Gem Plant Hire Pty Ltd ATF the Condello Family Trust

[2012] AATA 852

[2012] AATA 852

Division	TAXATION APPEALS DIVISION
File Number(s)	2011/4448
Re	Gem Plant Hire Pty Ltd ATF The Condello Family Trust
APPLICANT
And	Commissioner of Taxation
RESPONDENT

DECISION

Tribunal	Mr F. D. O'Loughlin, Senior Member
Date	4 December 2012
Place	Melbourne

The Tribunal sets aside the Commissioner’s objection decisions and allows the objections in full.

............[sgd].....................................

Mr F. D. O'Loughlin, Senior Member

TAXATION – Fuel Tax – User of fuel in carrying on an enterprise

Legislation
Fuel Tax Act 2006 sections 2-1, 40-5, 41-1, 41-5

Cases
Riviera Nautic Pty Ltd v Commissioner of Taxation [2002] AATA 657
Northern Territory v Collins (2008) 249 ALR 621;
Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (2001) 207 CLR 72
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27

Secondary Materials

Fuel Tax Bill 2006 (C’th), Explanatory Memorandum

REASONS FOR DECISION

Mr F. D. O'Loughlin, Senior Member

4 December 2012

1. Section 41-5 of the Fuel Tax Act 2006 (C’th) (the Act) allows credits for certain purchases of fuel for use in carrying on enterprises.  In the present context, use means consumption in internal combustion engines. Section 41-5 is not expressed to restrict the credit entitlements it creates by reference to the identity of entity operating the machines with internal combustion engines which consume the fuel.

2. The Applicant purchased fuel for use in vehicles it owned and it hired those fuelled vehicles out to another entity.  The fuel acquired by the Applicant was consumed while the vehicles were operated by the entity to which they were hired.

3. Is the Applicant entitled to fuel tax credits?

   THE FACTS

4. The facts are not disputed.  Adopting the Commissioner’s formulation of them, in the relevant tax periods:

   (a)the Applicant was registered for GST;

   (b)the Applicant supplied trucks and equipment to Gremarcon Pty Ltd.  The Applicant was required to fuel, service, maintain and insure the trucks and equipment supplied to Gremarcon.  Gremarcon did not reimburse the Applicant for fuel charges or other expenses incurred by the Applicant in supplying the trucks and equipment.  Gremarcon simply paid the hire charges levied for the trucks and equipment;

   (c)the Applicant acquired fuel so as to discharge its responsibilities to Gremarcon;

   (d)all trucks and equipment supplied by the Applicant to Gremarcon were diesel powered and weighed in excess of 4.5 tonnes (gross vehicle mass);

   (e)Gremarcon used the Applicant’s trucks and equipment to supply earthwork services to Gremarcon’s customers, which included transporting earth and rocks to rural tip sites or rural fill sites.  The fuel acquired by the Applicant was consumed in the process of doing so.

5. By accepting that the Applicant acquired taxable fuel in the relevant tax periods, the Commissioner has also accepted the method of purchase contended by the Applicant.  That is, the Applicant opened fuel accounts for fuel purchases with Caltex and BP and authorised the drivers of its trucks and operators of its equipment to buy fuel on the Applicant’s behalf using those accounts.  The Applicant then paid those accounts as and when they fell due.  Under this arrangement, in purchasing fuel, the drivers or operators were acting as the Applicant’s agents.

   THE LEGISLATION

6. The legislation at the heart of the present dispute is s 41-5(1) of the Act which provides:

   41-5 Fuel tax credit for fuel to be used in carrying on your enterprise

   (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 you 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.)

   Note 2: Fuel is taken to have been used if it is blended as specified in a determination made under section 95-5.

7. Section 41-5(1) of the Act is part of a wider scheme that first imposes fuel tax and then allows credits to achieve the wider purposes explained by ss 2-1, 40-5 and 41-1 of the Act, which provide as follows:

   2‑1Overview and purpose of the fuel tax law

   This Act provides a single system of fuel tax credits. Fuel tax credits are paid to reduce or remove the incidence of fuel tax levied on taxable fuels, ensuring that, generally, fuel tax is effectively only applied to:

   (a)fuel used in private vehicles and for certain other private purposes; and

   (b)fuel used on‑road in light vehicles for business purposes.

   …

   40‑5     Object of this Chapter

   (1) The object of this Chapter is to provide a single system of fuel tax credits to ensure that, generally, fuel tax is effectively only applied to:

   (a) fuel used in private vehicles and for certain other private purposes; and

   (b) fuel used on‑road in light vehicles for business purposes.

   (2) To do this, a fuel tax credit is provided to reduce or remove the incidence of fuel tax applied to:

   (a) fuel used in *carrying on your *enterprise (other than fuel used on‑road in light vehicles); and

   (b) fuel used for domestic heating and domestic electricity generation; and

   (c) fuel packaged for use other than in an internal combustion engine.

   …

   Note: However, other provisions of this Act might affect your entitlement to a fuel tax credit.

   …

   41‑1What this Division is about

   Fuel tax credits are provided under Subdivision 41‑A to business taxpayers who are registered, or required to be registered, for GST (and to some non‑profit bodies) in 2 situations.

   The first situation is where you acquire, manufacture or import fuel to use in carrying on your enterprise (whether the fuel is used as fuel or otherwise).

   …

   However, fuel tax credits are denied under Subdivision 41‑B if:

   (a) another person is already entitled to a fuel tax credit in respect of the fuel; or

   (b) the fuel is for use on‑road in light vehicles; or

   …

8. These rules are said to be drafted using the coherent principles approach to tax design,[1] with those principles unfolded…in the law itself, in the regulations, but mostly in …[the] …explanatory memorandum (EM).[2] 

   [1]Fuel Tax Bill 2006 (C’th), Explanatory Memorandum (EM), [1.55].

   [2]Fuel Tax Bill 2006 (C’th), Explanatory Memorandum, [1.62].

   THE CONTENTIONS

9. The Commissioner accepts that the Applicant acquired taxable fuel in the relevant tax periods but contends:

   There are two conditions that must be met by a taxpayer in order for it to be entitled to a fuel tax credit. First, the taxpayer must have acquired taxable fuel. Second, the taxpayer must have acquired that taxable fuel for use in carrying on the taxpayer’s enterprise.

10. The Commissioner further contends that the ordinary meaning to be given to “use” in s 41-5 is consumption, not employment for some purpose and the Applicant did not acquire the fuel for use in carrying on its enterprise.  The Commissioner submits that having regard to the context in which the word use appears in s 41-5 of the Act, its meaning must be synonymous with consumption, i.e. burning in internal combustion engines.

11. The Applicant contends that the s 41-5 of the Act does not specify the outer limits to the word use and therefore it has a wider meaning, allowing the fuel purchased by the Applicant to be regarded as used when burnt in internal combustion engines of the machines operated by Gremarcon, under the hiring arrangements with the Applicant.  In the alternate, use means burned up or consumed in internal combustion engines.  On either approach, the Applicant contends that the use of the fuel acquired by the Applicant can be said to be in carrying on the Applicant’s enterprise.

    THE RESOLUTION

12. The approach to the statutory construction of the term use in s 41-5(1) of the Act calls for consideration of the text of the Act first – it is “... always a text based activity”[3] but not without regard to the context and/or scheme or purpose of the legislation.[4]

    [3]Northern Territory v Collins (2008) 249 ALR 621; at [16] per Gummow ACJ and Kirby J. See also Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (2001) 207 CLR 72 at [9] per Gaudron, Gummow, Hayne and Callinan JJ.

    [4]     Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [69] per McHugh, Gummow, Kirby and Hayne JJ and the cases there cited, Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at [4] and [47].

13. In the present circumstances, given:

    (a)the scope for debate about who might be the user of fuel in carrying on an enterprise;

    (b)the potential for fuel to be used in carrying on more than one enterprise by more than one entity;

    (c)the potential for the word use to have more than one meaning;

    (d)the grammatical structure of the relevant test in s 41-5: You are entitled to a fuel tax credit for taxable fuel that you acquire…to the extent that you do so for use in *carrying on your *enterprise, which identifies a person who acquires the fuel, requires that person to have an eligible purpose but does not identify who the user might be; and

    (e)the explanation unfolding in the EM,

    some resort is appropriately had to the EM.

14. The use of fuel contemplated by the legislation is use, or consumption, as a flammable or explosive agent in internal combustion engines or other dealings with the fuel that render it no longer able to be used as fuel.  Such a construction provides for the conclusion that blending fuel with other substances to produce something that is not fuel is a use of fuel, and blending fuel with other things to produce something that is itself fuel is not a use of the fuel for these purposes.  Further support can be found in the EM.[5]

    [5]     See EM: [1.40], [1.41], [2.34], [2.35], [2.37].

15. The evident purpose of the legislation is to allow credits to produce a result that fuel tax is levied on restricted uses of fuel, and not on business use of fuel in vehicles of the kind hired out by the Applicant to Gremarcon.  That purpose can accommodate a proposition that fuel may be used in carrying on a number of entities’ enterprises so long as the use is combustion (or blending in a way that results in the product produced not being fuel, or evaporation – uses which are not presently relevant).  The discriminator chosen to mark who is entitled to a fuel credit is the acquisition of the fuel and the identity of the entity that made the acquisition, because that act or event forms part of the statutory prescription to be satisfied before an entitlement arises. 

16. Moreover the words to the extent that you do so for use in * carrying on your * enterprise in s 41-5 do not impose a requirement that the use is to be only or exclusively by the taxpayer in question in a personal sense.  The section does not include words such as by you after the word use. Section 41-5 of the Act is not expressed to restrict the credit entitlements it creates by reference to the identity of entity operating the machines which consume the fuel. The section is expressed in terms wide enough to contemplate use by actions of another entity so long as the use is in carrying on the enterprise of the taxpayer in question, whether or not the use might also be in carrying on another taxpayer’s enterprise. While that construction of the legislation is open on the words of the statute, it is also supported by the EM.[6]

    [6]See EM:

    2.33 The term ‘use’ is intended to take its ordinary meaning and apply in a broad sense, as long as the use of the fuel is within the confines of the conduct of carrying on an enterprise. For example, ‘use’ will include use of fuel that is acquired or manufactured in, or imported into Australia by a taxpayer, but actually used by a contractor in carrying on the taxpayer’s enterprise as long as the taxpayer is not taken to have sold the fuel to the contractor as part of their contract.

    and examples 2.3 and 2.4 at [2.43].

17. In the present circumstances, the Applicant purchases fuel and hires out the vehicles in which the fuel is consumed, on a fuelled basis.  If the fuel is not consumed during the hiring period, and has not evaporated, it returns to the Applicant with the vehicles.  The Applicant’s enterprise comprises earning rental income by hiring out its vehicles on this basis.  The only consumption of the fuel is by the use of the vehicles which is as an incidental part of that enterprise.  It does not matter that the vehicles are also being used in the carrying on of Gremarcon’s enterprise, or for that matter, possibly Gremarcon’s customers’ enterprises.  Neither Gremarcon’s nor Gremarcon’s customers acquired the fuel so they are not entitled to any credit. 

18. Allowing the Applicant the fuel tax credits it claims produces an outcome that is consistent with the limits to the imposition of fuel tax, e.g. use of fuel in on-road applications in motor vehicles with a gross vehicle mass of 4.5 tonnes or less and for private use on-road in motor vehicles….[7]

    [7]     See s 2-1, s 40-5 and EM [1.3]

19. Such an approach is also consistent with the decision in Riviera Nautic Pty Ltd v Commissioner of Taxation [2002] AATA 657, albeit that decision concerned different legislation.

    PENALTY

20. As there has not been any shortfall, or claims to credits in excess of entitlements, liability for penalty does not arise.

    DECISION

21. The Tribunal sets aside the Commissioner’s objection decisions and allows the objections in full.

I certify that the preceding 21 (twenty-one) paragraphs are a true copy of the reasons for the decision herein of Mr F. D. O’Loughlin, Senior Member.

............[sgd].....................................

S. Herath, Associate

Dated 4 December 2012

Date(s) of hearing	14 May 2012
Counsel for the Applicant	Mr Stanley E Isaiah
Solicitors for the Applicant	Mr James Taylor, James Taylor & Co.
Counsel for the Respondent	Mr Peter Nicholas
Solicitors for the Respondent	Ms Vikki King, Australian Taxation Office Legal Services Branch