, Issues and Contentions and in response to the content of the witness statement of Autech’s expert witness.
Relevant Legislation
Energy Grants (Credits) Scheme Act 2003
20. The relevant legislation for determining Autech’s to off-road credits for diesel fuel acquired by it in the period 15 July 2003 to 7 July 2006 is the EGCSA.
21. The EGCSA replaced the DFRS entitlement provisions administered under the Customs Act 1901 (Customs Act) and Excise Act 1901 (Excise Act), effective 1 June 2003. Part 4 of the EGCSA (Entitlement to off-road credits) essentially reproduces the provisions entitling a person to an off-road credit under the DFRS from the Customs Act and the Excise Act, with some minor changes. The PGBAA provides the administrative and compliance framework for the EGCSA.
22. Section 56(1) of the EGCSA provides that a taxpayer is entitled to an off-road credit if it is entitled to an energy grant.
23. Part 4 of the EGCSA sets out the conditions for entitlement to off-road credits. Section 53(1) of the EGSA provides that a taxpayer is entitled to an off-road credit if it purchases off-road diesel fuel for a “use” that qualifies.
21. The “uses” that qualify are set out in section 53(2) to (7) of the EGCSA. Relevant for present purposes is section 53(2) of the EGCSA, which states:
“(2)Use in mining operations (otherwise than for the purpose of propelling any vehicle on a public road),…………, is a use that qualifies.” [Emphasis added]
22. The term “mining operations” is defined in section 11 of the EGCSA. That section relevantly provides:
“11 Mining operations
Mining operations
(1) Subject to subsection (2), the expression mining operations means:
(a)exploration or prospecting for minerals, or the removal of overburden and other activities undertaken in the preparation of a site to enable mining for minerals to commence; or
(b)operations for the recovery of minerals, being:
(i) mining for those minerals including the recovery of salts by evaporation; or
(ii) the beneficiation of those minerals, or of ores bearing those minerals;
and includes:
(c)a mining transport activity; or
…………………….
(3)For the purposes of the definition of mining operations, operations for the recovery of a minerals cease:
(a)when the process of beneficiation ceases; or
(b)in the absence of a beneficiation process - when the mineral, or ores bearing the mineral:
i.are first stockpiled or otherwise stored at the place at which the mining operation is carried on; or
ii.if subparagraph i. does not apply – are removed from the ore body or deposit.” [Emphasis added]
24. Section 11(3) of the EGCSA (above) makes it clear that the point at which “operations for the recovery of minerals” cease, depends upon whether any “beneficiation” process is undertaken.
26. Section 4 of the ECGSA provides that the term “beneficiation” has a meaning affected by subsections 11(4) and (5) of the ECGSA. Those subsections state:
“(4)The beneficiation of ores bearing manganese minerals ceases when manganese-mineral concentrates are last deposited in a holding bin, or in a stockpile, at the place where the concentration is carried on before transportation of those concentrates.
(5)In determining whether a particular process to which a mineral, or ores bearing a mineral, are subjected constitutes beneficiation of that mineral or those ores, regard is to be had to the nature of the technical process involved but no regard is to be had to any market considerations that might affect the decision to subject that mineral or those ores to that process.”
27. Section 4 of the ECGSA further provides that the expression “beneficiation process” has a meaning affected by subsection 11(6) of the ECGSA. That subsection states:
“(6)The regulations may provide that, without otherwise affecting the ordinary meaning of beneficiation, a particular process, or a particular process in respect of a particular mineral or of ores bearing a particular mineral, is, for the purposes of this Act, a beneficiation process, or a beneficiation process in respect of that mineral or those ores, as the case requires.”
No regulations have been made for this purpose.
28. The term “mining” is not defined by the EGCSA, and consequently takes its ordinary meaning. “Mining” is defined in the The Macquarie Dictionary Fifth Edition (2009) as “1. the action, process or industry of extracting ores, etc., from mines.”
29. The term “mine” is defined in the The Macquarie Dictionary Fifth Edition (2009) as “1. an excavation made in the earth for the purpose of getting out ores, precious stones, coal, etc. 2. a place where such minerals may be obtained, either by excavation or washing of the soil. 3. a deposit of such minerals, either under the ground or at its surface……8. to dig in the earth for the purpose of extracting ores, coal, etc.; make a mine. 9. to extract ores, etc., from mines…..12. to dig in (earth etc.) in order to obtain ores, coal, etc. 13. to extract (ores, coal, etc.) from a mine…”.
30. The term “minerals” has the meaning given by section 20 of the ECGSA: section 4 of the ECGSA. Section 20 states:
“The expression minerals means minerals in any form, whether solid, liquid, or gaseous and whether organic or inorganic, except:
(a)Sand, sandstone, soil, slate, clay (other than bentonite or kaolin), basalt, granite, gravel or water; or
(b)Limestone (other than agricultural use limestone).”
There is no dispute between the parties that the iron ore handled by Autech at Esperance Port (in accordance with the EPA Contract) in the relevant period (2003 to 2008) constitutes a mineral or “minerals” within the meaning of section 20 the ECGSA.
31. The term “beneficiation” is not defined in the ECGSA. Further, there is no discussion in the Explanatory Memorandum which accompanied the introduction of the ECGSA on what Parliament intended the term to mean.
32. “Beneficiation” was defined in The Macquarie Dictionary First Edition (1981) as well as The Macquarie Dictionary Second Edition (1991) as follows:
“1. The dressing or processing or ores to regulate the size of the product, remove unwanted constituents and improve the quality, purity or assay grade. 2. concentration or other preparation of ore for smelting by drying, flotation, or magnetic separation.”
33. Strangely, the definition of “beneficiation” dropped out of subsequent editions of The Macquarie Dictionary (being, the Third Edition (1997), the Fourth Edition (2005) and the Fifth Edition (2009)). However, according to Macmillan Publishers Australia Pty Ltd, the publishers of The Macquarie Dictionary, the definition of “beneficiation” will be restored to The Macquarie Dictionary “on-line” in January 2012 and will be worded in identical terms to the definition as it appeared in the Second Edition (1991), as set out above.
34. “Beneficiation” is also defined in various other dictionaries. For example, it is defined in The Concise Oxford English Dictionary Sixth Edition (1976) (at 90) as the “Treatment of raw materials, ores, etc., to improve their properties. [f. Sp. beneficiar to benefit….].” The term “beneficiate” is defined in The New Shorter Oxford English Dictionary Fourth Edition (1993) as “Treat (ore, raw material, etc.) to improve its properties.”
35. The difficulty with the word “beneficiation”, not being a term which is defined in the EGCSA, is whether it should be considered as being a word in ordinary English usage or whether it is a term with a technical trade meaning.
36. In Freight Rail Corporation v CEO of Customs [2000] FCA 1796, Hill J, having referred to various decisions which have considered the meaning of “beneficiation” and, specifically whether “beneficiation” is an ordinary English word or a technical term, (including Chief Executive Officer of Customs v Western Australian Government Railways Commission (1999) 94 FCR 473 at 485 per French J; Australian Native Landscapes Pty Ltd v Collector of Customs (1997) 24 AAR 353 at 359-360 per Sackville J; Re Western Mining Corporation Ltd v Collector of Customs (unreported, AAT, 30 March 1984); Abbott Point Bulk Coal Pty Ltd v Collector of Customs (1992) 35 FCR 371 at 379 per Cooper and Ryan JJ and at 390 per French J and Collector of Customs v BHP Australia Coal Ltd (1994) 53 FCR 499) commented (at [51]) that “There is a controversy about this matter..”
37. The Commissioner’s contention before the Tribunal is that “beneficiation” is a technical term and is not a term in ordinary English usage. This view is reflected in the Commissioner’s Product Grants and Benefits Ruling PGBR 2005/2 wherein he states (at paragraph 172):
“Beneficiation is not a term in ordinary English usage. It is a technical term applicable to a range of mining or metallurgical industries. It is used to describe the treatment to improve, upgrade or concentrate the quality of mineral bearing ore up to, but not including, the refining or final pyrometallurgical or hydrometallurgical process whereby metal is produced.”
32. As regards this issue, the Tribunal agrees with the approach adopted by Hill J in Freight Rail Corporation v CEO of Customs (2000) 107 FCR 15 at [41]–[53] (and by Deputy President McMahon in the Tribunal below: see Case [2000] AATA 175), namely, that it is unnecessary to determine whether “beneficiation” is an ordinary English word or a technical term. Rather, since the Tribunal is entitled, pursuant to section 33(1)(c) of the Administrative Appeals Tribunal Act 1975, to “inform itself on any matter in such a manner as it thinks appropriate”, it is permissible for the Tribunal to consider expert evidence for the purpose of coming to an understanding of how a word is ordinarily used (and, in this case, how “beneficiation” is normally used in the context of the mining industry), provided that expert evidence is not controlling of its decision (at [53]).
38. Section 11(1)(c) of the ECGSA (as set out above) provides that the definition of “mining operations” includes a “mining transport activity”, which expression is defined in section 12 of the ECGSA as follows:
“12 Mining transport activity
The expression mining transport activity means:
(a) if minerals, or ores bearing minerals, are beneficiated at a place other than the mining site as an integral part of operations for their recovery:
(i) the journey undertaken for the purpose of transporting the minerals or ores from the mining site to that place; and
(ii) the return journey of a vehicle, a locomotive or other equipment from that place to the mining site or any part of that journey if it is undertaken for the purpose of repeating a journey referred to in subparagraph (i) or for the backloading of raw materials or consumables for use in a mining operation referred to in paragraph (a) or (b) of the definition of that expression in subsection 11(1);” [Emphasis added]
Customs Act 1901
26. Sections 11(3) and 11(5) of the EGCSA mirror former sections 164(7A) and 164(7C) of the Customs Act which were introduced, with effect from 1 August 1997, pursuant to the Customs and Excise Legislation Amendment Act (No.1) 1997. Those sections were originally introduced in the Customs and Excise Legislation Amendment Bill (No 2) 1996 (Customs Amendment Bill) with the intention of limiting the perceived effect of the judgment of the Full Federal Court in Regional Director of Customs (WA) v Dampier Salt (Operations) Pty Ltd [1996] FCA 452; 67 FCR 108.
27. In his Second Reading speech, introducing the Customs Amendment Bill to the House of Representatives in December 1996, the Minister for Small Business and Consumer Affairs, Mr Prosser, said:
“There have been several decisions in recent times which have had the effect of expanding eligibility under the scheme beyond what the government believes was intended, with consequent effects on outlays. In some areas, the potential financial impact of decisions is very significant.
The particular amendments will ensure the continuation of rebate for diesel fuel used in carrying out mining activities but will preclude from eligibility certain activities, best described as undertaken for economic-marketing reasons, rather than the physical extraction of minerals, and activities which essentially involve the transportation of inputs-material for mining or beneficiation.
The government's clear intention is that rebate paid under the legislation should be confined to the narrow definition of eligible activities in the legislation - that is, the intention is not that the legislation be defined broadly and beneficially.
The amendments proposed in this bill are designed to tighten and narrow eligibility. It is the government's intention to continue to adopt such an approach in the face of any future broadening.
The most significant decision which has potential for expansion in eligibility related to an appeal by Dampier Salt (Operations) Pty Ltd against a decision of the AAT in relation to the point at which payment of rebate on the recovery of salt ceases.
The Full Federal Court's judgment [in Dampier Salt] is considered to be the most far reaching ever delivered in relation to the diesel fuel rebate scheme. It represents a fundamental shift from a scheme based on the concept of an activity, in this case mining, being regarded as a physical act, that is the extraction of a product from the ground, to a concept of the activity being an economic one.
The Federal Court found that even though Dampier Salt's product could be sold in the condition it was in at the first stockpile, it was uneconomic for the company to do so. It was only economic to sell into the market it actually supplied. The court determined the second stockpile activities were so closely related to the process of extraction of salt from the brine in which it was embedded, that they fell within the concept of mining operations. The government has never intended to pay rebate to these types of operations.
The amendments to the definitions, particularly beneficiation, make it clear that the physical act of mining or beneficiation is eligible for rebate. It ensures the payment of rebate does not extend to activities involved in getting the product to the marketplace, such as the broad economic factors which were the basis of the full Federal Court judgment.
* * *
The government considers that it is wrong to apply the concept that an activity is eligible for rebate because it is integral to another eligible activity. It is the intent of the diesel fuel rebate scheme to pay rebate only on those activities that are explicitly mentioned in the legislation and not to activities that are said to be integral to, associated with or connected with these activities.” [Emphasis added]
28. In summary, in Dampier Salt a diesel fuel rebate was sought (pursuant to section 164 of the Customs Act, as it stood at 1 July 1995) in relation to the transport of salt from a "wet stockpile" to a "dry stockpile" and to the operations on the dry stockpile. The Collector of Customs had allowed the taxpayer a rebate for fuel used in harvesting the salt and transporting it to the wet stockpile and to its operations on that stockpile but had disallowed a rebate in respect of any processing of the salt beyond that point. The Collector argued that when the salt left the "wet stockpile" it was in a saleable form and therefore "mining operations" for its recovery were complete.
29. In Dampier Salt, there was evidence that although there was potentially a small local market for the salt, in the state that it was in, when it left the "wet stockpile" (i.e. for use in salt water swimming pools) the applicant's intended market was the much larger bulk seaborne market. In order to meet the specifications of customers in that market, it was necessary to further process the salt through the "dry stockpile" in order to further improve its purity and quality.
30. In Dampier Salt, the Full Federal Court (comprising Einfeld, Hill and Carr JJ) concluded (at 67 FCR 115 (para D-E)), that the difficulty was to define the point “where the process of recovery of the mineral (the mining operation) [has] come to an end and some other process, be that called treatment or preparation for marketing or preparation for sale, has commenced.” The Full Federal Court concluded (at 67 FCR 120) that:
“(1)The point where a mining operation starts and finishes will be a question of fact to be decided in each case. However, the Court should not adopt a narrow view of the extent of "mining operations" so as to frustrate the legislative intent of providing a concession to the mining industry.
(2)Relevant to this factual conclusion will be the ascertainment of the object of the particular taxpayer's operations.
(3)Generally the mining operation will continue until there has been produced that which is the object of the particular taxpayer's operation of mining.
(4)The mining operation will not necessarily be complete when a mineral has been extracted from ore, or where salt is produced, immediately there has been a recognisable salt product, be that brine or crystallised salt. It will be necessary that the mineral (salt) produced be saleable.
(5)The mere fact that a mineral is saleable will not necessarily be determinative, if the production of that mineral at that place by that taxpayer would be uneconomic. Perhaps everything can be said to be saleable for a price, but what is necessary is that the mineral in question be economically saleable at least by a person in the position of the particular taxpayer.
(6)Activities directed to improving that which is extracted, for example pelletising, may fall outside the ambit of the "mining operation". However, they may form part of the mining operation where the activity is closely associated with the actual extraction of the mineral. Normally this close association may be indicated by physical proximity, but lack of physical proximity will not necessitate the conclusion that the mining operation has concluded: North West Iron. The degree of integration of the activity with the actual mining process will, obviously, thus be relevant.”
31. In dismissing the Collector of Custom's appeal, the Full Federal Court concluded (at 120):
“In the present case it is clear that the first time there is a saleable product, as an outcome of the operations of Dampier, is when the salt has been dumped on the dry stock- pile, and has been mixed and cleaned and further evaporated. Although some of the salt recovered by Dampier and dumped on the wet stock-pile would be marketable as swimming pool salt, that is such a small fraction of what is produced that it may be ignored. The fact is that, on the evidence before the Tribunal, there was no economic market for the salt produced other than that into which Dampier in fact sold. Further, the activity which took place at the dry stock-pile was a continuation of the process of separation of the mineral, salt, from the water with which it was originally mixed; a continuation of the elimination of impurities through that further process of evaporation; and a continuation of the cleaning of the salt by a magnetisation process to remove impurities which may have been added during the evaporative process. The activity of transporting the crystallised salt to the dry stock-pile and the activities of mixing and cleaning which were conducted while the salt was on that stock- pile were so closely associated with the process of extraction of the salt and separation of it from the water in which it was originally embedded, that they fall within the concept of a mining operation.” [Emphasis added]
32. The amendments to the Customs Act, introduced in the Customs Amendment Bill, including the former sections 164(7A) and 164(7C) of the Customs Act, were considered and applied by the Tribunal in Freight Rail Corporation v CEO of Customs – Case [2000] AATA 175. In that case, the taxpayer operated a rail service from various coal mines to coal handling facilities at the Port of Newcastle, which was owned and operated by Port Waratah Coal Services (PWCS). PWCS performed blending operations on the coal and also removed various contaminants from the coal such as scrap metal and concrete. The taxpayer claimed that these procedures carried out by PWCS constituted part of the “mining operations” and that it was therefore entitled to claim the diesel fuel rebate under section 164 of the Customs Act in respect of the fuel used to transport the coal from the mines to the port. Part of the claim related to fuel purchased after 1 August 1997 to which the amendments to the Customs Act applied.
33. In summary, in Freight Rail Corporation the taxpayer made the following submissions before the Tribunal in support of its claim:
· The blending operations conducted at PWCS qualify as "beneficiation" and are therefore part of the "mining operations", as defined in section 164 of the Customs Act;
· "Beneficiation" should be given its ordinary meaning rather than the meaning given by an expert in the area;
· The coal was being treated so as to be suitable for export markets and was "recovered" only after the blending process at PWCS had been completed. The blending process is therefore part of the "mining operations", as defined in section 164 of the Customs Act, and the diesel fuel rebate can therefore be claimed; and
· The job performed by PWCS was part of the process of making the coal "economically saleable". This claim relies on the judgment of the Full Federal Court in Dampier Salt.
34. In Freight Rail Corporation the Tribunal (Deputy President McMahon presiding) held, among other things, that:
“(a)The blending operations conducted at PWCS do not qualify as "beneficiation". Beneficiation is the removal of naturally occurring waste matter and is never used to refer to the blending of clean coals. The beneficiation process was completed at the mines; and
(b)"Recovery" is complete when the beneficiation process is complete. As the beneficiation process was completed at the mines, the operations at PWCS did not involve any operations for the "recovery" of coal.”
35. In relation to that part of the taxpayer’s claim which related to fuel purchased after 1 August 1997, the Tribunal found:
“(a)As a result of the amendments to s 164 introduced by Customs and Excise Legislation Amendment Act (No 1) 1997 (Cth), the taxpayers cannot rely on the decision in Regional Director of Customs (WA) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108 that making the coal "economically saleable" is part of the "mining operations"; and
(b)The applicants' submissions cannot succeed in respect of the last three months of the claim period, because of the specific provisions of the amending Act negating the very basis upon which the applicants rely.”
36. The taxpayer in Freight Rail Corporation (AAT) unsuccessfully appealed before Hill J in the Federal Court: see Freight Rail Corporation v Chief Executive Officer of Customs [2000] FCA 1796. The application of sections 164(7A) and (7C) of the Customs Act was not discussed by Hill J in his reasons for judgment.
Fuel Tax Act 2006 & the Fuel Tax (Consequential and Transitional Provisions) Act 2006
37. The relevant legislation for determining Autech’s to fuel tax credits for diesel fuel acquired by it in the period 1 July 2006 to 30 June 2008 is the FTA and the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (Transitional Act). The Transitional Act provides that entitlements to fuel tax credits under the FTA are to be phased in during the period 1 July 2006 to 1 July 2012 and that entitlements to off-road credits under the EGCSA will cease to arise effective 1 July 2006. Further, the EGCSA will be repealed on 1 July 2012 by which time the fuel tax credit scheme in the FTA will have been fully implemented. The FTA is administered under the TAA.
38. Subdivision 41-A of the FTA sets out the entitlement rules for fuel tax credits. In particular, subsection 41-5(1) of the FTA states:
“(1)You are entitled to a fuel tax credit for taxable fuel that you acquire or manufacture in, or import into, Australia to the extent that you do so for use in *carrying on your *enterprise.
Note 1:Other provisions can affect your entitlement to the credit. (For example, see Subdivision 41‑B of this Act and Part 3 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006.)
…………”
39. By virtue of Note 1 to subsection 41-5(1) of the FTA, a taxpayer’s entitlement to a fuel tax credit under subsection 41-5(1) of the FTA is subject to Part 3 of Schedule 3 to the Transitional Act. Specifically, Item 10(5) of Part 3 of Schedule 3 to the Transitional Act, read together with subsection 51(2) of the FTA, broadly provides that if a taxpayer was entitled to an off-road credit under the EGCSA, for diesel fuel purchased by it before 1 July 2006, then that taxpayer will be entitled to a fuel tax credit under the FTA, for fuel acquired by it from 1 July 2006. Conversely, if a taxpayer was not entitled to an off-road credit under the ECGSA for fuel purchased by it before 1 July 2006 then that taxpayer will not be entitled to a fuel tax credit under the FTA for fuel acquired by it from 1 July 2006.
40.Item 10(5) of Part 3 of Schedule 3 of the Transitional Act relevantly provides:
“(5)You are not entitled to the credit under section 41-5 of the Fuel Tax Act unless you would have been entitled to an off-road credit in respect of the fuel, assuming:
(a)that you had disregarded subsection 51(2) and sections 52 and 55A of the Energy Grants Act; and
(b)that references in Part 4 of that Act to ‘purchase or import into Australia” were instead references to “acquire or manufacture in, or import into, Australia’.”
41. See also paragraph 1.28 of the Explanatory Memorandum to the FTA which states:
“From 1 July 2006 a fuel tax credit will apply to the acquisition……of diesel fuel and diesel-like fuels in applications that currently qualify for an off-road credit under the Energy Grants (Credits) Scheme.”
Evidence Before the Tribunal
Autech’s Witnesses
42.The Tribunal heard evidence from the following witnesses for Autech:
·Mr Robert Nash – Mr Robert Nash is the Managing Director of Autech and has worked in the mining industry for most of his working life, beginning as a child working for his parents in their business ‘Nash Mining’. His main mining experience is in mine management and mining operations. He visited the Koolyanobbing mine site during the relevant period (2003 to 2008) to contract equipment to the site and to make business contacts. Mr Robert Nash worked at the Port but was not responsible for Autech’s day-to-day operations there. He has no professional qualifications in mining (e.g. as a mining engineer, metallurgist or geologist).
·Mr Stewart Brown – Mr Brown has a Diploma of Mining Engineering and an MBA (Tech Mgt). He is a mining engineer with over 30 years of experience in mining operations throughout Australia. For about five and half years, during the period 2003 to 2009, Mr Brown worked for Cliffs at the Koolyanobbing mine site, first as operations manager and later as the general manager. Mr Brown is currently a consulting mining engineer. Mr Brown is Autech’s expert witness.
·Mr Timothy Nash – Mr Timothy Nash, like his brother Mr Robert Nash, has been involved in the mining industry most of his working life, starting with working for his parents in the family business, ‘Nash Mining’. In the period relevant to this application (2003 to 2008), Mr Timothy Nash worked for Autech at the Esperance Port as Autech’s operations manager for the purposes of the EPA Contract. As operations manager, Mr Timothy Nash was involved in the day-to-day operations of Autech in the storage sheds at the Esperance Port. Mr Timothy Nash has no professional qualifications.
·Mr John Nash – Mr John Nash is a director of Autech and is the father of Mr Robert Nash and Mr Timothy Nash. He has worked in the mining industry for his entire working life and has operated a number of mines. Mr John Nash was involved in Autech’s operations at Esperance Port but was not involved in its day-to-day-operations.
43. Set out below is a summary of the evidence provided by Autech’s witnesses concerning the processes occurring in the period relevant to this application (being 15 July 2003 to 30 June 2008):
(i)at the mine at Koolyanobbing, which was operated at the start of the relevant period by Portman and later by Cliffs;
(ii)on transport of the iron ore by ARG by rail from the Koolyanobbing mine to the Port; and
(iii) at the Port on loading the iron ore into a ship.
At Koolyanobbing Mine
44. Mr Brown told the Tribunal that the iron ore mined at Koolyanobbing during the relevant period (2003 to 2008) was of various classes extracted from different deposits of iron ore at Koolyanobbing, Windarling and Mt Jackson. Mr Brown referred to 15 deposits of ore and that each deposit could have up to 19 ore classes, but generally each deposit would have 8 to 10 ore classes of which only about 4 of these were extracted from the ground at any time. Ore class is based on the level or grade of iron and impurities (sulphur/phosphorus, silica and alumina) present in the ore. According to Mr Brown, the scheduling of extraction of various classes of ore from the deposits was planned ahead to fit with delivery into customer contracts.
45. Mr Brown said that once the required ore was extracted from the deposits, it was stockpiled on the ROM, or run of mine, pad according to class. Mr Brown referred to 12 stockpiles of ore at the ROM pad in front of the crusher and that ore from up to 6 of these stockpiles at a time would go into the crusher. Ore from the ROM stockpiles was put through the crusher to break the ore into a size that meets customer specifications.
46. Mr Brown said that the ore was then screened the ore into two parts. Following processing through crushing and screening, Mr Brown said that radial arm stackers placed the ore in stockpiles (cones) of ore grades and sizes that met customer contract specifications. Throughout this process of crushing and screening the ore was being assayed as to its chemical composition and iron grade to meet contract specifications.
47. Mr Brown’s evidence was that after crushing and screening there were 4 products for marketing and shipping out under the shipping program “high grade fines and lump and low grade fines and lump … there are other variations on a theme at times”.
48. Mr Brown confirmed that crushing and screening was the level of processing given to the ore at Koolyanobbing mine. After that processing, the ore for shipment contained a percentage of iron composition at an industry acceptable standard as well as impurities (phosphorus, silica and alumina) at levels acceptable to a customer, as set out in the contract specifications. Mr Brown stated that the majority of the process work done, to get ore that met customer specifications, was done by blending, crushing and screening at Koolyanobbing. He added “however due to different ores being available at different times and the complexity of the operation, some of it that may go down [to the Port], we may find it is not quite on tune, and so we have to make that up, we have got to blend that up, and that’s where blending out of the sheds does occur.”
Koolyanobbing Mine to Esperance Port by Rail
49. Ships usually arranged by the customer or a trader in ore, arrived at the Port to be loaded with ore to the customer’s contract specifications. To be able to load a ship on arrival efficiently with a customer’s order and to avoid excessive demurrage, at the Koolyanobbing mine site Cliffs loaded ore that met customer contract specifications into rail wagons and ARG rail transported the ore from Koolyanobbing to the Port. Mr Brown said that each train consisted of 126 wagons and that each wagon was loaded with the same grade of ore.
50. The EPA Contract anticipated that on average, 4 to 5 trains per day would arrive at the Port from Koolyanobbing. Mr Brown stated there were 18 trains a week from Koolyanobbing to the Port. As much as possible Cliffs sought to coordinate train arrivals at the Port with the arrival of the ship loading the customer’s order so that the ore on the train could be loaded directly onto the ship.
51. Mr Timothy Nash told the Tribunal that on arrival at the Port, the train wagons were unloaded by an automated hydraulic rotary car dump (RCD) which was operated by EPA and the ore was tipped into a bin from where it was directed onto a conveyor belt. He also said that an out loading conveyor carried the ore directly onto the ship berthed at the Port, or an in-loading conveyor carried the ore to various stockpiles located in the 4 storage sheds at the Port.
52. According to Mr Timothy Nash, if there was no ship loading the ore, an overhead conveyor carried the ore to various stockpiles (described as “bays” by Mr Timothy Nash) located in the 4 storage sheds at the Port where the ore was tipped from the overhead conveyor to create a product stockpile or was added to an existing stockpile of the same product.
Ship Loading Iron Ore at the Port
53. The EPA Contract provided that ships must be loaded continuously after loading commences. Clause 4.1 of the EPA Contract stated that Autech was required to provide sufficient front end loader services to out load iron ore with Lumps or Fines at a rate of up to 3,500tph from belt feeders within the storage shed.
54. The ore characteristics were specified in the clauses 4.1 and 4.3 of the EPA Contract as follows:
·“The iron ore is in the form of lump and fine product;
·Fines with a size minus 6.3mm and moisture content 6% maximum (as delivered to the Port); and
·Lump with a size minus 30mm plus 6mm (size distribution analysis Is not available) and moisture content 4% maximum (as delivered to the Port).”
55. Mr Brown explained that ships were usually loaded with ore within 48 to 72 hours of berthing and loading was continuous during that time. The ore conveyed to a ship directly from the arriving train wagons was not sufficient to load the conveyors and the ship at maximum capacity. The loading capacity of a ship was generally 3,300 tonnes per hour, while unloading from trains occurred at only 2,200 tonnes per hour.
56. Mr Brown said that, in order to reach this loading capacity, the ore dumped on the out loading conveyor from the train was added to by Autech’s articulated front-end wheel loaders which shifted ore from selected stockpiles within the storage sheds (pre-determined by Cliffs personnel) to hoppers which in turn fed conveyor belts carrying the ore to a waiting ship. There was no automated rehandling in the sheds through the use of a mechanised reclaimer.
57. The out loading conveyor moved the ore into the holds of the ship at high speed by a boom over open hatches on the deck of the ship. The ore passed directly from the conveyor through a chute attached to the conveyor which directed the ore into the ship's holds. The conveyor and boom was able to move along a rail track to direct the conveyor and loading chute into each hold of the ship as required. The conveyor system was neither attached to nor supported by the ship.
58.The EPA Contract stated (at clause 4.6) that:
·it will be normal practice if there is a ship in port to unload the train direct onto a ship; and
·that with the three shed configurations it is expected that on most occasions it will be possible to continue the front end loader operations while simultaneously unloading the train; and
·there will also be occasions when it will be necessary to stop the front end loader operations during the train unloading operations or reduce the number of loaders in use.
59. Mr Brown said that there was a Cliff’s manager at the Port and that train unloading, ship loading and shed stockpiles of ore product to meet customer orders were controlled and recorded by Cliffs personnel. Mr Timothy Nash and Mr Brown gave evidence that Autech loaded the hoppers in the sheds with ore as instructed and they were told where to dig from in the sheds, how to dig and the time to dig.
60. When a ship arrived at the Port for loading, and before out loading commenced, the personnel from the EPA and Cliffs met with Mr Timothy Nash to discuss how the loading would proceed. Mr Timothy Nash was given 2 load out plans. The first plan provided complete instructions of the whole load out for the ship and contained a considerable depth of detail including from what bays (he referred to 32 bays) in what sheds the applicant was to load from. The second plan was given to the machine operators showing tiny squares (“like graph paper”) which the operators had to tick off as they moved to another bay as instructed on the plan. At the end of ship loading, the plans were returned to Cliffs.
61. Mr Timothy Nash said that changes could be made to the load out plans during ship loading and that Autech’s operators were given new instruction sheets by Cliffs. The stockpiles from which they might be asked to load the ore may change. Mr Timothy Nash could not recall the number of times this occurred. He said “quite frequently” but could not put a number on this stating only “on a number of occasions”. He did say there were a couple of occasions when the loading process was actually stopped completely until they were given new instructions and relocated the loaders. He also stated that generally Cliffs would not like to delay a ship because of the demurrage costs and that “predominantly” Cliffs would actually try and do a hatch change (i.e. swap the ship loader over the holds of the ship) and Cliffs would “predominantly” try and have the instructions for Autech before loading. However, there were times when there would be confusion over the product from the mine and by the EPA or a Cliffs representative.
62. According to Mr Timothy Nash, an automated sample station was located on the out loading conveyor just before the ore arrived at the mobile ship loader. At this station, samples of ore were taken from the conveyor at regular intervals and sent back to the mine at Koolyanobbing for analysis in the laboratory. Mr Brown told the Tribunal that those samples were taken from the committed delivery for payment of the final price for the ship delivered ore under the contract with the customer. Further samples were taken when the ship was unloaded at the customer’s destination. The assay of the samples confirmed the type of ore that had been loaded on the ship, whether it met the specifications in the contract and consequently the price that would be paid for the ore by the customer.
63. Mr Brown said that a mist spray was used at the Port to add moisture to the ore during rail car unloading and in the shed and ship while loading to control dust. Mr Brown explained that there was a spray bar as the rail cars entered the RCD and overhead micro sprays at the top of the sheds. He said that this process was undertaken by the EPA.
64. Mr Timothy Nash described how he manually controlled water spray at floor level in the storage sheds to suppress dust and control moisture content within the ore product. He could only operate those sprinklers because of the cost of water to the EPA. He did this by turning on one of a number of normal reticulation sprinklers located along the side of the shed where the out loading hopper and out loading conveyors were. This would sprinkle water across the floor where the machines were working.
65. Mr Brown stated that ore that came into the Port too moist from rain at Koolyanobbing, or from the 22 hour rail journey to the Esperance Port, may be stockpiled until dry. Alternatively, Autech used its front-end loaders to mix it with dry ore stockpiled in the sheds. But Mr Brown said that it had to be handled carefully, as customers did not want to pay for shipping water content and there was an important need for consistency in the ore going into the holds of the ship for reasons of ship weight distribution and unloading at several destination points.
66. Mr Timothy Nash informed the Tribunal that the ore on the conveyors was also passed through a metal detector at the Port to ensure removal of any scrap steel that had fallen off machinery during any of activities undertaken at the mine site and the transporting of the ore from the mine to the ship. This process was undertaken by the EPA. Mr Timothy Nash described the process as a “magnetic weightometre” located at special points on the out loading conveyors in the sheds, and once it detected a foreign object it would shut the system down until the Port operator found the foreign object. He also described a metal detector on the unloading conveyor after the RCD.
67. There was also evidence of other events which occurred during ship loading at the Port. Mr Brown told the Tribunal that on one occasion there was a need to put in a re-screening plant to rescreen ore that had been loaded incorrectly at Koolyanobbing and railed down to the Port. Mr Timothy Nash confirmed this. According to Mr Brown, the rescreening was necessary to grade that ore to meet customer requirements before ship loading.
68. Mr Timothy Nash said that on occasion ore arrived at the Port for shipment that had been loaded from the wrong stockpile at Koolyanobbing (or, as described above, that was too moist from rain at the mine site or as a consequence of the rail journey). This ore could not be loaded direct to a ship and had to be conveyed from the rail wagons to be stockpiled in the sheds until it could be loaded in another shipment or by being added by Autech to the conveyor with ore from other stockpiles in the sheds.
69. The Tribunal asked Mr John Nash about “blending” and he answered as follows:
“what did Autech do with the ore? Did it blend?---Well, it was blending, although we went – we wouldn’t be informed specifically to blend, but it was blending to make the product. Otherwise it would have been just lumps and fines, just load all lumps or load all fines, but there was a reason why – because of specific differences with the ore, why they wanted so much of this in with something else, but if they had have told me that they wanted me to blend the ore, we could have argued the toss, I guess. We wanted more money, because we’re actually blending, but we just followed the instructions. We were operating – our contract was with the Port Authority, but the instructions used to come in a meeting with Portman and the port and ourselves, but the Portman were the overall directors of what products we were to load.”
70.In cross-examination Mr John Nash responded as follows:
“you were asked about blending, and you said there are seven products in the sheds at any time?---Yes.
What do you mean by blending?---Well, if you’ve got – if there’s a – a product in one shed that needs to be blended with another product to give a final product. It’s a type of thing that would happen if you want – you want one bucket of this to two buckets of that.
Yes?---For – to get the product of the correct grade.
And would that happen on the instruction sheet? Is that how you would understand the blending occurred?---They – we – at the meeting they – yes, they used to tell us which – how long to load from each shed, how many hours we had to do.
Okay, and that – that was on the instruction sheets that came out at the meetings as well?---Yes. They were – we used to get the load plan and the – and the instructions, yes, yes.”
71. Mr Brown described what was done by Autech in the storage shed at the Port as “tweaking”. He acknowledged that there was no removal of waste from the ore at the Port. Mr Brown stated that Cliffs couldn’t afford to make major readjustments to the ore at the Port and that, as far as possible, the desired product was produced by Cliffs at the Koolyanobbing mine site. Mr Brown said that “Cliffs [was] keeping their eye on the mix and what [went] through the crusher, what [was] stock-piled after the crusher, what [went] into the trains and [got] stockpiled [at the Port].” According to Mr Brown, every effort was made by Cliffs to ensure the ore loaded at Koolyanobbing and railed to the Port met specific customer contract specifications and could be loaded into the ship as a committed delivery at maximum speed to meet ship turnaround time.
The Commissioner’s Expert Witness
72. Mr Damien Connolly is a primary metallurgist. He has a Bachelor of Applied Science and is a Chartered Professional (MET). Since 1988 Mr Donnolly has worked for Mineral Engineering Technical Services who are consultant engineers that specialise in mineral processing and who focus on junior mid-tier companies. Mr Connolly has never been to the Koolyanobbing mine site or to the Port.
73. At the hearing, Mr Connolly had the opportunity to hear the evidence from Mr Brown and Mr Timothy Nash about the operations at Koolyanobbing and the Port before giving his evidence. Mr Connolly’s evidence before the Tribunal may be summarized as follows:
·The Koolyanobbing mine in the period concerned (2003 to 2008) was a direct shipping ore (DSO) operation which produced high grade ore that did not require any complex beneficiation processes (as described by Mr Connolly in his evidence) to remove waste and render the ore of sufficient iron content to be saleable to customers.
·For a DSO to produce iron ore lumps and fines that meet customer contract specifications all that is required is grading the ore extracted from the ground, crushing and screening the ore to size and as necessary blending ore sizes and grades from the stockpiles. In a DSO operation the processes which would be undertaken in a beneficiation plant are not required as no removal of waste is required.
·Ore is crushed and screened into sized lumps and fines, and both before and after crushing and screening the ore grades are blended (mixed) as necessary to meet customer specifications and then loaded on a train and subsequently on a ship to the customer. Ore is generally crushed to the industry standard lump size of between 6.3 millimetres and 31.5 millimetres (Lump Ore).
·Screening removes the fines or ore pieces that are less than 6.3 millimetres in size (Fines). According to Mr Connolly, ‘lump size’ is important. A customer can feed Lump Ore directly into their blast furnace depending upon the composition they require for the furnace, but Fines must be pelletised, balled or sintered by the customer before that ore can be feed into their blast furnace.
·Standing alone, crushing and screening the ore at Koolyanobbing is not a beneficiation plant and is not beneficiation, nor is railing and shipping ore. This is because nothing is removed to improve the iron concentrate in the ore and leave tailings.
·Blending and quality control of ore grades to contract specifications is important, but this not beneficiation as no waste is removed. Blending is mixing, you do not take anything away, you add clean high grade ore and low grade ore (e.g. contains more phosphorous) to get a mix that meets the product composition specifications in a contract. At the end of the mixing you have materials balance - there is no removal of waste, no energy or weight loss. Mixing is done to maximize the product being sold.
·The role Autech undertook at the Port, in following the Cliff’s ship loading plan, was not beneficiation since no waste was being removed from the ore. Blending ore grades and sizes and adding some water to keep dust down is not removing waste from the ore and is not beneficiation.
·Moisture control is: the transportable moisture limit (TML), a laboratory determined figure which must be met before you can put product in a ship (the port dictates that as ship capsize can occur in rough weather) and dust extinction moisture (DEM), where water must be added to minimise the dust.
·The overseas customer will blend (mix) ore grades received from suppliers around the world to manufacture pellets and sinter into a suitable feed for the customer’s blast furnace.
Summary of Evidence – Autech’s Operations
74. In summary, all of the evidence before the Tribunal (as set out above) establishes that, pursuant to the EPA Contract, Autech’s operations at the Esperance Port during the period 2003 to 2008 were as follows:
·Autech’s front-end loaders would pick up ore from bays in the EPA’s storage sheds and load the ore into hoppers in the sheds which dropped the ore onto out-loading conveyors where the ore was carried out to the ship loader to be loaded onto a ship berthed at Port. No stacking machines or mechanical reclaimers were used within the storage sheds at the Port;
·When loading the ore into the hoppers from bays in the sheds, Autech’s operators of the front end loaders followed a detailed floor plan of loading instructions provided by Cliffs; and
·Mr Timothy Nash would manually turn on reticulation sprinklers located along the side of the shed where the hoppers, out loading conveyors and the front end loaders were working. When he turned these taps on, water was sprinkled across the floor where the machines were working. This water would suppress dust and control moisture content within the ore product.
75. In weighing the evidence given by the witnesses in this application, the Tribunal considers:
·With respect to the particulars of the Autech’s loading operations at the Esperance Port, the evidence of Mr Timothy Nash should be preferred to that of Mr John Nash and Mr Robert Nash. This is because Mr Timothy Nash was supervising the day-to-day operations at the Port. Whereas, Mr John Nash and Mr Robert Nash were not such that their knowledge of exactly what occurred there is limited by less time spent there; and
·With respect to the role of personnel from the Port and Cliffs and the way in which operations for unloading trains and loading ships proceeded at the Port, the evidence of Mr Timothy Nash and Mr Stewart Brown should be preferred due to their direct involvement as operations manager for Autech and as operations manager (and later general manager) for Cliffs, respectively.
76. However, with respect to what constitutes “beneficiation” and whether there was a “beneficiation” process undertaken by Autech at the Port the question arises whether the evidence of Mr Robert Nash, Mr Brown, or Mr Connolly should be preferred.
77. Mr Robert Nash maintains that the term “beneficiation” includes crushing, screening, blending, concentrating and agglomerating. As stated earlier, Mr Robert Nash has no professional qualification in the area of mining. However, he does have a wealth of experience in the mining industry from many years working in it. It is clear from Mr Robert Nash’s evidence that his understanding of what is meant by “beneficiation” is drawn from general mining knowledge, observation and impression. Further, Mr Robert Nash’s belief that “beneficiation” encompasses “blending” appears to be almost entirely founded on an extract from the United States text The Making, Shaping and Treating of Steel. The 10th Edition (1985) of that text provides (in Section 4 at 294-295):
“Beneficiation of Iron Ores
Introduction – The term “beneficiation” in regard to iron ores encompasses all of the methods used to process ore to improve its chemical or physical characteristics in ways that will make it more desirable feed for the ironmaking furnace. Such methods include crushing, screening, blending, concentrating, and agglomerating.
Because of the differences in structure and mineral content of ores from different deposits, beneficiation methods vary considerably.
…………..
CRUSHING, SCREENING AND BLENDING…………..
Blending – The mining program at individual mines is developed to produce a uniform product. When it is desirable to blend ores of different compositions or size consists (as when material from different sources are to be combined), mixing may be accomplished during the numerous handling operations involved in transportation of the ore to its point of use, or special blending facilities may be employed.
Iron ores of different characteristics and compositions can be blended to a more uniform composition by a method known as stacking and reclaiming. In one method the ore is piled by a machine called a stacker. Stacking results in “layering” of the ores…Each successive layer represents ore that may be different in size consist or chemical composition from adjacent layers. The elongated pile is built up to a height limited by the stacking capability of the machine. The ore may be reclaimed for use by…front-end loaders…..Removal of ore from the face of the pile results in a stream of material that is a mixture of ore from all the layers.” [Emphasis added]
The 11th Edition (1999), Ironmaking Volume, of that text provides (at 614):
“BENEFICIATION OF IRON ORES
8.4.1 Introduction
The term beneficiation in regard to iron ores encompasses all of the methods used to process ore to improve its chemical, physical or metallurgical characteristics in ways that will make it a more desirable feed for ironmaking furnace. Such methods include crushing, screening, blending, concentrating and agglomerating.
………………
8.4.2 High Grade Merchant Ores
…………….
8.4.2.2 Blending
The mining program at individual mines is developed to produce a uniform product. Although there are multiple handling steps involved in most loading and shipping systems they do not often provide enough mixing to meet quality assurance standards now required by industry, especially if both size consist and chemistry standards are specified. Sophisticated combined blending and loadout facilities are now almost universal in the industry.
Stacking and reclaim systems are used most commonly. Stacking results in layering of the ores….Each successive layer represents an ore that may differ in size consist or chemical composition from adjacent layers. The elongated pile is built up to a height limited by the stacking capability of the machine. The ore may then be reclaimed for use by….front-end loaders……..Removal of the ore from the face of the pile results in a stream of material that is a uniform blend of ore from all the layers. Variations of this method are used extensively for the stocking and reclaiming of iron ore pellets, as well as other bulk commodities used by the steel industry such as coal and limestone.” [Emphasis added]
The above text book extracts are not determinative of what is meant by the term “beneficiation” as it appears in section 11(1)(b)ii. of the EGCSA, and for the purposes of the definition of “mining operations” in section 11(1) of the EGCSA.
78. Mr Brown, an experienced mining engineer, asserts that a holistic view, as opposed to a narrow view, must be taken on the meaning of “beneficiation”. He considers that “beneficiation” should be viewed from a total (operational) mining industry perspective and not only from a metallurgical perspective. Consequently, in his opinion, “beneficiation includes all of the processes involved in crushing screening and blending wherever they may occur up to the point of entering the blast furnace.” It is clear from the evidence before the Tribunal that Mr Brown’s opinion on what is meant by “beneficiation” is, like Mr Robert Nash, influenced by the extracts from the US text The Making Shaping and Treating of Steel cited above. As stated, those text extracts are not determinative of the meaning of “beneficiation” for the purposes of section 11(1) of the ECGSA.
79. In contrast, Mr Connolly, an experienced primary metallurgist, asserts that “beneficiation” means:
“the process of increasing the grade of a mineral through unit operations that remove and separate the waste (or gangue) material from the valuable mineral that can then be used for further processing or direct use.”
In other words, “beneficiation” is a technical process which always involves the removal of waste from and an improvement in the grade of the ore.
80. As regards the evidence given by Mr Robert Nash, Mr Brown and Mr Connolly concerning the meaning of “beneficiation”, as that term is ordinarily used in mining industry, the Tribunal favours the evidence of Mr Connolly. The reason for this is two-fold. First, as previously stated, section 11(5) of the ECGSA provides that “In determining whether a particular process…..constitutes beneficiation…..,regard is to be had to the nature of the technical process involved but no regard is to be had to any market considerations that might affect…..that process.” Mr Robert Nash and Mr Brown are concerned with market considerations. Mr Connolly is not and is concerned only with the technical process involved. Second, is the legislative history of section 11(5) of the ECGSA, which is instructive of parliamentary intent. That is, as mentioned above, section 11(5) of the ECGSA is identical to former section 164(7C) of the Customs Act, which was originally introduced in the Customs Amendment Bill. In his Second Reading speech, introducing the Customs Amendment Bill to the House of Representatives (in December 1996), the Minister for Small Business and Consumer Affairs, Mr Prosser, said, among other things:
“The government’s clear intention……is not that the legislation be defined broadly and beneficially.
………….
The amendments to the definitions, particularly beneficiation, make it clear that the physical act of mining or beneficiation is eligible for rebate. It ensures the payment of the rebate does not extend to activities involved in getting the product to the market place, such as the broad economic factors which were the basis of the full Federal Court judgment [in Dampier Salt].”
Is Autech Entitled to the Energy Grants Credits and Fuel Tax Credits Claimed by it in the Period 15 July 2003 to 30 June 2008?
81. Based on the following analysis, the Tribunal considers that Autech is not entitled to the off-road credits and the fuel tax credits claimed in the period 15 July 2003 to 30 June 2008.
Were Autech’s operations at the Esperance Port “mining operations” pursuant to section 11(1)(b)(ii) of the EGCSA? Specifically, were they “operations for the recovery of minerals, being: ii. the beneficiation of those minerals”?
“Operations for the recovery of minerals” and “beneficiation”
82. As outlined above, by virtue of section 11(3) of the EGCSA, the point at which “operations for the recovery of minerals” cease (for the purposes of the definition of “mining operations” in section 11(1)(b) of the EGCSA) depends upon whether a process of “beneficiation” is undertaken by the taxpayer. If there is a “beneficiation” process, “operations for the recovery” of a mineral cease “when the process of beneficiation ceases”: section 11(3)(a) of the ECGSA. If there is no “beneficiation” process, operations for the recovery of a mineral cease when the mineral is “first stockpiled or otherwise stored at the place at which the mining operation is carried on” or if there is no stockpiling or storage of the mineral, when the mineral is “removed from the ore body or deposit”: section 11(3)(b) of the ECGSA.
83. Consequently, unless Autech can establish that some process of "beneficiation" took place after the iron ore left the Koolyanobbing mine (i.e. when the ore was handled by Autech in the storage sheds at the Port), “operations for the recovery of” the iron ore ceased (under section 11(3)(b)i. of the ECGSA), when the ore was first stockpiled by Cliffs on the ROM pads at Koolyanobbing, before it was railed to the Port by the ARG.
84. Relevant to this issue is section 11(5) of the EGCSA which, as set out earlier, provides that in determining whether a “beneficiation” process has occurred in relation to a particular mineral “regard is to be had to the technical nature of the processes involved but no regard is to be had to any market considerations” affecting the decision to use that process.
85. Therefore, if market participants demand ore of a certain composition, and blending (mixing) of ore grades or ore conditioning (or moisture control) is undertaken to enable that market demand to be met and/or to maximise the use of all the ore produced, section 11(5) of the ECGSA requires that the blending or ore conditioning/moisture control is to be disregarded in determining whether there is a “beneficiation” process.
86. Based on the evidence before the Tribunal, at the Koolyanobbing mine Cliffs had already produced a saleable product of Lump and Fines, of various grades, to meet its customer's contract specifications before the ore left the mine. Once unloaded off the trains into the storage shed by RCD at the Port, the ore was handled by Autech, based on instructions from Cliffs (in consultation with EPA personnel). Any blending (mixing) of the ores or ore conditioning (or moisture control) that was undertaken by Autech in the sheds was carried out to ensure that the ore, that was about to be shipped, satisfied Cliff’s customer requirements or specifications. According to the evidence, Cliff’s loading plans ensured:
·that the ore that went into the ship holds from the trains and the stockpiles in the shed was ore of a grade, composition and size that was within the contract specifications for the particular customer; and
·the ore was loaded to ensure consistency of the product in the various holds of the ship for weight distribution and to facilitate the unloading of the ship at several destination points.
87. Such customer requirements/specifications are in the Tribunal’s view “market considerations” and are not in the nature of a technical process as required by section 11(5) of the EGCSA. As such, Autech’s handling of the ore in the sheds at the Esperance Port did not involve any “beneficiation” of the ore.
88. In this regard, the Tribunal notes the following extract from the Second Reading speech, introducing the Customs Amendment Bill (refer to [27] above):
“The particular amendments [that will be made to the Customs Act] will ensure the continuation of rebate for diesel fuel used in carrying out mining activities but will preclude from eligibility certain activities, best describes as undertaken for economic-marketing reasons, rather than the physical extraction of minerals, and activities which essentially involve transportation of inputs-material for mining or beneficiation.” [Emphasis added]
89. In this case, the Tribunal finds that the “operations for the recovery of [the iron ore], being: ii. the beneficiation of [the iron ore]” ceased, for the purposes of section 11(1)(b)ii. of the EGCSA, at the Koolyanobbing mine site when the iron ore was first stockpiled by Cliffs on the ROM pads, awaiting delivery to the Port by rail. Accordingly, Autech’s operations in the storage sheds at the Esperance Port were not “mining operations” within the meaning of section 11(1) of the EGCSA.
90. Support for this approach may be found in the majority judgment in Abbott Point Bulk Coal Pty Ltd & Anor v Collector of Customs (1992) 35 FCR 371. In that case, the Full Federal Court considered a claim for a rebate under the DFRS for diesel fuel used in transporting coal by rail and in vehicles at an export facility. In dismissing the claim, a majority of the Full Federal (comprising Ryan and Cooper JJ) said in their joint reasons for judgment (at 379):
“The process of recovery includes, in our view, those steps which are taken by a miner before sale, by whatever process, to remove the mineral from that in which it is embedded or with which it is intermixed. Such a process comprehends the refining of minerals or ore to remove impurities naturally occurring in the material as it has been mined. Once the process of separation or refining has been completed, to subject the mineral product to a process or procedure designed purely to facilitate its better use as so separated or refined or to render it more readily or advantageously marketable is not in our view part of the recovery process.”
Blending and “beneficiation”
91. Autech contends that “blending” of ores occurs at the Port and that that “blending” amounts to "operations for the recovery” of the iron ore, being the “beneficiation” of that ore. This is said to occur when ore is drawn by Autech’s front-end loaders from different stockpiles and mixed with ore in other stockpiles within the sheds or with ore that is unloaded directly from incoming trains, to ensure correct shipment quality. Autech’s role in this is that its front-end loaders retrieve the ore from the various stockpiles and load it onto hoppers and onto the out loading conveyor where it is mixed with other ore (either directly from a train or other stockpiles) as it is conveyed out to a berthed ship for loading.
92. Mr Connelly’s expert evidence was that beneficiation involves the removal of waste to improve its grade. Mr Connolly asserts that blending (mixing) ore grades does not involve any waste removal and is not, therefore, “beneficiation”. The Tribunal agrees with this argument. In reaching this view, the Tribunal is again mindful of the directive wording of section 11(5) which provides that in determining whether there is “beneficiation” in a particular case “regard is to be had to the nature of the technical process involved but no regard is to be had to any market considerations” and to the Second Reading speech introducing the Customs Amendment Bill (refer to [27] above) which provided, inter alia, that “The government’s clear intention…….is not that the legislation be defined broadly and beneficially.”
93. The blending of different grades of coal, at a port remote from the mine where separation of the coal from the material attached to it was completed, for the purpose of better marketing the coal, was held in Abbott Point and also in Freight Rail Corporation not to be “beneficiation”. Although the decision in Abbott Point and most of the claim in Freight Rail Corporation related to the former diesel fuel rebate scheme and a definition of "mining operations" contained in former subsection 164(7) of the Customs Act 1901 (as it read before amendments effected by the Customs Amendment Act (No.1) 1997) that definition, as it then read, was not significantly different to the definition in section 11 of the EGCSA.
94. There is no evidence before the Tribunal that "recovery" of the iron ore was not complete at the Koolyanobbing mine. Further, there is no evidence that any waste material (e.g. sulphur/phosphorous, silica or alumina) was removed from the ore after it left Koolyanobbing. Both in Abbott Point and Freight Rail Corporation that fact was decisive in holding that ‘blending’ of different grades of coal, to meet the needs of different customers, was neither "recovery" nor " beneficiation" of the coal.
95.In Abbott Point, in a separate judgment to the majority, French J said (at 389):
"For whatever effect is given to the word "recovery" it does involve the notion of separation of material and was a process which, on the Tribunal's finding of fact, had ceased by the time the coal was delivered to Abbott Point.
The question remains whether the so-called "blending" of the coal at the port could be regarded as an integral part of the recovery operation. It may be accepted that the technique of mixed loading adopted at Abbott Point for achieving contractually specified ash contents made use of coal which might otherwise have been unsaleable. It may also be accepted that the process was an element of an integrated plant for the extraction, preparation and delivery of coal from the two mines. It would nevertheless be an abuse of the English language to describe it [i.e. blending] as an "integral part" of the recovery operation. To say that there is a close connection between recovery and mixed loading or that the recovery process would be different if the "blending" procedure had not been adopted is not to say that the latter is an integral part of the former.” [Emphasis added]
96. Further, the evidence before the Tribunal was that the blending (or mixing) of the ore which was carried out by Autech which occurred was “tweaking” of the ore ‘product’ for delivery. That is, the ore which was “tweaked” by Autech in the storage sheds at the Port had been carefully controlled and managed by Cliffs (who had mined it) to meet customer contract specifications before it left Koolyanobbing. The “tweaking” which occurred at the Port was done by Autech (at Cliff’s instruction) to ensure best use of the product grades and to deal with errors in loading the ore into the rail cars at the mine. Such blending at the Port, is a deliberate process designed to make the product loaded on the ship more marketable by meeting customer specifications and, therefore, must be disregarded in determining whether a process of “beneficiation” was involved in this case by virtue of section 11(5) of the EGCSA.
97. It follows that Autech’s operations at the Port were not "operations for the recovery of minerals, being: ii. the beneficiation of those minerals" pursuant to section 11(1)(b)ii. of the EGCSA.
Re-screening
98. In evidence other processes were referred to as occurring at the Port. The letter from Cliffs says that: "from time to time re-screening occurs at Esperance Port to ensure product quality." The oral evidence before the Tribunal was that this occurred on only one such occasion when a train from Koolyanobbing was incorrectly loaded with the wrong ore. Autech did not explain what role, if any, it played in this instance of re-screening at the Port. Further, this re-screening is not beneficiation, since it took place after the ore had been fully “recovered” at the mine and for reasons related only to marketing.
99. Accordingly, it cannot be said that all or even a significant proportion of the fuel used by Autech in loading the hoppers with ore from the stockpiles in the sheds at the Port was used in any re-screening of ore.
Ore conditioning to ensure the necessary moisture content
100. The evidence before the Tribunal was that this process was largely for the control of dust during the delivery and loading of large quantities of ore in the Port in close vicinity to the Esperance town site. This dust management process is not in any sense an “operation for the recovery” of the ore or “beneficiation” of the ore. There was evidence that the ore must have a certain moisture content on loading into the ship. It is a percentile limit determined in a laboratory and a port will not permit a ship to be loaded if the moisture content of the load does not comply with the transportable moisture limit (TML). The Contract documents also specified the moisture content of the Lump ore and Fines. Moisture control was done by micro mist sprays operated by the EPA. Autech’s front-end loaders were not involved in moisture control. The only part Autech played in relation to the moisture in the sheds was when Mr Timothy Nash manually operated a reticulation tap to sprinkle water across the floor where the loaders were working. That process does not, in the Tribunal’s view, amount to “operations for the recovery” of the ore, being the “beneficiation” of that ore for the purposes of section 11(1) of the EGCSA.
Use of metal detector to remove scrap iron immediately prior to loading of ore on ship
101. There was also evidence of the use by the EPA (not Autech) of a metal detector at the Port to ensure the removal of scrap iron. A similar issue also arose before the Tribunal in Freight Rail Corporation. The Tribunal stated (at [59]):
"It is also clear from the usage quoted by Mr Edwards that beneficiation cannot extend to the removal of unwanted jetsam through magnets. Beneficiation is the removal of naturally occurring waste matter."
102.On appeal in the Federal Court, Hill J said (at 23 at [39]):
"It was open to the Tribunal to form the view that it did that neither blending nor magnetisation were part of the recovery process. If it matters, that would be a conclusion which I too would make. Certainly in arriving at it, no error of law arose."
103.In any event, it is clear from the evidence that the metal detector(s) in this case were owned and operated by the EPA and not Autech.
Further processing or mixing by customers of Cliffs
104. Autech claimed that that Cliff's offshore customers apply various processes to ores purchased from Cliffs before feeding those ores into blast furnaces and that these processes are "beneficiation", although there was no evidence of this before the Tribunal.
105. Anything done to the ore outside of Australia is not “beneficiation” for the purposes of sections 11 and 12 of the EGCSA. The Full Federal Court in State Rail Authority of NSW v Collector of Customs (1991) 33 FCR 211 at 213-216 considered section 164(7)(d) of the Customs Act which, as previously stated, was expressed in similar terms to subsection 12(a) of the ECGSA. The relevant definition of "mining operations" in the Customs Act included:
“where minerals, or ores bearing minerals, are dressed or beneficiated, at a place other than the mining site, as an integral part of operations for their recovery — the transporting of the minerals or ores from the mining site to the place where they are dressed or beneficiated.” [Emphasis added]
106. The Court upheld an AAT decision that the reference to "place" was a reference to a place in Australia in accordance with section 21 of the Acts Interpretation Act 1901: see 14 AAR 307 at 309-312.
107. Any downstream processing of the ore by customers of Cliffs is not “beneficiation” before sale. In that regard, refer to passage from the joint judgment of Ryan and Cooper JJ in Abbott Point at [90] above, wherein their Honours stated "the process of recovery includes, in our view, those steps which are taken by a miner before sale". The authorities emphasize that “recovery” and “beneficiation” can include additional processes undertaken by the miner (or his contractors) to achieve an intended saleable product (e.g. Dampier Salt), but there are no decided cases in which a purchaser of mined ore has successfully claimed diesel fuel rebate or energy grants on the basis that it is carrying out "mining operations" (including “beneficiation”) of that ore. It follows that if the material has been sold and shipped to the customer, it had already reached the stage of being an intended saleable product before it was so shipped.
Were Autech’s operations a "mining transport activity" as defined in section 12 of the EGCSA?
108. The applicant also claimed that its activities in the sheds at the Port are "mining transport activities" for the purposes of subsection 11(1)(c) and section 12 of the EGCSA because they are part of the chain of activities involved in moving the ore from the mine site to a place of “beneficiation” offshore. For the reasons provided above (at [105] and [106]), the Tribunal does not agree with this contention.
109. Further, the Tribunal notes the following passage from the Second Reading speech to the Customs Amendment Bill (refer to [27] above):
“The government considers that it is wrong to apply the concept that an activity is eligible for rebate because it is integral to another eligible activity. It is the intent of the diesel fuel rebate scheme to pay rebate only to those activities that are explicitly mentioned in the legislation and not to activities that are said to be integral to, associated with or connected with these activities.”
Entitlement of the other parties involved in the mining, transport and loading of the ore onto ships at Esperance were to off road credits.
110. Before the Tribunal, Mr Robert Nash argued that Autech was the only entity in chain that the Commissioner says is not entitled to the off-road credits and fuel tax credits for diesel fuel. That is, Cliffs (mining the ore at Koolyanobbing), the ARG (railing the ore from Koolyanobbing to the Port) and the ships (delivering the ore to the end customer) were all entitled to the credits and yet Autech, according to the Commissioner was not). No evidence was put by Autech in support of this argument.
111. However, it seems fairly clear on the evidence that was before the Tribunal that Cliffs would be entitled to the credits under section 53(2) of the EGCSA (as it would have used diesel fuel “in mining operations” for the purposes of section 11(1)(b)i. of the ECGSA), ARG would be entitled to the credits under section 53(3) (as it would have used diesel fuel “in rail transport” as defined in section 38(3) and (4) of the ECGSA) and, finally, that the ships would be entitled to the credits under section 53(3) of the ECGSA (as they would have used the diesel fuel “in marine transport” as defined in section 36(3) of the ECGSA). In any event, the Tribunal need not make a determination on this for the purposes of this application.
112. As regards Autech, the Tribunal considers that its operations in the sheds at the Port were not an integrated part of Cliffs “mining operations” at Koolyanobbing since, for reasons discussed above, the “recovery” of the ore was already complete for section 11(1) purposes at Koolyanobbing: See also [109] above.
113. Even if it could be said that Autech’s activities were an integrated part of Cliff's “mining operations”, those circumstances, by themselves, are not enough. This is because the legislation requires that Autech establish, independently of those circumstances that its activities are "operations for the recovery of minerals, being: ii. the beneficiation of those minerals" or "mining transport activities" or some other specific "qualifying use" of diesel fuel. There is support for this position in the Full Federal Court decision in Commissioner of Taxation v Ostwald Bros Civil Pty Ltd [2008] FCAFC 99 at [34] to [36]. In Ostwald Bros the Court cited the following from the Second Reading Speech given by the Minister for Small Business and Consumer Affairs, Mr Prosser, in relation to Customs Amendment Bill:
"Several other recent decisions addressed what might essentially be categorised as transport activities. The only transport activities intended to be covered are the transport of minerals and ores for beneficiation at facilities remote from the place at which mining activity is carried out, and certain activities specifically provided for. Amendments were made to the act in 1995 and 1996 to ensure that activities "connected with" mining were no longer eligible for rebate. The interpretation of the so-called "sweeper clauses" had been a source of contention over the years and generated most of the litigation under the scheme. These clauses were replaced with an objective list of activities that are eligible for rebate. In the decision of Dyno-Westfarmers the AAT found that driving explosive trucks over an average distance of 150 kilometres each way between the explosives depot and the mine sites was either "mining for minerals" or "the preparation of a site to enable mining for minerals to commence", as those long journeys were "an integral part of this activity". The government considers that it is wrong to apply the concept that an activity is eligible for rebate because it is integral to another eligible activity. It is the intent of the diesel fuel rebate scheme to pay rebate only on those activities that are explicitly mentioned in the legislation and not to activities that are said to be integral to, associated with or connected with these activities. The amendments are necessary to put the intent of the scheme beyond doubt. The approach adopted by the AAT in the Dyno-Westfarmers case would defeat the purpose of the amendments made in 1995 which removed the "connected with" sweeper clauses."
114. Extending the meaning of "mining operations" and "beneficiation" to activities that are not functionally integrated with a mining operation, and are remote from it in terms of space and time gives eligibility for off-road credits or fuel tax credits to activities that were never intended to be eligible. Although the issue of whether an applicant's use of fuel is "in mining operations" will no longer be relevant to fuel acquired after 30 June 2012 (see Fuel Tax (Consequential and Transitional Provisions) Act 2006) , the potential still exists for refund claims of "net fuel amount" extending back to the statutory four year limit.
115. Recent case law supports the position that the relevant legislation is to be construed narrowly: see Ostwald Bros; Asciano Services Pty Ltd v Commissioner of Taxation [2009] FCAFC 28 at [19] to [22] and Canerase Pty Ltd and Commissioner of Taxation [2011] AATA 247 at [11].
Mines Safety and Inspection Act 1994 (WA)
116. Autech told the Tribunal that as part of its self-assessment for the entitlement to the energy grants credits and fuel tax credits claimed by it relied on the definition of “mining operations” and “mine” in section 4 of the Mines Safety and Inspection Act 1994 (WA) (MSIA). Those definitions are as follows:
“mining operations means any method of working by which the earth or any rock structure, coal seam, stone, fluid, or mineral bearing substance is disturbed, removed, washed, sifted, crushed, leached, roasted, floated, distilled, evaporated, smelted, refined, sintered, pelletized, or dealt with for the purpose of obtaining any mineral or rock from it for commercial purposes or for subsequent use in industry, whether it has been previously disturbed or not, and includes –
……………..
(f)the crushing, screening, sorting, stacking and loading and handling of ore or other mineral products at any rail or road terminal or any loading or transhipment points, including seaports; and”
“mine means a place at which mining operations are carried on, and, where operations are being carried on in conjunction with one another at 2 or more places, those places are to be taken to constitute one mine unless the State mining engineer notifies the principal employer in writing otherwise in accordance with subsection (3); and to mine includes to carry on any manner or method of mining operations.”
116. According to Autech, the Esperance Port is designated as a mine site for the purposes of MISA such that all contractors to the Esperance Port, including Autech, are required to adhere to the MSIA regulations. Further, all of the sheds at the Esperance Port (including the storage sheds in which Autech’s operations were carried out) are classified as underground mines and that all operators within the sheds (including Autech) are required to adhere to underground mining regulations.
117. That may be so, but just because Autech’s operations within the storage sheds at the Esperance Port may come within the definition of “mining operations” in section 4 of the MISA (and because Autech is required to comply with the provisions of the MISA and its associated regulations) is not determinative of whether those operations constitute “mining operations” for the purposes of section 11 of the EGCSA.
118. The MISA is a Western Australian Act, relating to the safety of Western Australian mines and mining operations, the inspection and regulation of mines and mining operations and plant and substances supplied to or used at mines and to promote and improve the safety and health of persons at Western Australian mines. In contrast, the EGCSA is a Commonwealth (taxing Act) with a stated purpose of providing “active encouragement for the move to the use of cleaner fuels.”
Retrospectivity of Commissioner’s assessments
119. Autech submits that the Commissioner should not be able to recover the off-road credits and fuel tax credits claimed by it ‘retrospectively’ on the basis that Autech had met all of its requirements under self-assessment and ATO guidelines (in particular, PGBR 2005/2). Specifically, Autech contends:
“The application for the diesel fuel rebate and the subsequent schemes were based on self-assessment guidelines. Autech……at all times complied with the requirements under the self-assessment guidelines and submitted the relevant claim forms to apply for and receive the diesel fuel rebate.
There were no audits conducted by the ATO during that timeframe, it was a case of business as usual for Autech….Claiming and receiving the diesel fuel rebate was a normal part of Autech’s operations. The only audit that was conducted led to a retrospective claim and during this audit process there was no visitation by the ATO to the Port of Esperance.”
In addition, Autech submits:
“The ATO’s actions of withholding payments prior to advising that Autech was not entitled to the rebate of the subsequent schemes were unfair and unjust treatment.
The audit process of the subsequent withholding of payments to Autech regarding the fuel credits was a major disruption to Autech’s business.
The ATO’s actions and dealings with Autech were uncommercial.”
120. In respect of diesel fuel used prior to 30 June 2006, the procedure was that a claim for an off-road credit was submitted by a taxpayer under section 15 of the PGBA and a claim assessment was then made by the Commissioner under section 17 of PGBA.
121. Broadly, section 18 of the PGBA provides that if a taxpayer makes a claim for an off-road credit under the ECGSA (i.e. by self- assessment) the Commissioner may accept the correctness of the taxpayer’s claim for the purposes of making an assessment.
122. When Autech was audited by the Commissioner in 2008, in relation to the off-road credits claimed by it, “amended claim assessments” were issued to it by the Commissioner, in respect of those claims, pursuant to section 20 of the PGBA. Section 20(1) of the PGBA expressly states that that an amended assessment can be made by the Commissioner “at any time”.
123. Under section 22 of the PGBA (except in relation to proceedings under Part IVC of the TAA), the production of a notice of assessment by the Commissioner is conclusive evidence of the proper making of an assessment. The PGBA does not provide for any express time limit on the recovery of off-road credits granted pursuant to the ECGSA.
124. As stated previously, in respect of fuel acquired between 1 July 2006 and 30 June 2008 Autech claimed net fuel amounts under the FTA in its quarterly BAS. This was also a self-assessment system. If the Commissioner disagrees with a net fuel amount claimed in a BAS, he is not specifically required to make an assessment in order to be able to recover the difference between what he says he is owed and what the taxpayer has self-assessed in the BAS. However, the Commissioner is required by section 105-10 of Schedule 1 of the TAA to make an assessment under section 105-5 of the TAA, if specifically requested to do so by a taxpayer.
125. Although an assessment under section 105-5 of the TAA can be made at any time, the Commissioner cannot recover an unpaid net fuel amount unless he requests payment or makes an assessment within 4 years of when it became payable by the taxpayer: section 105-50(3) of the TAA. Effectively, an assessment seeking to increase a taxpayer's liability made more than 4 years after the (self-assessed) liability arose is ineffective unless within the 4 year period the Commissioner has "required payment" of the additional amount.
126. As Autech was registered for goods and services tax purposes, it was required, under section 61-15 of the FTA to lodge a BAS disclosing its relevant net fuel amounts (if positive) at the times specified in section 33-3 of the A New Tax System (Goods and Services Tax) Act 1999 for lodging a quarterly BAS (namely 28 Feb, 28 April, 28 July and 28 October) in respect of the immediately preceding quarterly tax periods. If the respective net fuel amounts were positive, Autech was required to pay those amounts, pursuant to section 61-10 of the FTA, on or before those respective days. As the “net fuel amount assessments” were issued to Autech on 3 November 2008 (being less than 4 years after every such relevant due day for payment), section 105-50 of the TAA does not preclude the Commissioner from recovering those amounts from Autech.
127. According to the Commissioner, since he considered that Autech had genuinely attempted to comply with its taxation obligations, but had made an inadvertent mistake, no tax shortfall penalty assessments were issued to Autech in relation to the relevant assessments.
Decision
128. For the above reasons, the Tribunal affirms the decision under review, being the Commissioner’s objection decision dated 6 April 2009.
I certify that the 128 preceding paragraphs are a true copy of the reasons for the decision herein of SENIOR MEMBER CR WALSH
Signed:..(sgd) T Freeman....
AssociateDate/s of Hearing 5 & 18 August 2011
Date of Decision 18 November 2011
Representative for the Applicant Mr R Nash (Self-represented)
Solicitor for the Respondent Mr R McGrade
Counsel for the Respondent Ms L Price
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