J.M. Kelly Builders Pty Ltd (Trading as Pink Lily Sands) and CEO of Customs - [2000] AATA 657

DECISION AND REASONS FOR DECISION [2000] AATA 657

ADMINISTRATIVE APPEALS TRIBUNAL )

) No Q1994/583

GENERAL ADMINISTRATIVE DIVISION       )
           Re      J.M. KELLY BUILDERS PTY LTD (trading as PINK LILLY SANDS)
  Applicant
           And    CHIEF EXECUTIVE OFFICER OF CUSTOMS
  Respondent

DECISION

Tribunal Mr. D.W. Muller, Senior Member Major-General J.N. Stein, AO Rtd, Member Mr. I.R. Way, Member

Date 4 August 2000
PlaceBrisbane

Decision The Tribunal affirms the decision under review.

............(Signed).................................
D.W. MULLER
SENIOR MEMBER

CATCHWORDS
Diesel Fuel Rebate – minerals – mining operation – dredging for sand and gravel
Customs Act 1901: s 164
Excise Act 1901 s 78A
Re Boral Bricks (Qld) Limited and Australian Customs Service (1988)18 ALD 456
Re Neumann Dredging Co Ltd and Collector of Customs (Queensland) (30 September 1996, Q85/174)
Re Boral Resources (NSW) Ltd and Chief Executive Officer, Australian Customs Service (1996) 43 ALD 380
Re CSR Ltd and Chief Executive Officer of Customs (1997) 46 ALD 747
Re CSR Limited and Metromix Pty Ltd and Chief Executive Officer of Customs(1997) 48 ALD 7

REASONS FOR DECISION

Mr. D.W. Muller, Senior Member Mr. I. Way, Member Major-General J. Stein, Member

This is an application to review a decision to refuse diesel fuel rebates under s.164 of the Customs Act 1901 and s.78A of the Excise Act 1901.
The application relates to diesel fuel purchased by the applicant in the period March 1986 to February 1994. The fuel was used by the applicant to operate machinery to extract sand and fine gravel from the bed of the Fitzroy River at Rockhampton. The sand and gravel were used by the applicant for construction materials, mostly for making concrete.
Subsection 78A(1) of the Excise Act 1901 and s.164(1) of the Customs Act, provide, in identical terms, that a rebate is payable for fuel purchased for use in "mining operations". The definition of "mining operations" for the purpose of both definitions is in s.164(7) of the Customs Act. For the claim period of March 1986 to February 1994 "mining operations" was relevantly defined:
"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
(b) the dressing or beneficiation of minerals, or ores bearing minerals, as an integral part of operations for their recovery;
and includes….

There followed a list of 22 activities that are not relevant for present purposes. The concluding words of the "mining operations" definition were:

"but does not include quarrying operations carried on solely for the purposes of obtaining stone for building, road making or similar purposes"
"Minerals" was also relevantly defined in s.164(7):
"Minerals" means minerals in any form, whether solid, liquid or gaseous and whether organic or inorganic.

The definition of "minerals" has subsequently been amended to exclude sand, sandstone, soil, slate, clay, water and limestone. It is accepted by both parties that the extended exclusions do not apply in this case.
The definition of "mining operations" has also been subsequently amended to exclude quarrying or dredging operations to the extent that the purpose of the operations is to obtain materials for use in building, road making, landscaping, construction or similar purposes. It is accepted by both parties that the extended exclusions do not apply in this case.
The applicant's operations on the Fitzroy River included:
(a)initial recovery of extracted material from the river bed via marine cutter suction dredges,
(b)pumping of extracted material to a shore based processing plant,
(c)at the processing plant the extracted material passed through a screening mesh and a washery plant to remove salt, clay, wood and other contaminants,
(d)the end products were subsequently sorted into various sizes of sand and gravel.
The relevant activities were conducted pursuant to permit number A3705 granted to the applicant by the Queensland Water Resources Commission, subsequently replaced by permit number A4802 issued by the Water Resources Division of the Department of Primary Industries. Among other things, the permit imposed on the applicant various reporting conditions and the payment of royalties based on the material extracted. The permit also specified the boundaries within which the extractive processes were conducted, the method of extraction and other matters connected with the location of processing works and disposal of waste materials.
The applicant commissioned regular testing by recognised petrological and geochemical consultants of the graded sand and gravel obtained by the above process. Reports from those tests confirmed the chemical characteristics of the extracted material as comprising free silicon content in the range of 87 to 93 per cent.
The question for the Tribunal is whether those operations of dredging, washing, sifting, sorting and testing of sand and gravel for construction materials constituted a "mining operation" within the meaning of that term in the Customs Act. That is, in the context of this case, did the operation come within the meaning of "mining for minerals".
The applicant's case, supported by expert witnesses from the mining and mineralogy fields, is that:
(a)Sand and gravel are minerals within the definition of "minerals" as it then was, and that,
(b)The extraction process used by the applicant is practically identical to the processes used in mining for mineral sands on the coastal areas of Australia (for example on Stradbroke Island), in mining for alluvial gold and in mining for tin.
It was the view of the experts called by the applicant that:
(a)Sand and gravel are extracted for use in the building industry because of their specific physical and chemical properties, therefore, they are minerals.
(b)Mining takes many forms including digging underground as in mining for copper ore at Mount Isa; dredging as in mining for mineral sands; blasting open cut benches as in coal mining and in recovering iron ore; using bulldozers and front end loaders to scrape up and load bauxite in Northern Australia.
(c)The quarry and sand extraction industry is often included in Australian official statistics relating to earnings and employment said to be generated by the "mining industry".
(d)The extraction of top soil for re-sale to gardeners comes within the ambit of a mining operation because the method is identical to many recognised mining activities and the material extracted is a mineral.
(e)The operation conducted by the applicant on the Fitzroy River comes well within the definition of "mining for minerals".
There is no doubt that if the end product produced by the applicant had been titanium dioxide in the form of so-called mineral sand and not silicon dioxide in the form of quartz rich sand, the operation would have been called a mining operation by both parties and all of the experts. The case turns on whether sand should be regarded as a mineral and whether quarries and sand pits should be regarded as mining operations.
The representatives of the respondent and the experts called on behalf of the respondent made the following points to support the proposition that the applicant's operation does not constitute "mining for minerals".
(a)Although sand and gravel fall within the wider ambit of "minerals" as compared to "animal or vegetable" matter, they are not regarded as "minerals" within the meaning of that term in general informed usage.
(b)The term "minerals" should be restricted to those substances which:
(i)Are relatively rare on the earth's surface,
(ii)Have a higher value than materials such as rock, gravel and sand which are readily available almost anywhere in Australia,
(iii)Are regarded as precious because of their beauty, unique qualities or rarity, or
(iv)Can be smelted or refined to produce metals or other valuable compounds.
(c)There is no special prospecting talent needed to find sites for the extraction of rock, gravel and sand.
(d)It is common in the construction of highways to establish a quarry to extract gravel and sand approximately every twenty kilometres along the route followed by the highway under construction.
(e)The applicant's operation on the Fitzroy River is in reality an underwater sand pit. Sand pits are an integral part of the quarrying industry.
(f)It is an unnatural and inappropriate use of language to apply the term "mining for minerals" to the extraction of rock, sand and gravel from a quarry or a sand pit.
The Tribunal has dealt with this type of case on many previous occasions. The earlier cases such as Re Boral Bricks (Qld) Limited and Australian Customs Service (1988) 18 ALD 456 and Re Neumann Dredging Co Ltd and Collector of Customs (Queensland (30 September 1996, Q85/174), concentrated on the specific chemical composition which was required of the extracted material (clay in brickmaking and quartz for concrete) and the methods of extraction which were similar in each case to methods used in the mining industry. The Tribunal concluded that the operations were "mining operations".
In the cases which came after Neumann Dredging, the Tribunal had its attention drawn more sharply to the distinctions between quarries, sand pits and mines and the distinctions between substances which are recovered for their specific physical properties but which may nevertheless not be regarded as "minerals" and those substances which are generally regarded as minerals. The case of Re Boral Resources (NSW) Ltd and Chief Executive Officer, Australian Customs Service (1996) 43 ALD 380, has set a pattern which was followed in Re CSR Ltd and Chief Executive Officer of Customs (1997) 46 ALD 747 and approved of by Federal Court in the CSR Limited and Metromix Pty Ltd and Chief Executive Officer of Customs (1997) 48 ALD 7.
In the Boral case Deputy President McMahon came to the following conclusions:
"Conclusions
(117) The relevant parts of the Customs Act deal with business activities. It is administered by a commercially oriented service with the cooperation of businessmen. There is a long history of decisions which emphasise that the Act should be approached in a commercial and practical manner. The many decisions on tariff classification emphasise the practical nature of the 'wharf-side' process of identification. In relation to s 164 itself, a 'common sense and commercial approach to construction' was urged by Ryan and Cooper JJ in Abbott Point Bulk Coal v Collector of Customs (1992) 35 FCR 371 at 378. The same views were expressed by Drummond J, the judge at first instance and were affirmed by Neaves, French, and Cooper JJ in the Appeal in Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 115 ALR 1 at 12. These expressions are consistent with the test propounded by Menzies J in North Australian Cement, a test which has been consistently followed now for some years.
(118) Having taken into account the way in which the deposits of material occur, the character of the material to be recovered and the use to which it may reasonably be put, one must then ask how are the activities described in 'informed general usage'. I take this firstly to mean usage within Australia. The legislation is designed to give relief by way of rebate to persons engaged in mining operations. A legislative intention to encourage such mining operations has been discerned on a number of occasions. Clearly, Parliament would have intended only to encourage those mining operations carried on in Australia. To determine which operations Parliament had in mind, it seems to me that the only relevant usage must be that occurring in this country. Consequently, no assistance is to be derived from foreign technical dictionaries or from English cases dealing with concepts of reservations in grants of land titles. The references in some of the English definitions quoted above to different usages within different parts of Britain indicate the futility of relying upon these definitions for any assistance in determining the nature of Australian general usage. The definition of minerals contained in the Macquarie dictionary spans a number of areas and cannot be regarded as being of assistance in determining the present issue. The English cases were referred to in earlier High Court decisions. In the past 60 or so years, however, sufficient jurisprudence has evolved from a range of Australian decisions, especially since the Federal Court was established, which renders dependence on English decisions arising out of an entirely different context an unsafe way of determining Australian usage.
(119) Secondly, I take the phrase 'informed general usage' to refer to the custom of those who work in the relevant industry and are concerned with its activities on a day to day basis. The phrase is not concerned with the usage of those who merely study the subject or teach it. This observation is not intended as a disparagement of the value of academics and their contribution to the research and development of the mining and quarrying industries. Clearly, they are distinguished people in their own context and are essential in establishing and nurturing a proper scientific basis for the industries. Nevertheless, the use of the word 'informed' does not seem to me to be a reference to expertise in scientific analysis. It seems to me to be a reference to the general understanding of people in the industry who know what they are talking about, as distinct from persons who are 'informed' in other disciplines.
(120) I also take the phrase 'general usage' to mean how words are in fact used. If terms are generally used throughout an industry, then it seems to me irrelevant to assert that the use of those terms is loose or inexact or 'poor usage'. Whatever the geological composition of rock may be, whatever assemblage of minerals may exist, rock must be regarded as rock if it is the general usage to refer to it as such. The overwhelming evidence is that this is so. Whatever may be the correct laboratory analysis, the evidence indicates that no one in an upper or middle management level in quarries refers to the product of their industry as mineral assemblages.
(121) Having regard to these principles and to the evidence that I have reviewed, I have concluded that there is a distinct difference between mining operations and quarrying operations, and that Boral's activities fall within the latter category. Within the site documents, within the annual reports of Boral and from the evidence put before me, it is clear that even within Boral itself, the company's activities are referred to by its officers as quarrying. Furthermore, they are regarded as ancillary to the readymix concrete business and the products are usually regarded as destined for the building or construction industries.
(122) Many of the applicant's witnesses made the point that the techniques of open cut mining and of quarrying were similar, and from this they deduced that quarrying was therefore open cut mining, or a subset of that activity. It seems to me that this does not follow in logic or in law. The technique for driving a standard motor car in peak hour traffic is the same technique used in driving a stock car around a racing track. No one would say that the driver is therefore engaged in the same activity in both circumstances. Pianists will be aware that the technique for playing a concert grand piano is the same as that required for playing a silent keyboard, yet nobody would describe the giving of a public recital as the same activity as practising in the privacy of one's own room. Many examples can be given to illustrate the logical flaw in identifying commonality of technique with commonality of activities. Not only is the logic flawed but there has also been in implicit rejection of the proposition at law. The argument was put before the full court in NSW Associated Blue-Metal Quarries Ltd at 521 and 522 and was rejected by the court, as it had been rejected by Kitto J at page 512. The propositions referred to by Isaacs and Rich JJ in Australian Slate Quarries must be regarded as having been finally rejected in the penultimate para of the judgment of the full court in NSW Associated Blue-Metal Quarries Ltd at 525.
(124) The arguments put forward on behalf of the applicant closely resemble those apparently put forward in Associated Blue Metal. I was asked to find that in the past 40 years, technology has changed to such an extent that a more modern approach to the meaning of 'mining for minerals' should be adopted. I have no doubt that with the development of concrete technology in recent years standards have been raised and builders now expect better quality control and better quality products. Nevertheless the evidence is that the basic features of the activities at the various sites are the same now as they have been for the past century. There is no evidence before me that techniques of extraction have so changed as to overtake earlier decisions of the High Court, or even to allow me to distinguish those decisions from the present circumstances.
(125) The activities of Boral, I find, do not constitute mining. If I am wrong in this conclusion, I would also hold that it was not minerals for which Boral was mining. Rock, sand and gravel may have certain mineral compositions. This is a matter of some interest and concern to geologists. The balance of the evidence, however, is that these minerals, whilst possibly having some effect upon the character of the rock, certainly do not determine the engineering properties for which the aggregate is required and which are usually specified by the purchasers. In any event, whether or not rock contains minerals, the fact is that in general usage rock is referred to as rock or stone and not as minerals.
(126) In the marketing of the product the physical properties are paramount. There was no evidence that any end user specification contained a requirement that this or that particular mineral should be present in the aggregate. What the purchaser requires in all cases is a product that will have the engineering qualities to meet the demands likely to be made upon it.
(127) The activities of Boral after the source rock has been extracted cannot be described as beneficiation. Indeed the evidence is that throughout the quarrying industry, the term is never used in connection with quarry processing. Paragraph (b) of the definition in the Act indicates the area intended to be covered by the term beneficiation. The object of the process is to recover minerals from ores. Processing at the Boral quarries consists principally of crushing and screening so as to produce aggregate (or stone) of a certain shape or size. The process is not aimed at breaking up the source rock so as to extract any of the constituent minerals from that source rock. There is very little waste in quarry processing. There is a good deal of waste in mining beneficiation.
(129) Section 164 does not seem to me ever to have been intended to have application to the quarrying industry, whether the material sought is hard rock or sand and gravel, unless in the case of sand the material is sought for the purpose of extracting and beneficiating heavy minerals, such as rutile. It seems to me that the section has never been intended to deal with the extraction of materials intended for use as bulk fill. Such an opinion appears to be the 'settled view' as Burchett J put it in Neumann Dredging at ALR 589. The definition of 'mining operations' which governs the outcome of the present applications was inserted into the Act in 1982, almost 30 years after Associated Blue-Metal Quarries. It may be assumed that Parliament was content to leave the definition in the form understood by the High Court. There have been many opportunities since 1982 to include quarrying in more specific terms, had Parliament intended to do so. The 1995 amendments, spelling out with greater clarity the exact types of activities intended to be covered by the definition, could have been passed at any time since 1982. The fact that even in 1995 the amendments do not in terms include quarrying may well be significant. The intention of Parliament, it may be assumed, was to encourage an industry carried on in remote areas and producing a commodity resulting in substantial export income for this country. Quarrying is carried on close to building demand for economic reasons and results in products that are seldom, if ever, exported. The very nature of quarrying, it may be said, indicates that it is not an industry which Parliament, through the statute, has, at any time, attempted to encourage. Applications for diesel fuel rebate in respect of quarrying activities for either hard rock or for sand and gravel are, therefore, inappropriate. There is no entitlement provided for under the Act."

The Tribunal respectfully adopts the observations made by Deputy President McMahon in Boral and finds that:
(a)Sand and gravel are not "minerals" within the meaning of that term in the Customs Act 1901.
(b)The activities of the applicant at Fitzroy River do not amount to a mining operation.
The decision to refuse diesel fuel rebate is affirmed.
I certify that the 18 preceding paragraphs are a true copy of the reasons for the decision herein of Mr. D.W. Muller, Senior Member; Mr. I. Way, Member; Major-General J. Stein, Member
Signed:         .....................................................................................
           R. Hayes, Associate
Date/s of Hearing  3,4,5 November 1999
Date of Decision  4 August 2000
Counsel for the Applicant        Mr. N.M. Cooke, QC and Mr. M. Varitimos
Solicitor for the Applicant         Tony Riddle & Associates
Counsel for the Respondent    Mr. R. Northcote