Chief Executive Officer of Customs v Dyno Wesfarmers Ltd

[1997] FCA 406

CATCHWORDS

CUSTOMS AND EXCISE - Diesel fuel rebate - meaning of “mining operations” - whether operations in “mining for minerals” can be carried out elsewhere than at the mining site - whether travel along public roads by mobile manufacturing units, “MMUs”, between base and mining tenement was a mining operation.

Administrative Appeals Tribunal Act 1975 (Cth) - s 44
Customs Act 1901 (Cth) - ss 164 (1), 164 (7)
Customs & Excise Legislation Amendment Act 1995 (Cth)
Excise Act 1901 (Cth) - s 78A
Sales Tax (Exemptions and Classifications) Act 1935 (Cth)

Australian National Railways Commission v Collector of Customs (SA) (1985) 8 FCR 264
BHP Petroleum Pty Ltd v Collector of Customs (1987) 6 AAR 245
Collector of Customs v The Western Australian Government Railways Commission (1995) 39 ALD 21
ICI Operations Pty Ltd v Deputy Federal Commissioner of Taxation (1987) 87 ATC 5110
NSW Associated Blue-Metal Quarries Ltd v Federal Commissioner of Taxation (1956) 94 CLR 509
Pioneer Concrete (NSW) Pty Ltd v Federal Commissioner of Taxation (1986) 86 ATC 4435

CHIEF EXECUTIVE OFFICER OF CUSTOMS v DYNO WESFARMERS LTD
No NG 842 of 1996

Davies, Wilcox and Tamberlin JJ
23 May 1997
Sydney

IN THE FEDERAL COURT OF AUSTRALIA  )          
  )
NEW SOUTH WALES DISTRICT REGISTRY  )  NG 842 of 1996
  )
GENERAL DIVISION  )     

On appeal from the General Administrative Division of the Administrative Appeals Tribunal

BETWEEN:                CHIEF EXECUTIVE OFFICER OF CUSTOMS

Applicant

AND:  DYNO WESFARMERS LIMITED

Respondent

Coram:            Davies, Wilcox & Tamberlin JJ.
Date:               23 May 1997
Place:              Sydney

MINUTES OF ORDER

THE COURT ORDERS THAT:

The appeal be dismissed with costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA  )          
  )
NEW SOUTH WALES DISTRICT REGISTRY  )  NG 842 of 1996
  )
GENERAL DIVISION  )     

On appeal from the General Administrative Division of the Administrative Appeals Tribunal

BETWEEN:                CHIEF EXECUTIVE OFFICER OF CUSTOMS

Applicant

AND:  DYNO WESFARMERS LIMITED

Respondent

Coram:            Davies, Wilcox & Tamberlin JJ.
Date:               23 May 1997
Place:              Sydney

REASONS FOR JUDGMENT

THE COURT:  This is an appeal from a decision of the Administrative Appeals Tribunal ("the Tribunal") which held that the present respondent, Dyno Wesfarmers Limited ("DWL"), was entitled to a rebate under the Diesel Fuel Rebate provisions of the Customs Act 1901 (Cth) and of the Excise Act 1901 (Cth). As the proceedings are brought under s.44 of the Administrative Appeals Tribunal Act 1975 (Cth), the appeal is limited to a question of law.

From 1 July 1995, the Customs & Excise Legislation Amendment Act 1995 ("the 1995 Act") revoked and replaced the definition of "mining operations" in s.164 of the Customs Act with retrospective effect to 1 August 1986. These new provisions govern DWL’S claim. Section 164(1) of the Customs Act now provides, inter alia:-

"164. (1)  A rebate is, ... payable to a person who purchases diesel fuel for use by him:

(a)in mining operations (otherwise than for the purpose of propelling a road vehicle on a public road);

..."

The term "mining operations" is defined in s.164(7) which reads, inter alia:-

"`mining operations' means:

(a)exploration, prospecting, or mining 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

..."

Section 78A(1)(a) of the Excise Act is in similar terms to s.164(1)(A) of the Customs Act and s.78A(7) of the Excise Act adopts the relevant definitions in s.164(7) of the Customs Act.  We need refer only to the provisions of the Customs Act. 

Several paragraphs of the definition of "mining operations" use the term "place". Paragraph (c) includes the words "beneficiated at a place other than the mining site". Paragraphs (l), (m), (n), (o), (p), (q), (u) and (w) refer to "the place where the mining operation is carried on". However, neither s.164(1)(a) nor paragraph (a) of the definition of "mining operations" refers to either "mining site" or to "the place where the mining operation is carried on". A crucial question for determination in this proceeding is whether operations in "mining for minerals", the term used in para (a) of the definition of "mining operations", can be carried out elsewhere than at the mining site.

DWL is a producer and distributor of explosives.  It has a store in Kalgoorlie where it separately stores ammonium nitrate, emulsifiers and diesel fuel.  DWL has special trucks called "mobile manufacturing units" or "MMUs" on the back of each of which are three tanks being an ammonium nitrate tank with a capacity of 6.5 tonnes, an emulsion tank with a capacity of 5.2 tonnes and a diesel tank with a capacity of 4.1 tonnes.  Also on the back of each vehicle is a manufacturing unit which, when activated, will mix the amount of ingredients which are required for a particular explosive charge.  The unit will then pump the explosive into an already prepared drill-hole.

It appears from the information which was before the Tribunal that DWL uses MMUs at other places as well as at Kalgoorlie, but that it is only in respect of the mines around Kalgoorlie that the MMUs travel lengthy distances between the base and the mining tenements.  Why this occurs was not explained to the Tribunal.

The decision in I.C.I.. Operations Pty Ltd v Deputy Federal Commissioner of Taxation (1987) 87 ATC 5110 shows that such mobile manufacturing units or MMUs have a well recognised role to play in the mining industry. In that case, the issue was whether the vehicles were exempt from sales tax as "Machinery ... (other than road vehicles of the kinds ordinarily used for ... the transport or delivery of goods ... ) for use in the mining industry in carrying out mining operations ...", in Item 14 of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (Cth). The Court there described facts which are similar to those which were put before the Tribunal in the present case. A Full Court of the Supreme Court of Victoria, Kaye, Gray and Brooking JJ, concluded that the MMUs were not motor vehicles of a kind which were ordinarily used for the transport or delivery of goods. The Court also found that the MMUs were machinery for use in the mining industry in carrying out mining operations. At 5,112, Gray J said:-

"The undisputed evidence justifies the inference that the primary purpose for which the M.M.U. was brought into existence is to enable explosives to be manufactured at and delivered to a mine site.  ... The achievement of the primary purpose necessarily involves that the M.M.U. will transport raw materials to a mine site together with such persons as are required to carry out the M.M.U.'s stated primary purpose.  But such transport of materials and persons is merely incidental to the achievement of the primary purpose." 

At 5,114, Kaye J. said:-

"That the transportation is an ancillary function is clear from the following features connected with the units: first, on some occasions - rare though they may be - materials necessary for production are carried to the mine by a transport or tanker, and at the mine the materials so carried are introduced into or transferred into the unit for production.  Secondly, the units are so constructed that chemicals and fuel carried in the tanks of the unit cannot be discharged or delivered without passing through the mixer which is an integral part of the unit.  Thirdly, the manufacturing process commenced in the mixer of the unit continues in the pipe of the unit while the mixture of chemicals and fuel is in the course of being discharged from the unit into the mine hole.  Pressure produced by the pump of the unit causes the required chemical changes in the mixture to take place, resulting in the production of the explosive.

In my opinion, the mobile manufacturing units are essentially plant used to produce explosives and not of a kind referred to in the exception to the exemption."

At 5,116, Brooking J. said:-

"The primary function of these units is that of manufacture.  Essentially each unit is a mobile plant.  The units have storage tanks and bins, as any plant must have if it is to blend ingredients by way of manufacture.  Usually the units travel to the mines carrying ingredients with them, and when this occurs the receptacles are used for transportation as well as storage.  But this is incidental to the units' use as manufacturing plant."

Their Honours therefore held that the MMUs were exempt from sales tax under Item 14, that is, they were "Machinery ... for use in the mining industry in carrying out mining operations".

An MMU is loaded up at the depot.  The MMU then drives from the depot to the particular mine on both public and private roads.  The average distance travelled on public roads between DWL's depot at Kalgoorlie and mine sites is 150 km each way.

At a mine site, the MMU travels to where the explosives are required, typically a bench in an open cut mine where many drill holes have been prepared to take explosives.  When the MMU is at a drill hole site, the explosive ingredients are blended by the manufacturing unit and the blended explosives are then pumped down one or more drill holes by means of a mounted pump and hose running between the manufacturing unit and the drill hole.  After completion of the delivery, the truck is either moved to a safe distance while the explosion occurs or it is moved to the next contracted explosion site if sufficient ingredients are on board.  The MMU might travel short distances between drill holes or travel between different sites at the one mine site or may move from one mine site to another, according to the amount of explosive required.  The MMU then returns to the depot. 

Before the Tribunal, it was not in dispute that DWL's trucks were not "road vehicles", which are defined as "vehicles of a kind ordinarily used on roads for the transport of persons or goods".  The Chief Executive Officer of Customs conceded, moreover, that the diesel consumed by DWL's trucks in their travel along private roads was rebatable under the legislation.  Presumably, this travel along private roads was accepted to be travel at a mining site, though the precise details of the calculations, that is details of the precise points at which the rebatable travel was thought to commence and end, were not given to the Tribunal. 

The issue before the Tribunal and in this appeal is whether the travel along public roads from the Kalgoorlie depot to the perimeter of each mining site and the return journey back to the depot were journeys "in mining for minerals", the term used in s.164(1). The Tribunal concluded that such travel occurred in the course of mining for minerals. The Tribunal said:-

"The Tribunal finds it relevant that the MMU is a purpose built vehicle.  In order for the applicant's MMU to be used successfully at the mine site, it must be loaded with explosive ingredients at the depot and transported to the mine site.  The MMU must return to the depot for more explosive ingredients if needed for the next contract.  The Tribunal is satisfied in this matter that the applicant purchased the diesel fuel for use either in mining for minerals or an activity undertaken in the preparation of a site to enable mining to commence, and in the circumstances of this case the on-road journeys to and from the mine site are an integral part of this activity.  When the activities of the MMU are considered in this way, the on-road journeys are not activities that might be `loosely' described as encouraging mining operations, but are activities `in the act of exploring or prospecting for minerals and their subsequent mining and beneficiation'.  The Tribunal is of the view that the factual situation in this matter can be distinguished from the circumstances in the Westrail case ... and Re Queensland Railways and Regional Director of Customs (Queensland) ...  In those cases, the applicants for rebate were involved only in the transportation of the coal for use in the rebatable activity rather than actually being involved in that activity."

In s.164(1)(a), the preposition "in" is used to connect the words "for use by him" with the term "mining operations" so as to require the prospective use of the diesel to be use within the ambit of "mining operations". The Shorter Oxford English Dictionary uses the expression "In the process or act of" to express the meaning of the word "in" in such a context. It follows that the issue for consideration is not that which was considered in Collector of Customs v The Western Australian Government Railways Commission (Westrail) (1995) 39 ALD 21, in which Lee J considered an earlier definition of the term "mining operations" which included "operations connected with ... mining for minerals that are carried out in, or at a place adjacent to, the area in which the exploration, prospecting or mining occurs". That was a wider extension, because of the use of the words "connected with" though limited by the words “in, or at a place adjacent to, the area in which ... mining occurs.”

In this appeal, counsel for the Chief Executive Officer of Customs challenged some of the reasoning of Lee J in that case.  We need not discuss the points raised.  We see no error in his Honour's approach to that earlier legislation.

In the present case, the term "mining operations" is defined to mean, relevantly, "mining for minerals".  That brings the issue down to the question whether the subject diesel was purchased for use in "mining for minerals", which is to say, in mining.

It is not in dispute between the parties that, at each mining site, the MMUs were engaged in "mining for minerals".  The Macquarie Dictionary defines "mining" as:-

"1.the action, process or industry of extracting ores, etc., from mines."

See also the discussion of the terms "mine" and "mining operations" by Dixon CJ, Williams and Taylor JJ in NSW Associated Blue-Metal Quarries Ltd v Federal Commissioner of Taxation (1956) 94 CLR 509 at 522-4.

What was submitted on behalf of the Chief Executive Officer of Customs is that the term "mining" encompasses the operations which occur on a mine property but does not extend to activities carried on outside that property.  The submission was that, when travelling from the Kalgoorlie depot to the perimeter of a mine, the MMUs were engaged in transporting the explosive materials to the mine site, whilst, while they were travelling within the perimeter of a mining tenement, they were taking part in the process of mining. 
It is to be noted, however, that s.164 does not use a term such as was in issue in Blue-Metal Quarries, namely "mining operations upon mining property".  The words "exploration", "prospecting" or "mining for minerals" are not limited by any words such as "upon a mining property" or "at the place where the mining operation is carried on".

In a case such as this, an appeal under s.44 of the Administrative Appeals Tribunal Act, the principle of law to be applied was that which was stated by Kitto J at first instance in Blue-Metal Quarries where his Honour said at 511-512:-

"This is a mixed question of law and fact:  see the cases cited by Rich J. in Federal Commissioner of Taxation v. Broken Hill South Ltd. (1941) 65 C.L.R. 150, at p.154. First it is necessary to decide as a matter of law whether the Act uses the expression `mining operations' and `mining property' in any other sense than that which they have in ordinary speech. As to this, it is enough in the present case to say that the expressions are not defined in the Act, that they have no technical legal signification, and that neither in the provisions of Div. 10, or in any of the other provisions of the Act in which these or similar expressions occur (ss.23(m), (o), (p), 23A, 44 and 78 (1)(b), is there to be found any indication that the Parliament intended any other meaning than that which the words ordinarily have in this country and at this time. The common understanding of the words has therefore to be determined, and that is a question of fact: see the cases cited by Starke J. in the Broken Hill South Case (1941) 65 C.L.R., at p.155.  the next question must be whether the material before the Court reasonably admits of different conclusions as to whether the appellant's operations fall within the ordinary meaning of the words as so determined; and that is a question of law: ibid; see also per Isaacs and Rich JJ. in Australian Slate Quarries Ltd. v. Federal Commissioner of Taxation (1923) 33 C.L.R. 416, at p.419. If different conclusions are reasonably possible, it is necessary to decide which is the correct conclusion; and that is a question of fact: see per Williams J. in the Broken Hill South Case (1941) 65 C.L.R., at p.160."

The issue whether an activity is an activity "in mining" is essentially a question of fact unless, as Kitto J. pointed out in Blue-Metal Quarries, only one conclusion is reasonably open.  The term "mining" is not a narrow technical term, it is a wide term of ordinary parlance.  Whether an activity is "in mining" must depend very much upon what that activity is and how mining is carried out.  The Tribunal was called upon to make its own decision of fact with respect to the issue before it.  Little evidence was provided.  The statement of agreed facts which was given to the Tribunal was simplistic.  The issue before the Tribunal was not primarily one of interpretation of the statute but primarily one of fact.  However, the Tribunal was entitled to look beyond the statement of agreed facts for it had to decide the issue and it was entitled, in our opinion, to draw from the statement of agreed facts the inference that the activities of the MMUs were an ordinary and regular part of mining in the Kalgoorlie area. 

The expression "mining operations" is a broad concept.  The concept is not narrowed by the legislation save to the extent that the operations must be "in mining".  The Tribunal approached the matter in the correct way giving the terms their meaning in ordinary parlance.  Counsel for the Chief Executive of Customs criticised the Tribunal's use of the adjective "integral".  However, we see no error in the use of this adjective.  The Tribunal was simply explaining its view, not substituting a different test or different words for those used by the legislation.  In the context, the adjective "integral" was consistent with the statutory requirement.

The submission of the Chief Executive Officer of Customs therefore came down to the proposition that an operation "in mining" can take place only on the mining site, (whatever that might be) or at least within the mining tenement. However, s.164(1)(a) and the definition of "mining operations" do not limit the allowable operations to a particular site. In s.164(1)(a), the references to "exploration" and to "prospecting" are inconsistent with a limitation of operations to a place such as a mining site. The Court was not referred to any authority which lays it down as a principle of law or fact that mining operations are limited to the space of a mining site or the dimensions of a mining tenement. The case of BHP Petroleum Pty Limited v Collector of Customs (1987) 6 AAR 245, to which the Court was referred, raised a different issue, the movement of a drilling ship from one job to another.

When the issue is whether a particular operation is "in" a specified activity, matters respecting locality and place can be, and often are, relevant. And they were relevant in the proceedings before the Tribunal. Even under the broad concept provided by s.51(1) of the Income Tax Assessment Act 1936 (Cth) which permits the deduction of outgoings incurred "in gaining or producing the assessable income, or ... necessarily incurred in carrying on a business for the purpose of gaining or producing such income", it has been held that fares paid by taxpayers, whether employed or carrying on business on their own account, in travelling day by day from their homes to their places of employment or business, are not deductible. See Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478. We mention this case simply to illustrate the relevance of place to the question whether an operation is "in" an activity which principally at least is conducted at a particular location. The distance travelled by the MMUs and the relationship between the DWL's Kalgoorlie depot and the activity of mining were factors which the Tribunal therefore took into account.

It is necessary to keep in mind that the benefit of the diesel fuel rebate is not restricted to persons who carry on business as miners.  The rebate is given not to persons who carry on defined occupations but to persons who purchase diesel fuel for use in operations as defined.  Thus, in Australian National Railways Commission v Collector of Customs (SA) (1985) 8 FCR 264 at 269, I said, in a case in which the issue was whether the Australian National Railways Commission, which transported stock, was entitled to the rebate as one who "purchases diesel fuel ... for use by him ... in ... primary production":-

"Once it is accepted that it is not necessary for a rebate that the subject operation be carried out by a person who rears livestock, it is an inevitable consequence that the transportation of livestock by contractors which takes place in the course of the rearing of livestock, as distinct from transportation which takes place for the purpose of sale or other disposal, is an operation of primary production as defined."

The Tribunal had in mind this principle when determining whether the operations which DWL undertook were operations "in mining".

In our opinion, it was open to the Tribunal to conclude, as it did, that the operations of the MMUs were operations "in mining".  That was how mining was conducted by DWL's clients in the Kalgoorlie area.  Clearly the cost of the operations of DWL was an ordinary and regular cost of the mining operations.  The cost was a direct cost of producing the ore, or of removing the overburden if that was the case.  It was not in dispute that the mixing of the explosive ingredients on site and the pumping of those ingredients into the drill holes was part of the mining process.  In these circumstances, the Tribunal was entitled to conclude as a matter of fact, if it thought it proper to do so, that the MMUs were used as they were because it was good mining practice to do so and that their use was a feature of, a part of the process of, mining in the Kalgoorlie area.

The reasoning in the I.C.I. case strongly supports the Tribunal's conclusion, though it must be kept in mind that the legislation was different.  Another case which supports the Tribunal's conclusion is Pioneer Concrete (NSW) Pty Ltd v Federal Commissioner of Taxation (1986) 86 ATC 4435. In that case, Yeldham J. held that a truck having a transit mixer unit at the rear, designed for the mixing of concrete during transit to a building site and for the pouring of concrete on site was subject to a concessional rate of sales tax under Item 7 in Schedule 3 to the Sales Tax (Exemptions and Classifications) Act.  His Honour held that the truck and its equipment was "Machinery ... for use exclusively or primarily and principally, for business or industrial purposes, in ... constructing buildings or other structures".  His Honour said at 4441, "The situation is precisely the same as if a concrete mixer had been used on site for the preparation of concrete for use in the building being erected on that site."  The authority of the case is, however, diminished by his Honour's subsequent statement that the word "in" should be construed as meaning "in the course of" or "in connection with".  The present legislation omits the expression "in connection with". 

In our opinion, the Tribunal's decision was a decision on a point of fact.  We have not identified any error of law in the Tribunal's approach to the question and are satisfied that the Tribunal's decision of fact was open to it.

For these reasons, the appeal should be dismissed with costs.

I certify that this and the preceding 11 pages
are a true copy of the reasons for judgment of
the Court.

Associate:

Date:   23 May 1997

Counsel for the applicant:  S Gageler

Solicitor for the appellant:  Australian Government Solicitor

Counsel for the respondent:                  A Robertson SC with P Braham

Solicitor for the respondent:                 Barwick Boitano

Date of hearing:  17 February 1997

Date of judgment:  23 May 1997