McQuade Marine No. 2 Pty Ltd and Commissioner of Taxation

[2008] AATA 902

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 902

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/1029

TAXATION APPEALS DIVISION		)
Re		MCQUADE MARINE NO. 2 PTY LTD

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Honourable Dr B H McPherson CBE, Deputy President, and
Senior Member Bernard J McCabe

Date8 October 2008

PlaceBrisbane

Decision The Tribunal affirms the decision under review.

...............[Sgd]...............................

Deputy President

CATCHWORDS

TAXATION – Fuel grants - Off-road credit for use in marine transport – Exclusion from off-road credit for use in dredge – Whether applicant entitled to off-road credit for use in marine transport or excluded because for use in a dredge – Meaning of “dredge” – Applicant excluded from an off-road credit – Decision affirmed

Energy Grants (Credit) Scheme Act 2003 (Cth), ss 36, 53, 56

Fuel Tax Act 2006 (Cth), s 41-5

Fuel Tax (Consequential and Transitional Provisions) Act 2006 (Cth), Item 10(5)

Re Port of Brisbane Corporation and Deputy Commissioner of Taxation (2004) 81 ALD 539

Port of Brisbane Corporation v Commissioner of Taxation (2004) 140 FCR 375

REASONS FOR DECISION

8 October 2008 Honourable Dr B H McPherson CBE, Deputy President, and Senior Member Bernard J McCabe

1.      The fate of this application to review turns on the meaning of a single word in a single section of a statute.  The word is dredge and the statute is the Energy Grants (Credits) Scheme Act 2003 (the Grants Act). Section 36(7) of that Act provides:

“The expression use in marine transport does not include any use in a dredge or in equipment in or on a dredge.”

2. The respondent to this application is the Commissioner of Taxation, who administers the fuel tax scheme. The respondent’s supplementary outline of submissions contains a lengthy and informative account of the history of taxing fuel in Australia that led to the Grants Act in 2003. For the present, it is enough to say that at first diesel fuel was taxed only if used for “on-road” purposes. Off-road users of diesel were exempted from paying this tax. Off-road use included mining operations and agricultural activities, and (from 2000) rail transport and also marine transport, which was defined to include transport by vessels in or on fresh water. Section 36 of the Grants Act now contains an extended definition of the expression use in marine transport, from which use in a dredge or in equipment in or on a dredge is excluded by s 36(7). According to s 3A of the Grants Act the purpose of the Scheme now is to provide encouragement for the move to the use of cleaner fuels by restricting entitlements available to ultra-low sulphur diesel before 2006, when a mandatory standard was planned to come into effect.

3.       The applicant for review is McQuade Marine No 2 Pty Ltd.  It owns and operates two vessels, which are named Port Frederick and Faucon both of which are engaged in dredging.  The Port Frederick is the larger of the two and was purpose-built in Tasmania.  The Faucon was purchased from New Caledonia.  It was previously an ordinary marine transport vessel that was converted or adapted for carrying out dredging operations.

4.       There are, we were told at the hearing, only four such vessels in Australia.  The applicant’s two vessels have for a good many years been engaged in working mostly, but not exclusively, off the beaches of the Gold Coast in Queensland and at Tweed Heads in northern New South Wales.  Exhibit 6 is a brochure produced by the applicant that contains photographs, diagrams and a history of these and other operations. 

5.      It appears that as early as the 1890s the entrance to the harbour at Tweed Heads was improved by establishing walls on either side of the channel entrance to the harbour.  Later improvements resulted in shoals being formed across it.  This interrupted the northerly littoral drift and led to erosion of the beaches to the north.  A joint project by the Governments of New South Wales and Queensland together with the Gold Coast City Council has set about trying to solve these problems.  The applicant’s two vessels have been engaged in dredging the build-up of submarine sand off Tweed Heads, which is transported to and placed off Gold Coast beaches.  More recently, the procedure has been varied by a new design which aims to create an artificial reef in the sea at locations along the Gold Coast.  Instead of collecting the sand and then simply discharging it elsewhere, the sand and silt dredged from the submarine floor have been collected on board the dredging vessel in specifically fabricated geotextile containers or bags, which are then transported and deposited off the beach at carefully predetermined sites.  The Narrowneck at Southport is one such location.  In time, the containers form a bank or reef, which develops a marine habitat.  The method has been copied with success in other parts of the world that suffer from similar submarine degradation.

6.       There can be little argument that the operations carried out by the applicant’s vessels answer the description of dredging.  At least that is so in respect of the lifting of the sand from the ocean floor and placing it in the vessel.  It might be arguable (and is urged by the applicant here) that thereafter the operation is essentially one of transportation from one site to another.  But that element is a feature of most forms of marine dredging.  Under the title Dredging Machinery, Chambers Encylopedia (1955), vol 4, at 634-5, recognises four main types of dredging equipment.  One, the multi-bucket, consists of a series of buckets on a conveyor belt.  A special form of it is the alluvial dredge used for recovering minerals such as tin, gold or platinum from ponded sediment, before being washed over a pulsating screen leaving the heavier mineral to sink and the lighter material to be rejected.  Another type is the grab dredge consisting of a grab bucket fitted to a crane mounted on a barge.  The other form is a suction dredge, which uses water as the carrying medium especially for free-running material such as sand.  Of it, Chambers says:

“It is used chiefly for maintenance work in cleaning silt and sand from a harbour or channel; it can trail its suction pipe down the channel depositing material in its own hopper… When the hopper is full the dredge steams to sea and dumps its load through bottom doors, or it can be dumped out on a reclamation area.”

7.      This accurately describes the applicant’s operations off the beaches in the Tweed Heads – Gold Coast area.

8.       The applicant’s two vessels are of the suction dredge type.  The Port Frederick is described in the applicant’s brochure as a “cutter suction dredge”, the word “cutter” referring to its capacity to cut through solid material as well to suck up loose matter.  Each vessel has two engines, one at the rear for propulsion and the other to power the suction dredge equipment.  In their request for a ruling the applicant’s tax specialists describe their client’s vessels in the following terms:

“The Port Frederick and the Faucon are marine vessels that carry out marine activities including navigating the vessel to the waterway where dredging work is to be performed, dredging material from the floor of the particular waterway, temporarily storing the material on board in hoppers integral to the vessel and transporting it to an approved dump site, dumping it and navigating the vessel to its base for refuelling, maintenance or storage.”

9.      It is perhaps helpful to add that, as shown in a diagram in the applicant’s brochure, the vessels, or at any rate the Faucon, is described as a split hull hopper dredge that is able to open its hull to discharge the dredged material on the ocean floor.

10. Part 4 of the Grants Act deals with off-road credits. By s 53(1) there is an entitlement to an off-road credit “if you purchase…off-road diesel fuel for a use by you that qualifies” under that Part. By s 53(3), use “in marine transport” in the course of carrying on an enterprise is a use that qualifies. Section 36 of the Grants Act sets out the meaning of the expression use in marine transport. It is sufficient here to say that by s 36(3) use in a vessel or in equipment on a vessel on sea or water is use in marine transport if it is for any of the purposes mentioned in s 36(4). Those purposes include loading things or persons onto a vessel for transportation by the vessel, and offloading them afterwards. By s 36(5), the defined expression also includes use on the outward or the return journey in a vessel, or in equipment in or on a vessel.

11. These are statutory extensions or confirmations of the meaning of use in marine transport. Section 36(7) relating to dredges is the sole express exclusion in s 36. It is not easy to discover the rationale that underlies it. Ms Mellifont of counsel for the respondent submitted that the explanation lay in the need to attain certainty. That is something that is stressed in the Explanatory Memorandum to the 2003 Bill; but it (the Memorandum at 1.45) simply declares that “use in a dredge, or in equipment used in a dredge, is not included”; it does not explain the reason for the exclusion. There had previously been litigation over the status for grant purposes of diesel fuel used in dredges. In Re Port of Brisbane Corporation and Deputy Commissioner of Taxation (2004) 81 ALD 539, the Administrative Appeals Tribunal decided that various dredges used by the Port Authority attracted fuel rebates or entitlements while they were travelling on outward or inward journeys to or from dredging operations or dump sites. An appeal to the Federal Court was allowed: Port of Brisbane Corporation v Commissioner of Taxation (2004) 140 FCR 375; but in the process, the Tribunal’s reasoning on the point of statutory interpretation was (as we see it) approved by the Court.

12. It was in order to eliminate these decisions, or the state of uncertainty thought to flow from them, that s 36(7) was inserted in the Grants Act. It is right to say that the blanket exclusion enacted in s 36(7) of the Grant Acts of 2003 undoubtedly extirpated any shadow of uncertainty associated with credits for using diesel fuel in dredging operations. It still does not explain the reason why the legislature set its face against dredging operations above all others. It is, however, not our function to lecture Parliament on the virtues of consistency, but simply to apply the law.

13.      Mr Kirk, who spoke for the applicant at the hearing before us, submitted that the word dredge in s 36(7) referred essentially to the dredging equipment, and not to the vessel in or on which it was installed or operated. Considered apart from the use to which it was put in dredging, the applicant’s vessels were, he said, simply being used in marine transport. This looks very much like an attempt to rely on, or to resurrect, the Federal Court decision Port of Brisbane Corporation v Commissioner of Taxation despite the quietus it received in the Grants Act 2003. That the decision was intended to be disposed of by that Act cannot be doubted. In setting out the meaning of use in marine transport the provisions of s 36 are broad and expansive; that is so of each of them except s 36(7), which is specific and deliberately exclusionary. It excludes from the expression any use in a dredge or in equipment in or on a dredge.  It could scarcely be wider.  Journeys to or from the dredging site or the dumping site are all equally shut out.

14.      It remains to consider more specifically the applicant’s argument that the exclusion of dredge by s 36(7) identifies the dredging equipment (the suction pipe and associated equipment, presumably including the motor or engine) but not the seagoing vessel or its motive power. The problem is that this approach fails to accord with ordinary usage, as exemplified even in the applicant’s own literature or with the terms of s 36(7) itself. As to the latter, s 36(7) quite specifically distinguishes between the “dredge” and “the equipment in or on the dredge”, although in the end the use of either or both of them are expressly excluded from use in marine transport.

15.      As to ordinary usage, Ms Mellifont took us in detail through the applicant’s coloured brochure.  It contains many references to “dredge”, used as a noun, in which it is plain that the author or narrator is referring to the vessel alone or to both the vessel and the equipment.  The diagram of the Split Hull Hopper Dredge in the brochure is a good example.  Another is the statement (under Tweed River Entrance Bypassing) that “After storms, the dredge was able to re-establish the channel quickly”, while the “dredges utilised on Stages 1 & 2 of the project” are described in Stage 1b as including “Dredges: Port Frederick & Faucon”; again, the Port Frederick is described individually as “a shallow draft dredge with thrusters.”  There are other examples, such as “dredge position”, “dredge hopper dippings and ullage tables”, “dredge drafts and dredge location”, and so on, that cannot possibly refer to equipment as distinct from the marine vessel; or, as would often be more natural, both the vessel and its equipment.  We doubt if the shipping registration (State or Federal) classification (which is identified as “dredging operations”) can be used against the applicant.  We do not know whether it was the applicant who chose it, or someone else, and for what reason.

16.      We feel bound to say that the description of these two vessels as dredges appears to us to conform to common usage at large.  If any of the surfers near whom the Port Frederick depicted in the brochure as operating were asked what sort of vessel it was, it is hard to believe they would not describe it as a dredge.  The standard dictionaries are, as Ms Mellifont conceded, not especially helpful, although it is perhaps noteworthy that the Shorter Oxford English Dictionary (1993 ed) gives as meanings of dredge (used as a noun) both “an apparatus …” and “a boat or machine for dredging”.  It is interesting that, in the passage from Chambers Encyclopedia already quoted, it is the dredge that “steams to sea and dumps its load through bottom doors”.  This is precisely what the Faucon is designed to do.

17. The conclusion that we reach, therefore, is that in s 36(7) of the Grants Act 2003 the word dredge means a vessel equipped for dredging and not the dredging equipment alone. Indeed, it would be difficult to read s 36(7) in a comprehensible way it if were to be understood as excluding “any use in equipment or in equipment in or on equipment”. Mr Kirk then also contended that the fuel ought to be apportioned between its use in dredging and its use in travelling to and from the dredging site or the dumping site. But there is no possibility of apportionment in the face of the unqualified form of the exclusion in s 36(7). The expression use in marine transport is not to include any use in a dredge or in equipment in or on a dredge. The exclusion thus extends to the outward journey as well as the dumping journey and the return journey, which would otherwise be included by force of s 36(5). There is now no room for any apportionment as was allowed in the Port of Brisbane Corporation case.

18. The broader issue concerning the meaning and applicability of the exclusion in s 36(7) of the Grants Act is whether the applicant was entitled to an off-road credit and, in consequence, to an energy grant by virtue of s 56 of that Act. In respect of that issue, the applicant sought from the respondent a private ruling covering the period of five years from 1 July 2003 to 30 June 2008 in respect of diesel fuel purchased or acquired by it during that period for use in its two vessels. We have so far approached the question to be decided as if the same legislative regime prevailed throughout that five-year period. In fact and in law, the on-road and off-road credit schemes under the Grants Act were replaced during that period by an entitlement to a fuel tax credit under s 41-5 of the Fuel Tax Act 2006, which commenced on 1 July 2006.  From that date until the end of the five-year period in respect of which the ruling was sought, the applicant’s claim to an entitlement was, prospectively at least, subject to the new regime.

19.      To say this is, however, to reckon without regard for the Fuel Tax (Consequential and Transitional Provisions) Act 2006.  It regulated the transition from the old system to the new.  Item 10 in Pt 3 of Sch 3 of that Act provides in respect of Fuel acquired … between 1 July 2006 and 30 June 2008 that:

“(5)You are not entitled to the credit under s 41-5 of the Fuel Tax Act unless you would have been entitled to an off-road credit in respect of the fuel …”

20. Because of the exclusion in s 36(7) with regard to a dredge, the applicant would, for the reasons already given, not have been entitled to an off-road credit in respect of fuel acquired by it between 1 July 2006 and 30 June 2008. Thus, in substance, the whole period, in relation to which the ruling was sought, continued to be governed by the legal regime of which s 36(7) was, for present purposes, the operative provision.

21.     It follows that the decision given on 11 February 2008 rejecting the applicant’s objection to the respondent’s ruling was correct and must be affirmed.

I certify that the 21 preceding paragraphs are a true copy of the reasons for the decision herein of Honourable Dr B H McPherson CBE, Deputy President, and Senior Member Bernard J McCabe

Signed:.......................[Sgd].......................................................
              Michael Buckingham, Associate

Date of Hearing  25 August 2008
Date of Decision  8 October 2008

Solicitor for the applicant          Unrepresented, assisted by Australian Indirect Tax Specialists

Counsel for the respondent      Ms K Mellifont
Solicitor for the respondent      Australian Tax Office