Caltex Australia Petroleum Pty Ltd v Commissioner of Taxation

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

background 1 The applicant, Caltex Australia Petroleum Pty Ltd (Caltex), is a member of the Caltex Australia Group of companies, one of the largest refiners and marketers of petroleum products in Australia. The Caltex Australia Group owns and operates two major petroleum fuel refineries, one in Kurnell, New South Wales (the Kurnell Refinery) and the other in Lytton, Queensland (the Lytton Refinery). These refineries process substantial quantities of crude oil to produce principally petrol, diesel and jet fuel. They are the largest oil refineries in their respective states. In addition, the Group owns and operates a lubricating oil refinery, located adjacent to the Kurnell Refinery (the Caltex Lubricating Oil Refinery or CLOR). The CLOR is the only lubricating oil refinery in Australia and it produces a variety of lubricating oil products for sale in Australia as well as for export (including lubricating oil base products such as engine and gearbox oils, as well as waxes and process oils). 2 The petroleum products at each of the three refineries are manufactured by Caltex pursuant to manufacturer licences issued to it under Part IV of the Excise Act 1901 (Cth) (the Excise Act). Part IV of the Excise Act provides a regime for the grant, suspension and cancellation by the Commissioner of Taxation (the Commissioner) of various licences (including manufacturer licences) required to be held under the Excise Act. Pursuant to s 25 of the Excise Act, it is an offence to manufacture, without holding a manufacturer licence, any goods in respect of which excise duty is imposed by Parliament (referred to in the Excise Act as "excisable goods"). 3 Crude oil is the principal raw material (or "feedstock") refined by Caltex at the Lytton and Kurnell Refineries, while the CLOR processes certain hydrocarbon materials that are produced as part of the operations at the Kurnell Refinery. Crude oil is a naturally occurring liquid consisting of a mixture of hydrocarbons together with various elements considered to be impurities, such as sulphur, nitrogen, various heavy metals (including nickel, iron, vanadium, copper and arsenic) and salts. Hydrocarbons are molecules made up of carbon and hydrogen atoms only, in various combinations and structures, and are one the most important energy resources in the world. They are generally categorised by reference to the number of carbon and hydrogen atoms present in each molecule as well as the particular structure each molecule adopts. Differences in the number of atoms (particularly the carbon atoms) and molecular structure lead to variations in important properties, such as molecular weight and length, density, boiling temperature and volatility. In particular, the weight of a hydrocarbon is generally determined by the number of carbon and hydrogen atoms present. For example, methane is the lightest hydrocarbon, consisting of one carbon atom and four hydrogen atoms (with chemical symbol CH­4), while octacontane is significantly heavier with 80 carbon atoms and 162 hydrogen atoms (C80H162). One useful method of categorisation refers simply to the number of carbon atoms contained in a molecule, with a convenient nomenclature being the letter 'C' followed by a number reflecting the number of carbon atoms (for example, methane is referred to as C1, whereas C80 identifies a more complex molecule with 80 carbon atoms). 4 Hydrocarbons are also categorised according to their molecular structure, in particular the configuration of carbon atoms and the number of chemical bonds between them. A hydrocarbon in which there are single bonds between each adjoining carbon atom is called an "alkane" (or, as is common in the petroleum industry, a paraffin). These are contrasted with "alkenes" and "arenes" which contain double bonds between carbon atoms. Further sub-categorisation is adopted to describe the precise arrangement of carbon atoms. For example, an alkane may consist of a linear chain of carbon atoms (known as a "straight-chain alkane"), it may be branched where one or more carbon atoms branch off the straight line of joined carbon atoms (known as an "isomer"), or in more complex forms the carbon atoms may be found in a cyclic configuration where the last carbon atoms in a line are linked to form a ring. 5 Crude oil processed at the Lytton and Kurnell Refineries contains a mixture of most hydrocarbons from C1 to C80, with varying molecular structures. Broadly speaking, the refining processes at the Lytton and Kurnell Refineries involve: · the separation and isolation of the various hydrocarbons contained in the crude oil, particularly the lower density hydrocarbons used in the manufacture of petrol (C4-9), jet fuel (C8-12) and diesel (C11-18), through a physical process of distillation or a chemical process known as "catalytic conversion" (these processes are explained in more detail at paragraphs [16] and [30]) · the reduction or removal of contaminants (such as sulphur and nitrogen) from the isolated hydrocarbons, and · the further treatment and purification of the various hydrocarbons in order to convert them into saleable products (for example, jet fuel or diesel) or into petrol "blendstocks" capable of being blended to create different grades of petrol. 6 A similar distillation process is used at the CLOR, although the CLOR's feedstock consists of partially refined hydrocarbon products created at the Kurnell Refinery (known as "waxy gas oils" and "de-asphalted oils") instead of raw crude oil. Further complex refinement and treatment processes are employed at the CLOR to produce the desired lubricating oils and waxes sold by Caltex. 7 Caltex produces various residual materials during the course of its operations at each refinery. These materials are residual in the sense that they are a residuum of the crude oil (or the feedstock oils processed at the CLOR) that remains after the application of the distillation, conversion and treatment processes at each refinery. At the Lytton and Kurnell Refineries, the residual materials generally consist of heavier and more structurally complex hydrocarbons not amenable, at least easily, to further separation, and which are higher in crude oil contaminants such as sulphur and heavy metals. In the case of the CLOR, residual material is produced when the hydrocarbon feedstock is distilled, treated and then separated into streams that contain suitable components for lubricating oils and waxes and those which do not. Caltex applies these residual materials in various ways, including blending them with other materials to produce fuel oils and diesel fuel, exporting them for use as feedstock for other products or blendstocks for fuel oil and, in the case of the CLOR, returning some of them to the Kurnell Refinery for further processing or blending into fuel oil. 8 In addition, at each refinery, some of the residual materials are utilised as a source of supplementary fuel for the refining processes themselves, to generate the required heat for those processes. Caltex refers to these as "refinery fuel oil" (at the Lytton Refinery) and "residual slop oil" (at the Kurnell Refinery and the CLOR). It is these supplementary fuels that are the subject of the current dispute between the parties and I will refer to them collectively as the "residual oils". 9 The Commissioner contends that the residual oils are subject to excise duty under the Excise Tariff Act 1921 (Cth) (the Tariff Act), being petroleum products manufactured or produced by Caltex in Australia and falling within relevant classifications in the Schedule to the Tariff Act (the Schedule). As the residual oils have already been consumed by Caltex, the Commissioner has sought, by way of statutory demand, payment of an amount representing the amount of excise duty for which Caltex would have been liable in respect of the volume of residual oils burnt between 10 March 2002 and 29 May 2006 (being the period for which Caltex was requested to account to the Commissioner pursuant to s 60 of the Excise Act) (the relevant period). It is common ground that, if excise duty is properly payable on the residual oils, the amount payable in respect of the relevant period is $30,774,414.03. 10 Caltex objects to the Commissioner's demand for payment, principally on the grounds that (a) the residual oils are not goods that are relevantly "manufactured" or "produced" by Caltex for the purposes of the Excise Act and Tariff Act and, (b) even if they are, the residual oils do not fall within the classifications in the Schedule relied upon by the Commissioner. As to (b), one particular issue relevant to Caltex's objection is the physical state of the residual oils. The Commissioner relies on item 11(a) of the Schedule, which concerns "liquid" petroleum products. While it is common ground that the residual slop oils at the Kurnell Refinery and the CLOR were liquids, Caltex contends that the refinery fuel oil at the Lytton Refinery was not a liquid petroleum product, and much of the evidence was directed to this question. 11 Before addressing the issues and the relevant legislation in detail, I set out my findings of fact in respect of each of the residual oils.

Witnesses 12 In relation to the refinery fuel oil at the Lytton Refinery, Caltex relied on the evidence of Fiore Zulli, Technical Services Manager, and Lisa Roobottom, Production Superintendent, both employed by Caltex Refineries (Qld) Pty Ltd, a subsidiary of Caltex. In relation to the residual slop oils at the Kurnell Refinery and the CLOR, Caltex relied on the evidence of Joseph Rollo, Subject Matter Expert - Energy at Caltex. 13 Mr Zulli holds the Degree of Bachelor of Chemical Engineering and has been employed in various capacities by Caltex Refineries (Qld) Pty Ltd since 1992, including as a process engineer, production manager and reliability manager at the Lytton Refinery. As Technical Services Manager, he currently has responsibility for the Lytton Refinery's chemical engineering and laboratory functions, product quality and testing, process optimisation and troubleshooting of equipment. Ms Roobottom has worked for Caltex Refineries (Qld) Pty Ltd since 1993 and has been the Chief Chemist at the Lytton Refinery for the last three years (as well as a period during 2002 and 2003). As Chief Chemist she has had oversight of Caltex's analytical laboratory, which regularly tests and reports on samples of materials taken from tanks, process units and waste water at the Lytton Refinery. She holds a Bachelor and Masters Degree in Applied Science from Queensland University of Technology. Mr Rollo has worked within the Caltex Australia Group since 1975. Until recently, his title was Refining Best Practice Engineer - Energy and he provides technical leadership, coordination and advice on the optimisation of the use of energy and utilities (such as water) at each of Caltex's three refineries. 14 The Commissioner relied on an expert opinion provided by Dr Duncan Seddon, an independent consultant to the oil, gas petrochemical and energy sectors. Dr Seddon has held positions with ICI in the United Kingdom and Australia, as well as BHP Co. Ltd. He holds a Bachelor degree in Science and a Ph.D. from the University of Sheffield, UK and is a Fellow of the Royal Australian Chemical Institute and a Member of the Society of Petroleum Engineers. Dr Seddon was asked to provide an opinion on the physical state of each of the residual oils, in particular whether or not they were in liquid form at any time during the relevant period. As the residual oils were not available for inspection by Dr Seddon (having been consumed by Caltex during the relevant period), his task was not easy. His analysis was limited to comparing a description of the residual oils with relevant literature on similar materials.

Lytton Refinery 15 The Lytton Refinery is located at the mouth of the Brisbane River, south of the Brisbane central business district. It commenced operations in 1965. The principal products produced by Caltex at the Lytton Refinery are petrol, diesel and jet fuel. Liquid Petroleum Gas (LPG) and nonene, a solvent for specialised uses including surfactant manufacture, are also produced in smaller volumes.

Operations at the Lytton Refinery 16 The refining process involves the following: (a) Crude oil is sent to two "crude distillation units" (CDU) where the constituent hydrocarbons are physically separated into streams according to density by a process known as "fractional distillation". Fractional distillation involves heating the crude oil to a specific temperature so that the hydrocarbons can be distilled into "fractions" according to their respective boiling temperature ranges. It is based on the fact that the lighter molecules (those with fewer carbon atoms) will vaporize at lower temperatures and thereby separate from the heavier molecules (which remain in a liquid state) and flow up as gas in a column contained in the CDU. (b) As the gases rise in the column, they cool down as they pass through perforated trays situated at various heights. A temperature spectrum is therefore maintained throughout the CDU column, with the hottest crude oil at the bottom and the vapour containing the lighter hydrocarbons cooling down the higher they rise. When a component of the vapour reaches a point in the column where the temperature equals that component's boiling point, the component will condense and form a liquid, capable of extraction from the CDU by way of a liquid outlet along the height of the column. The crude oil in the CDU is usually heated to around 320°C, with 340°C set as a maximum, so that as much of the oil as possible is vaporised and distilled without the hydrocarbon molecules decomposing into elemental carbon (or "coke"), which can occur at temperatures above 350°C. (c) Approximately 60-70% of the crude oil feedstock vaporizes in the CDU column and various streams are extracted from the CDU (for example, naphtha (C3-C8), kerosene (C8-C12) and diesel (C11-C18)). These streams are subject to further purification and treatment processes, before they end up as petrol blendstocks or final products such as commercial propane and butane, autogas, jet fuel and diesel. The rest of the crude oil in the CDU column remains in a liquid state at the bottom of the column. This is referred to by Caltex as "reduced crude". It consists generally of hydrocarbons in the range C18 and above and contains most of the contaminants from the original crude oil. (d) The reduced crude is then sent to a unit known as the fluidised catalytic cracking unit (FCCU), in which it is subject to a "catalytic conversion" process. This involves the use of various catalysts and heat to break down or "crack" the heavier molecules in the reduced crude into lighter molecules in the range C3 to C18, which can then be distilled and siphoned in a similar way to the CDU once the catalyst is removed. However, not all of the reduced crude is capable of being cracked and a residue will remain. This consists typically of long paraffins (single carbon bonded hydrocarbons in the range C18-C80) and more complex cyclic compounds that the catalyst is not able to penetrate, as well as heavy metals and other contaminants like sulphur and nitrogen compounds. The residual material represents approximately 1.5% of the crude oil feedstock and Caltex refers to it as "fractionator bottoms" or "cracker bottoms". (e) A portion of the fractionator bottoms are then sent to a "slurry settler" where the catalyst from the FCCU is removed as far as possible, by allowing the bottoms to rest and the catalyst to sink to the bottom of the tank. This leaves two streams of oil, one on top generally free from catalyst (referred to as "clarified oil") and the other containing the catalyst (referred to as "slurry oil"). While the slurry oil is sent back to the FCCU to recover the catalyst, the clarified oil is stripped with steam to remove any entrained lighter hydrocarbons and a portion is then sent to various tanks for storage. (f) Caltex does two main things with the clarified oil. It exports the majority of it and uses the remainder as a supplementary source of fuel, which it calls refinery fuel oil (Lytton Refinery Fuel Oil). As to export, the majority (meeting basic density and sulphur specifications) is exported to a company called Sumitomo in Japan for use in carbon anode manufacturing, while some is exported to Singapore and elsewhere as a blendstock for fuel oil. The Lytton Refinery Fuel Oil is used to supplement the refinery's fuel gas system, which collects gases created during the various refining processes (for example, methane (C1) and ethane (C2)) and uses them as fuel to generate heat as required.

Production and use of Lytton Refinery Fuel Oil 17 Much of the cross-examination of Mr Zulli was directed towards the value of the Lytton Refinery Fuel Oil to Caltex and the extent to which Caltex intends its production. Mr Zulli gave evidence that the main objective of the Lytton Refinery is to extract the maximum amount of valuable hydrocarbons from the crude oil and therefore to minimise as much as possible the residual material that is left over, being the clarified oil. He explained that the clarified oil does not meet specifications for fuel oil in Australia, but there is nevertheless a market for it notwithstanding its inferior quality. In particular, Caltex sold clarified oil in the 2004 year at an average price of $244 per tonne (24c per litre), albeit it at a discount of approximately 25.4c per litre to the price of regular fuel oil. 18 Mr Zulli's affidavit evidence and answers in cross-examination confirm, and I find that: (a) Caltex's operations seek to extract as much value as possible from all of the crude oil that is processed. While Caltex no doubt aims to maximise the extraction of those materials for which it can obtain higher prices, the refinery processes are designed to ensure that "residual" material is isolated and used in as economical a fashion as possible. (b) While the clarified oil may not meet minimum Australian specifications for fuel oil, it nevertheless has a commercial use for Caltex as an export product or an internally consumed fuel source. (c) Using the clarified oil as burner fuel at the Lytton Refinery is an economical use of the oil when compared to the higher costs Caltex would incur in purchasing fuel oil from elsewhere, even allowing for the fact that the clarified oil may cause some damage to equipment.

Physical state of the clarified oil - liquid or solid 19 Mr Zulli, along with Ms Roobottom, gave evidence as to the physical state of the clarified oil. Mr Zulli explained that the oil is "very thick" and under normal conditions is kept at a temperature above 80°C to avoid it solidifying and to ensure that it can flow throughout the system. It is kept in this condition at all relevant times; while it is "clarified" in the slurry settler, while it is stored and transported in tanks for export, and when it is finally used as a Refinery Fuel Oil at Lytton (or as a blendstock overseas). 20 Ms Roobottom's evidence was premised on her view that a material is regarded as a "liquid" if it is in a liquid state at standard temperature and pressure, which she identified as being 20°C and 101.3kPa. She gave the following evidence: (a) Samples of clarified oil are tested on a daily basis to determine the oil's density and sulphur content (and thus its suitability for export to the Sumitomo company in Japan). Less frequent testing is also conducted on the clarified oil contained in Caltex's storage tanks to determine density, carbon residue, kinematic viscosity (in other words, the oil's resistance to flow) and the oil's "pour point". (b) The pour point test identifies the lowest temperature at which movement of the oil is observed. Caltex determines the pour point (and did so during the relevant period) because in order for the oil to flow it is necessary for Caltex to heat it in the refinery's transport pipes, or flush it with a liquid that has a lower pour point. It must also be kept at a sufficiently high temperature when stored in Caltex's export tanks, to avoid solidification. (c) The pour point test is also an acceptable test for determining the temperature range over which a material will undergo a phase transition from a solid to a liquid and vice versa. Ms Roobottom relied on an OECD guideline dated 27 July 1995 entitled OECD Guideline for the Testing of Chemicals - Melting Point/Melting Range (OECD Guideline), which identifies several test methods, including the pour point test, as appropriate for the determination of phase transition. (d) Caltex's testing during the relevant period shows that on average the clarified oil tested had a pour point of 30°C. Save for three samples (out of 33), all samples displayed a pour point of between 24°C to 39°C. Accounting for a standard error factor, the lowest pour point temperature was 21°C-24°C and the highest was 36°C-39°C. (e) As the pour point temperatures were higher than standard temperature (20°C), Ms Roobottom concluded that the clarified oil was a solid rather than a liquid at standard temperature and pressure. 21 Dr Seddon was not provided with samples of any of the clarified oil, as oil from the relevant period was either consumed or sold by Caltex or, in the case of test samples, disposed of after a period of retention in accordance with Caltex's standard practice. Dr Seddon acknowledged in cross-examination that, even if the test samples had been available to him, their properties may have changed to such an extent that they would not be representative of the clarified oil. In any event, nothing of substance was made of the fact that the original test samples had been disposed of by Caltex and I make no adverse findings in that regard. 22 Dr Seddon's opinion can be summarised as follows: (a) As a change of state is accompanied by a heat/energy transfer between a material and the environment, the pour point test is not determinative of the temperature at which that change of state occurs. The test does not measure heat transfer and it therefore does not conclusively determine whether a material has moved from one phase (liquid) to another (solid). (b) Instead, the pour point test is used to determine the flow characteristics of a liquid, in order to judge the liquid's utility for certain applications (such as pumping the liquid through pipes in a refinery). (c) Further testing would be required to ascertain whether the clarified oil had gone through a phase transition. An example of an appropriate test would be differential scanning calorimetry (DSC testing), which would provide relevant thermodynamic data regarding heat changes in the liquid to solid transition. (d) In the absence of thermodynamic data, Dr Seddon deduces that the clarified oil will remain in a liquid state over the temperature range 5°C to 30°C (which he described as ambient temperatures typical in a refinery). Accordingly, at those temperatures, the clarified oil is best described as a viscous liquid. As it cools to those temperatures, the oil increases in viscosity but does not solidify. 23 Dr Seddon was asked about Ms Roobottom's use of 20°C and 101.3kPa as standard temperature and pressure reference points. In his view, the phrase "standard temperature" is an arbitrary term and will mean different things in different locations and industries (for example, where American units are used, standard temperature is 60°F (15.5°C) and in his own experience, 0°C is often used). In cross-examination, Dr Seddon said that he had never before come across a statement to the effect that a material is generally regarded as a liquid if it is in a liquid state at standard temperature and pressure. It is not his experience that a general description of state would be used by reference to a standard set of conditions. In each case, the answer to the question "Is it a liquid?" will be "It depends on to what temperature and pressure (and potentially other conditions) the material is subject". 24 Dr Seddon was not familiar with the OECD Guideline prior to reading Ms Roobottom's second affidavit. The OECD Guideline states: INITIAL CONSIDERATIONS 2. Frequently the transition from solid to liquid phase takes place over a temperature range. Therefore, the term "melting range" is often used and, in practice, the temperatures of the initial and final stages of melting are determined. The melting point ideally is identical with the solidification or freezing point. For some substances (rather products and mixtures) however, the determination of the freezing or solidification temperature is easier. Where, due to the particular properties of the substance (or product), none of the above parameters can be conveniently measured, a pour point may be appropriate. … PRINCIPLE OF THE TEST 7. The temperature or temperature range of the phase transition from the solid to the liquid state or from the liquid to the solid state is determined. 25 Under the description of the pour point method, the OECD Guideline states: Pour point 20. This method was developed for petroleum oils and is suitable for oily substances with low melting temperatures. After preliminary heating, the sample is cooled and its flow characteristics are examined at intervals of 3 K [equivalent to intervals of 3°C]. The lowest temperature at which movement of the substance is observed is recorded as the pour point. 26 In cross-examination, Dr Seddon acknowledged that the OECD Guideline endorsed the use of a pour point test to determine melting point or melting range. However, he took the view that the Guideline only assisted if one made the assumption that the relevant material in fact had a definitive melting point range. In other words, the methods described in the Guideline do not conclusively prove that a phase transition has occurred (for example, from solid to liquid). Instead, they assume there will be a phase transition and report the temperature range over which the transition will occur. 27 I am satisfied that the clarified oil samples were in a solid state under the conditions in which they were tested. The OECD Guideline states that the pour point test may be appropriate for determining phase transition and that the test was developed for petroleum oils and is suitable for oily substances with low melting temperatures. The Guideline also endorses the test proffered by Dr Seddon, DSC testing. While Dr Seddon said that the Guideline assumed there would be a phase transition, he acknowledged that the clarified oil in question would be subject to a phase transition at some point, albeit in his view not necessarily at the pour point. I accept Dr Seddon's evidence that further testing to obtain relevant thermodynamic data would provide stronger evidence of a phase transition. However, I also note Dr Seddon's acknowledgement that DSC testing would not provide the same level of clarity for a complex substance such as the clarified oils as compared to pure substances. The tests were conducted by Caltex contemporaneously with the production of the clarified oil and in accordance with applicable standards. On balance, I find that the clarified oil is in a solid form at a temperature of 20°C and pressure of 101.3kPa. 28 However, for reasons I further explain below at [98] to [102], I consider the relevant question to be whether the clarified oil is a liquid or solid under the conditions in which it is produced, stored and consumed. As referred to at [19] above, Mr Zulli's evidence was that the clarified oil is in a liquid state when it (a) clarifies in the slurry settler, (b) is transported around the refinery (in steam jacketed and steam coiled pipes) and (c) is stored in Caltex's refinery fuel oil tank or export tanks (which are also insulated with steam coils inside the tanks). The clarified oil is kept in this condition until it is used as supplementary burner fuel for the refinery. It was therefore common ground that at the temperatures at which it is maintained and utilised (80°C) the clarified oil is properly characterised as a liquid. This is the description of the oil that Caltex itself adopts in its Material Safety Data Sheet dated January 2005.

Kurnell Refinery 29 The Kurnell Refinery is in Sydney, on the southern side of Botany Bay. It has a wider range of refining processes than the Lytton Refinery and is able to process two different crude oil mixes, a "sweet" crude mix (low in sulphur) and a "sour" crude mix (higher in sulphur). It is thus referred to as a "dual‑train" operation. Caltex's principal products at the Kurnell Refinery are petrol, diesel and jet fuel. LPG, fuel oil and bitumen are also produced. 30 The main processes operate as follows: (a) Crude oil is first processed in one of two CDUs. One CDU is dedicated to "sweet" crude mixes and the other is capable of processing both "sweet" and "sour" mixes. At temperatures of about 370°C in the CDUs, the crude oil is distilled into fractions comprising "unstabilised light straight-run naptha", "heavy straight‑run naptha", kerosene and "straight‑run diesel". These are treated further to produce LPG, petrol blendstocks, naptha, jet fuel, heating oil and diesel fuel. (b) For further distillation, reduced crude (the residue from the CDUs) is sent either to Kurnell's FCCU (when the reduced crude is lower in contaminants) or a unit called the "vacuum distillation unit" (VDU) (when it is higher in contaminants). The VDU is similar to the CDUs but is able to extract additional lighter hydrocarbons from the crude because it operates under reduced pressure and higher temperatures. The fractions distilled in the VDU are typically blended with straight-run diesel and another substance called "light cycle gas oil" (which is produced in the FCCU) to make diesel fuel. Depending on their precise properties, the VDU fractions may also be suitable to send to the CLOR for use as feedstock. (c) As with the CDU, a portion of the reduced crude in the VDU will not boil (and therefore separate into components) and remains in the VDU as a residue called "vacuum bottoms" or "vacuum resid". Vacuum resid comprises very large, long chain and heavy hydrocarbon molecules, including a group called "asphaltenes", along with high levels of crude oil contaminants. (d) Depending on the level of contaminants, Caltex will either: · blend vacuum resid into fuel oil, or · treat it further by a process called "de‑asphalting" in a "propane de‑asphalting unit" (PDU). The resulting materials are "de-asphalted oil" and a residual material called "asphaltic PDU bottoms". De-asphalted oil is then subjected to a catalytic conversion process in the FCCU or, if suitable, sent to the CLOR as feedstock. The asphaltic PDU bottoms are used mainly in the manufacture of bitumen. (e) There are two FCCUs at the Kurnell Refinery, one for "sweet" and one for "sour" crude oil mixes. Similarly to the Lytton Refinery, the FCCUs are used to "crack" the various residual materials produced earlier into lighter materials for use as blendstocks. The FCCUs can be used to process reduced crude from the CDUs, vacuum resid, heavy diesel and also waxy materials created at the CLOR. Following the "cracking" process, the feedstock for the FCCU is distilled into fractions in a fractionator column, leaving behind a residue (or, "cracker bottoms"). These cracker bottoms account for approximately 2-3% of the material fed into the FCCU. (f) One of the fractions in the FCCU is "light cycle gas oil" (LCGO), which is drawn from about half way down the fractionator column. LCGO is unstable and has high levels of sulphur. Commonly, LCGO is blended with straight-run diesel from the CDU and hydrotreated (treated with catalyst to remove sulphur and other impurities) to produce diesel fuel. However, restrictions on sulphur content and density specifications for diesel fuel mean that there is only so much LCGO that can be used for that purpose. LCGO is also used to blend with fuel oil, as a seal oil or "torch" oil to control burning in the FCCUs' catalyst regeneration system, or as a flushing agent. 31 As is evident from the above, a number of residual materials are created in the process units at the Kurnell Refinery - vacuum resid, asphaltic PDU bottoms and cracker bottoms. Further, recent times have seen Caltex create excess quantities of LCGO, due in part to a lowering of the authorised sulphur content for diesel fuel, and Caltex has as a result exported large quantities of it. These residual and excess materials are used by Caltex in a variety of ways: · Vacuum resid is processed in the PDU or blended into fuel oil · Asphaltic PDU bottoms are used to make bitumen or blended into fuel oil · Cracker bottoms are blended into fuel oil or used as a feedstock for manufacturing industrial products, and · LCGO is used as a blendstock for diesel fuel or fuel oil 32 However, with some limit on the amounts that can be used for these purposes, Caltex also blends these materials together to create an oil referred to as "residual slop oil" (Kurnell Residual Slop Oil), which Caltex uses as a supplementary fuel to heat steam boilers at the refinery. Unlike the Lytton Refinery Fuel Oil, the Kurnell Residual Slop Oil is of relatively low viscosity and Caltex does not keep it heated whilst in storage. Given its recent excess quantities, LCGO has been the main component of Caltex's Residual Slop Oil in the period from 2002 to 2006.

CLOR 33 The CLOR is located adjacent to the Kurnell Refinery and produces lubricating oil and wax products. It differs to the Lytton and Kurnell Refineries as it is dedicated to the manufacture of a single product at any one time. 34 There are four processing plants at the CLOR: · Vacuum Distillation Unit (VDU) · Hydrotreating Unit (HTU) · Furfural Refining Unit (FRU) · Solvent Dewaxing Unit (SDU) 35 De-asphalted oils and distillates from the VDU at the Kurnell Refinery known as "waxy gas oils" are used as the feedstock at the CLOR. Waxy gas oils are fed into the VDU at the CLOR and distilled into a "dry gas oil" and various "wet gas oils". The distillates are categorised by reference to their weight (for example, 70D, 150D, 300D and 500D). The residue in the VDU ("vacuum bottoms") is typically sent back for processing in the FCCU at the Kurnell Refinery. 36 The remaining process plants perform these functions: (a) The HTU removes contaminants such as sulphur and nitrogen. It receives distillates from the VDU at the CLOR and de-asphalted oil from the Kurnell Refinery. The resulting product is called "treated" oil (for example, 150D will become 150 Treated, or 150T). (b) The FRU applies a special solvent to the treated oils, called furfural, in order to dissolve out less desirable components ("extracts") and leave behind a stream suitable for lubricating oil and wax production, called "raffinates". Napthene can also be produced in the FRU. A typical operation cycle will therefore produce from 150T, as an example, 150 treated raffinate (150TR), 150 treated pseudo extract (150TPX) and 150 treated pseudo napthene (150TPN). (c) The SDU uses a solvent in a filtering process to separate oil and wax components of the raffinates received from the FRU. The separated oil and waxes form the basis of the lubricating oil and wax products sold by Caltex. 37 An amount representing about half of the feedstock for the CLOR ends up as a residue from the CLOR's processes, because it is unsuitable for lubricating oil and wax production. The residual material includes the vacuum bottoms and the napthene and extract streams from the FRU. Caltex returns the majority of these to the Kurnell Refinery for processing in the FCCU or for blending into fuel oil. However, the rest of the residues are retained by Caltex at the CLOR and blended into a "residual slop oil" for use as a supplementary fuel source at the CLOR (CLOR Residual Slop Oil). While Caltex has used vacuum bottoms and some dry gas oil as the basis for the CLOR Residual Slop Oil in the past, some of the lighter extract streams (70TPX and 150TPX) have become the main ingredient in more recent times. Similarly to the Kurnell Residual Slop Oil, the CLOR Residual Slop Oil is of relatively low viscosity and is not heated whilst in storage. 38 The findings I have made at [18] in relation to the Lytton Refinery Fuel Oil are applicable to both the Kurnell and CLOR Residual Slop Oils. The "residual" materials created at the Kurnell Refinery and the CLOR are useable in a variety of ways, for example as blendstocks. They therefore have a value to Caltex and Caltex ensures that the most efficient use is made of them as possible. The Residual Slop Oils are a blend of these residues and provide an additional source of fuel, and therefore an alternative form of energy, for Caltex to conduct its operations at the refineries.

History of the proceedings 39 The genesis of the parties' dispute was the issue by the Commissioner to Caltex of a Notice of Administratively Binding Advice (Advice) in April 2006 in respect of the residual oils. In the Advice, the Commissioner contended, among other things, that: (a) the "stream/slop oils" produced by Caltex at its refineries and used as a burner fuel (referred to as an "intermediate product" in the Advice) are subject to excise duty as "excisable goods", because they: · meet the description of tariff item 11(a) in the Schedule, being "refined or semi-refined liquid petroleum products", and · are subject to a specific rate of duty under sub-item 11(I)(3)(d); (b) the intermediate products were delivered into home consumption when they were consumed (burnt up) by Caltex at the refineries; and (c) with the intermediate products no longer in existence and no duty paid on them, they had not been accounted for to the satisfaction of the Commissioner pursuant to s 60 of the Excise Act. 40 Following receipt of the Advice, Caltex commenced proceeding VID 547 of 2006 on 18 May 2006, seeking declarations in relation to the application of the Excise Act and the Tariff Act to each of the Lytton Refinery Fuel Oil, Kurnell Residual Slop Oil and CLOR Residual Slop Oil (the s 39B proceeding). 41 On 30 May 2006, the Commissioner served on Caltex a request pursuant to s 60(1)(b) of the Excise Act for it to account for each of the residual oils for the relevant period. The Commissioner noted that: [A] proper accounting for the purposes of section 60 of the Excise Act requires you to demonstrate that you have parted with the excisable goods in a manner authorised by the Excise Act 1901. For example, by either the reporting and payment of the requisite duty, the presentation of the relevant goods, evidence of their transfer to another licensed entity, or evidence of their incorporation into other excisable goods. 42 Caltex responded by letter on 9 June 2006 contending that the residual oils were not "excisable goods" and the Commissioner was not entitled to make a request to account under the Excise Act. Alternatively, Caltex sought to account by noting that each of the Lytton Refinery Fuel Oil, Kurnell Residual Slop Oil and CLOR Residual Slop Oil were during the relevant period used as fuels in generating the required heat for the refining processes at each of the respective refineries. 43 On 28 June 2006, the Commissioner (through his delegate, the Acting Deputy Commissioner of Taxation) served on Caltex a statutory demand for the amount of $48,676,126.13 in respect of the residual oils. The amount due was expressed to be a "debt", being "the liability of the company under subsection 60(1) of the [Excise Act]". 44 In accordance with s 162C(1) of the Excise Act, Caltex delivered a notice of objection to the Commissioner on about 24 August 2006, objecting to the entirety of the statutory demand. The Commissioner disallowed the objection with reasons on 20 October 2006 (the objection decision). On 14 December 2006, Caltex commenced proceeding VID 1372 of 2006, in which it appeals against the objection decision pursuant to Part IVC of the Taxation Administration Act 1953 (Cth) (the tax appeal). Before me, the parties essentially agreed that, given the substantial overlap, the issues raised by both the s 39B proceeding and the tax appeal could each be dealt with by the making of appropriate orders in the tax appeal. I have approached the matter on that basis. 45 Following receipt of Caltex's Statement of Facts, Issues and Contentions and affidavit evidence, the Commissioner on 26 August 2008 filed an amended appeal statement in the tax appeal. In the amended statement, the Commissioner accepted that: (a) the Lytton Refinery Fuel Oil in fact meets the definition of "fuel oil" in s 3(4) of the Tariff Act and is thereby subject to a lower rate of duty under item 11(D) of the Schedule, if held to be dutiable; and (b) based on further particulars provided by Caltex, the correct amount of duty payable for the relevant period ought be $30,774,414.03, rather than the statutory demand amount of $48,676,126.13.

relevant legislation 46 The Excise Act regulates the duties of excise that are imposed in respect of certain goods by the Tariff Act. Both Acts are to be read as one: see Excise Act, s 6 and Tariff Act, s 2. Section 5(1) of the Tariff Act provides: The Duties of Excise specified in the Schedule are hereby imposed in accordance with the Schedule, as from the time of the imposition of such duties or such later dates as are mentioned in the Schedule in regard to any particular items, and such duties shall be deemed to have been imposed at such time or dates, and shall be charged, collected, and paid to the use of the King for the purposes of the Commonwealth, on the following goods, namely:

(a) all goods dutiable under the Schedule and manufactured or produced in Australia after the time or dates when such duties are deemed to have been imposed … 47 Section 5(1) therefore imposes duties on "goods dutiable under the Schedule" (in other words, goods that fall within a description in the Schedule) that are "manufactured or produced in Australia". Goods that are subject to duty under s 5 are "excisable goods" for the purposes of the Tariff Act and Excise Act: see s 4 of the Excise Act (definition of "excisable goods"). Caltex's position is that the residual oils were neither "manufactured" nor "produced", nor are they goods "dutiable under the Schedule". 48 In the form it took during the relevant period, item 11 of the Schedule specified the rates of duty for various petroleum and related products. As common to tariff schedules, the Schedule provides a general description of the subject products followed by a more specific delineation of the dutiable products together with their related rate of duty. Item 11 concerned: 11 Goods as follows (a) refined or semi‑refined liquid petroleum or shale oil products (including diesel fuel produced or manufactured by the process of refining waste oils and gasoline or diesel fuel recovered by a recycling process other than refining) but not including liquefied petroleum gas, lubricating oils (including lubricant base oils), hydraulic oils, transformer oils, bitumen or recycled products other than those recycled products specified above; and (b) coal tar and coke oven distillates; aromatic hydrocarbons and light oils consisting principally of aromatic hydrocarbons (not being petroleum, shale oil or recycled products); and (c) petroleum condensate and stabilised crude petroleum oil products for use otherwise than as a petroleum refinery feedstock at a factory specified in a licence granted pursuant to Part IV of the Excise Act 1901 (being petroleum condensate and stabilised crude petroleum oil for use otherwise than in the recovery, production, transportation or refining of stabilised crude oil or condensate); and (d) other petroleum products other than products classified to item 15 of the Schedule; and (e) denatured ethanol for use as fuel in an internal combustion engine; and (f) biodiesel.

49 Items 11(A) - (L) then provided rates of duty for products falling within the categories described in items 11(a) - (f). In particular, items 11(D) and 11(I) provided: Articles Rate of Duty … (D) Fuel oil having the characteristics set out in subsection 3(4) $0.07557 per litre

… (I) Other refined or partly refined petroleum products (including mineral turpentine, fuel and other recycled product) other than diesel recovered by a process not being a process of refining and product classified to item 15 of the Schedule: (1) Recycled petroleum products not elsewhere specified (a) gasoline on which Customs or Excise duty has been paid, recovered by a process not being a process of refining Free (b) other: (i) for use otherwise than as fuel in an internal combustion engine and containing at least the prescribed proportion of the marker Free (ii)for other use $0.38143 per litre (2) Other, in packages not exceeding 210 litres: (a) for use as fuel in an internal combustion engine $0.38143 per litre (b) for use as fuel otherwise than in an internal combustion engine $0.07557 per litre (c) for other use Free (3) Other: (a) for use as fuel in an internal combustion engine $0.38143 per litre (b) for use as fuel otherwise than in an internal combustion engine and containing at least the prescribed proportion of the marker $0.07557 per litre (c) for other use containing at least the prescribed proportion of the marker Free (d) other $0.38143 per litre

50 The Commissioner contends that the residual oils fall within the scope of item 11(a), as "refined or semi-refined liquid petroleum … products". If that contention is correct (which Caltex disputes), then the Commissioner relies on item 11(I)(3)(d) as the head of duty applicable to the Kurnell Residual Slop Oil and CLOR Residual Slop Oil. As to the Lytton Refinery Fuel Oil, both parties are now in agreement that, should it fall within item 11(a), then the applicable head of duty is item 11(D). That item refers to s 3(4) of the Tariff Act which sets out density, carbon residue and minimum kinematic viscosity characteristics. It is common ground that the Lytton Refinery Fuel Oil had the prescribed fuel oil characteristics during the relevant period. 51 The Excise Act regulates and provides the framework for the Commonwealth's excise duty regime, including the licensing of manufacturers and producers, excise supervision, payment and collection of duty, and the prosecution of and imposition of penalties for breaches of the Excise Act. Section 54(1) provides: The licensed manufacturer of excisable goods, or, where the owner of excisable goods enters them for home consumption, the owner of the goods, shall pay to the Collector, in accordance with this Act, the Excise duty on those goods. For present purposes, "the Collector" means the Commissioner of Taxation: see s 4 (definitions of "Collector" and "CEO"). 52 Section 61(1) states: All excisable goods are subject to the [Commissioner's] control until delivered for home consumption or for exportation to a place outside Australia, whichever occurs first. 53 Subsections 61(2) and (3) impose penalties in respect of any unauthorised movement, alteration or interference with excisable goods that are subject to the Commissioner's control. 54 Sections 58, 59 and 61C are relevant to the concept of delivery for home consumption. Section 58 provides in part: (1) Subject to subsections (2) and (4), entries may be made by the licensed manufacturer or owner and passed by an officer and may authorize the removal of excisable goods for: (a) Home consumption. (b) Removal to an approved place that is an approved place in relation to goods of all kinds or in relation to goods of the kind that are to be entered. (1A) An entry in subsection (1): (a) shall be made in accordance with an approved form, or in a manner approved by the CEO; (b) shall contain such information as is required by the CEO; (c) shall be signed or authorised in a manner required by the CEO; and (d) shall be lodged with, or transmitted to, the CEO. … 55 Section 59 provides: Subject to section 59A, the excise duty on excisable goods must be paid at the rate in force: (a) when the goods are delivered into home consumption under section 61C(2); or (b) when payment is made; whichever is the earlier. 56 Section 61C empowers the Commissioner (or other authorised officer) to give permission for specified goods to be delivered for home consumption without the formal entry of the goods under s 58. Section 61C provides in part: (1) A Collector may give permission in writing to a person specified in the permission to deliver for home consumption from a place specified in the permission goods of a kind so specified that are subject to the [Commissioner's] control, and, until the permission is revoked, the permission is authority for that person to deliver for home consumption from that place goods of that kind that are subject to the [Commissioner's] control (other than goods that a Collector has directed are not to be delivered for home consumption under this section) notwithstanding that an entry of the goods for home consumption has not been made and passed under this Act. (2) Goods delivered for home consumption by authority of subsection (1) shall, for the purposes of this Act, be deemed to be entered for home consumption on the day on which they are so delivered. 57 During the relevant period, Caltex held permissions under s 61C in respect of petroleum products manufactured at each of its three refineries. These permissions allowed Caltex to deliver petroleum products for home consumption for each period of one week, without an entry of those products for home consumption being made and passed under the Excise Act and without payment of excise duty on those products until the day following the end of each weekly period. Delivery in that manner was permitted on condition that Caltex provided the Commissioner with a weekly return specifying the quantities of goods delivered, the excise tariff classifications applicable and the amount of duty payable. 58 Section 60 of the Excise Act deals with the safe keeping of excisable goods and requests to account for goods by the Commissioner. It provides: (1) Where a person (including a licensed manufacturer) who has, or has been entrusted with, the possession, custody or control of excisable goods which are subject to the [Commissioner's] control: (a) fails to keep those goods safely; or (b) when so requested by [the Commissioner], does not account for those goods to the satisfaction of [the Commissioner]; the person shall, on demand in writing made by [the Commissioner], pay to the Commonwealth an amount equal to the amount of the Excise duty which would have been payable on those goods if they had been entered for home consumption on the day on which [the Commissioner] made the demand. … (2) An amount payable under subsection (1) … shall be a debt due to the Commonwealth and may be sued for and recovered in a court of competent jurisdiction by proceedings in the name of the [Commissioner].

issues for determination 59 The issues that require determination are: (a) Whether the residual oils were "manufactured or produced" by Caltex for the purposes of s 5(1) of the Tariff Act. (b) If they were, whether the residual oils are properly characterised as "refined or semi-refined liquid petroleum … products" so as to fall within item 11(a) of the Schedule. (c) Whether the Kurnell Residual Slop Oil and the CLOR Residual Slop Oil fall within item 11(I)(3)(d) of the Schedule (it being agreed by the parties that the Lytton Refinery Fuel Oil will be subject to duty under item 11(D), if item 11(a) applies. (d) Whether the residual oils were "delivered for home consumption" by Caltex for the purposes of ss 61, 61C and 59 of the Excise Act. (e) Whether the Commissioner's statutory demand is valid, which turns on: · whether s 60 of the Excise Act is applicable to Caltex and the residual oils, including whether Caltex failed to keep the residual oils safely (s 60(1)(a)) or failed to account for the residual oils to the satisfaction of the Commissioner (s 60(1)(b)); and · whether the Commissioner's description in the demand of the amount owing as a "debt" invalidates the demand.

Issue 1 - Were the residual oils "manufactured or produced" by caltex for the purposes of section 5? 60 Section 5 of the Tariff Act imposes duties of excise on goods "manufactured or produced" in Australia. Whether the residual oils meet this description is therefore a threshold question.

Meaning of "manufactured" or "produced" 61 Caltex contended that the residual oils were neither "manufactured" nor "produced" according to the ordinary meaning of those words. In reliance on Commissioner of Taxation v Jax Tyres Pty Ltd (1984) 5 FCR 257 (Jax Tyres), Caltex said that the essence of manufacturing or producing is that what is made shall be a new and different article having a distinctive character or use from that out of which it is made. The residual oils are not made from crude oil, it said, but are an undesirable material left over at the completion of a process designed to manufacture other products (for example, petrol, diesel and jet fuel). Caltex focussed on the objectives of its refinery operations. It said that far from those operations being directed to making the residual oils, their existence was neither intended nor desired and Caltex at all times sought to minimise their creation. Rather than being manufactured goods, it said, the residual oils are an inevitable consequence of making the goods that Caltex intended for sale. 62 At the core of Caltex's argument was a characterisation of the residual oils as a type of "waste" produced as part of a manufacturing process but requiring "disposal" in some manner. Disposal by burning as a refinery fuel it said was analogous to scrap wood being burnt by a carpenter to heat his or her factory. 63 The Macquarie Dictionary meanings of "manufacture" include: [T]o make or produce by hand or machinery, especially on a large scale; to make in any manner; to work up (material) into form for use … 64 Among the meanings of "produce" are: [T]o bring into existence; give rise to; cause: to produce steam … Economics: to create (something having an exchangeable value) Economics: to create value; bring crops, goods etc., into a state in which they will command a price … 65 In the context of the sales tax legislation, Lockhart J said in Jax Tyres (at 261): The primary meaning of the word "manufacture" when used as a verb is to make something by hand; but since the industrial revolution the word has come to mean manufacture by machinery, often on a large scale and with a division of labour. This accords with the dictionary definition. … … To manufacture an article necessarily involves producing a different article from the articles, materials or ingredients from which it was made. As Darling J said in McNicol v Pinch [1906] 2 KB 352 at 361: "I think the essence of making or of manufacturing is that what is made shall be a different thing from that out of which it is made." That passage was approved and applied by Dixon J in Federal Commissioner of Taxation v Jack Zinader Pty Ltd (1949) 78 CLR 336 - the leading case in this field. Whether the article which results from the process of manufacturing is a different article from the constituents or ingredients from which it was made is a question of fact: the Jack Zinader case. "Production" … is a word of wide import; but it still involves the element of producing something different from the materials from which it was made. It is not possible to formulate precise definitions of such general terms as "manufacture" and "production"; but they do not bear a restricted meaning. Whatever answers the description of "manufacture" or "production" of goods according to accepted usage of the English language is within the Act. 66 The courts have attributed an ordinary meaning, within the "accepted usage of the English language", to the terms "manufactured", "manufacture" and "manufactured goods" in a number of cases: see Federal Commissioner of Taxation v Rochester (1934) 50 CLR 225 at 226 (Dixon J); MP Metals Pty Ltd v Federal Commissioner of Taxation (1978) 117 CLR 631 at 649 (Menzies J); Jax Tyres at 261; Federal Commissioner of Taxation v Jack Zinander Pty Ltd (1949) 78 CLR 336 at 344-355 (Dixon J); Commonwealth v 5 Star Foods Pty Ltd (2002) 167 FLR 214. In 5 Star Foods, Byrne J said at 222: The cases to which I was referred also emphasise that the word ["manufacture"] should be given its meaning in ordinary everyday language: Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (Cth) (1981) 147 CLR 297 at 304-305 per Gibbs CJ. To my mind this meaning comprehends the application of a repetitive process, especially a mechanical process, to a thing or things to bring it or them to a form or condition specified. This process may be directed to producing a thing in a state fit for sale, for consumption by the end user, for attachment to or assembly with other things or for some further process. … 67 To my mind each of the residual oils is "manufactured" or, alternatively, "produced" by Caltex in the course of its refinery operations. I do not accept Caltex's submission that the residual oils are not "made" from crude oil. Similarly to all of its other products, the residual oils are derived from raw crude oil and exist only because the crude oil has been subjected to a refining process. Their composition is different to that of the crude oil and they are evidently a "different thing" to the crude oil out of which they are made. The fact that Caltex seeks to maximise the quantity of higher value products it produces does not in my view require a conclusion that the residual oils are not themselves manufactured or produced. They are brought into existence by Caltex and are products of the refining process. They are systematically extracted from that process and brought into a usable form. 68 The Commissioner submitted that the Lytton Refinery Fuel Oil is manufactured or produced when the clarified oil is stripped with steam to remove any lighter hydrocarbons and is then split into streams, one returning to the FCCU for use as a cooling agent and the other sent to Caltex's export tanks (if certain limited specifications are met) or Caltex's dedicated refinery fuel oil tank. Once dedicated, the Commissioner said, the Lytton Refinery Fuel Oil has been manufactured. I agree. The clarified oil (which forms the basis of the Lytton Refinery Fuel Oil) is derived from the crude oil, isolated by Caltex and brought to a state fit for use: see my findings at [16(f)], [17] and [18]. The majority of the clarified oil is sold as an export good, for use in carbon anode manufacturing or as a fuel oil blendstock. Albeit of a lower quality compared to Caltex's other products, Caltex is able to sell the clarified oil and does so in large quantities. Caltex does not sell the Lytton Refinery Fuel Oil to third parties. However it dedicates and maintains it for its own consumption as a burner fuel in its refinery operations. 69 Similarly I accept the Commissioner's submission that the Kurnell Residual Slop Oil and CLOR Residual Slop Oil are manufactured when their respective components are blended together and the resulting product is dedicated for use by Caltex as a burner fuel. In the case of the Kurnell Residual Slop Oil each of its constituent components (vacuum resid, asphaltic PDU bottoms, cracker bottoms and LCGO) has an economic value and is used variously as feedstocks or blendstocks: see my findings at [30(f)] and [31]. Much of the LCGO is in fact exported for sale by Caltex. When blended, these components form a discrete product and serve a particular purpose for Caltex. LCGO was the dominant component of the Kurnell Residual Slop Oil for much of the relevant period and its uses were made plain by Caltex; as a fuel oil blend, seal oil, torch oil, flushing agent or in this case a burner fuel. 70 The CLOR Residual Slop Oil is similarly made up of components which, while not suitable for wax or lubricating oils, may be used for blending into saleable fuel oil. In my view Caltex manufactures the CLOR Residual Slop Oil oil when it isolates the relevant residual streams and blends them to create a burner fuel useable at the CLOR. 71 Caltex laid emphasis on the fact that none of the residual oils is an intended object of the activities it undertakes at the refineries. Accordingly it said that to characterise the residual oils as manufactured or produced goods would lead to the strange result that Caltex was unintentionally manufacturing something. However for the purposes of s 5 of the Tariff Act, the critical question in my view is whether objectively speaking the goods in question can be said to have emerged from a process as a "new and different article … having a distinctive character or use": see Jax Tyres 5 FCR at 264 (Lockhart J). The focus of s 5 is on the extant goods that are made subject to duty, not on the person who manufactures them or that person's stated objectives. Duty is imposed "on" goods by reference to their quality as manufactured goods. It is not imposed with any reference to the relative value of the goods or the subjective intentions of the manufacturer. This is not to say that the principle objectives of a commercial operation will not be relevant to the question of characterisation. They provide the context for the task of characterisation and are an important factor to take into account. They are not however determinative of the question. In any event I do not think it is accurate to say that Caltex unintentionally manufactures the residual oils. They are not the principal products created at the refineries, but it is clear that Caltex intends to bring about all of the known consequences of the refining process, which includes the production of the residual oils. In doing so its objective is to extract as much value as possible from the crude oil. I do not accept Caltex's pejorative characterisation of the residual oils as waste or rubbish. It did not dispose of them as if they were waste; it consumed them in a productive manner.

Is "produced" limited to tobacco production? 72 Caltex made a further submission that the residual oils were not "produced" for the purposes of s 5 because the word "produced" is there concerned only with tobacco production. The Excise Act draws a distinction it said between goods manufactured and goods produced, because the Act has distinct licensing arrangements for "licensed manufacturers" and "licensed producers", the latter of which are held only by producers of tobacco: see Division 2 of Part III of the Excise Act. Caltex said that "produced" should be construed with that context in mind and limited to the production of the various tobacco products identified in the Schedule. 73 I cannot accept that the word "production" must be limited in that way. The contention that it should was not developed by Caltex in any detail. It amounted to not much more than an assertion that a narrow construction was required because of the existence of the specific licensing arrangements for tobacco "producers" in Division 2 of Part III. Division 2 regulates the production of tobacco seed, tobacco plant and tobacco leaf by requiring a producer to hold a "producer licence". A "producer licence" is "a licence granted under Part IV, the holding of which authorises the licence holder to produce tobacco seed, tobacco plant or tobacco leaf". There is nothing express in Division 2 of Part III of the Excise Act that could be said to limit the ambit of the word "produced" in the Tariff Act. Further, s 5 of the Tariff Act gives no indication that "produced" is intended to be limited to tobacco production. To the contrary s 5 is in wide terms and applies to "all goods … manufactured or produced". The Schedule itself reflects the intended width of the term. It describes various goods as "products" - including those in issue in this case - and refers to some goods (other than tobacco) as having been manufactured or produced (see, for example, item 11(a) describing "diesel fuel produced or manufactured by the process of refining waste oils …"). The word "produced" is not defined in the Tariff Act, which one would expect if it were to be given the restricted meaning Caltex contends for. In my view it should be given its ordinary meaning. 74 Neither party referred me to the legislative history of Division 2 of Part III or s 5 of the Tariff Act. I note however that the words "manufactured or produced" have appeared in s 5 of the Tariff Act since its inception in 1921 (and the section itself has remained in the same form since then). At that time no equivalent to Division 2 of Part III appeared in the Excise Act. Division 2 of Part III was introduced in the relevant form in 2000 and I see no reason why its introduction at that time should alter the ordinary meaning of "produced" in s 5 of the Tariff Act. Further, it may be observed that the version of the Excise Act in force in 1923 contained specific provisions relating to the "manufacture" of tobacco and included separate licensing arrangements for "producers" of "material". "Material" included "all material used in the manufacture of excisable goods and declared by proclamation to be material within the meaning of this Act". There could be no suggestion that the word "produced" in s 5 of the Tariff Act was to have borne a restricted meaning relevant only to "material", because "produced" in s 5 quite clearly related to "goods dutiable under the Schedule" (excisable goods) and not the more limited concept of "material" or, for that matter, tobacco.

Duties of Excise and the Constitution 75 Caltex made a number of submissions regarding the constitutional conception of duties of excise, which it said bore importantly on the proper construction of the words "manufactured" or "produced". It submitted that the "essence" of a duty of excise is that it is a tax on a step in the production or distribution of goods that are intended to be passed on by a manufacturer to consumers, that is, third party consumers. Consistently with that understanding, it said, the Tariff Act imposes duties of excise directly on or in respect of goods that are destined for consumption by consumers, the relevant excise step being the step of manufacturing or producing the goods before they are passed down the line to consumers. Accordingly it said the terms "manufactured" and "produced" should be construed as applying only to the step of manufacture or production taken with respect to goods intended to reach third party consumers (i.e. not goods that are consumed by their manufacturer). On that basis Caltex said it does not "manufacture" or "produce" the residual oils because it takes no step to bring them into existence as part of a process that ends in their receipt by third party consumers. Instead they are created because they are an inevitable consequence of the process of producing other goods which are intended to reach consumers. 76 Caltex referred to s 15A of the Acts Interpretation Act 1901 (Cth), which requires the Tariff Act to be "construed subject to the Constitution, and so as not to exceed the legislative power of the Commonwealth". It said that if the residual oils are found to have been manufactured or produced (which it disputes), then the Tariff Act would in part have an invalid application by operation of s 55 of the Constitution. While not developed in detail, the argument appeared to be: (a) Section 55 of the Constitution provides that laws imposing duties of excise shall deal with duties of excise only. (b) Duties of excise, as defined in the case law, are duties imposed on a step in relation to goods that are intended for consumption by third party consumers. (c) If the residual oils are considered to have been manufactured or produced (where they are consumed by Caltex rather than third parties), then the Tariff Act would be dealing with something other than excise duty and would offend s 55. In other words the Tariff Act would be imposing not only duties of excise but a tax in respect of things (the residual oils) that were not a permissible subject of excise duty as contemplated by the Constitution. (d) Accordingly s 5 of the Tariff Act would have an invalid application and s 4AAA of the Excise Act would require, where possible, the reading down of s 5 so that it did not apply to the residual oils. Alternatively s 5 should be held invalid or of no effect. 77 I do not agree that the words "manufactured" or "produced" must be read so as to apply only to goods that are intended to reach a third party consumer or to "go into the market", rather than to goods that might be consumed by a manufacturer itself in the course of its operations. Duties of excise are inland taxes on "a step in the production, manufacture, sale or distribution of goods": see Ha v New South Wales (1997) 189 CLR 465 (Ha) at 490. In Matthews v Chicory Marketing Board (Vict) (1938) 60 CLR 263 (Matthews)at 304, Dixon J said: To be an excise the tax must be levied "upon goods," but those apparently simple words permit of much flexibility in application. The tax must bear a close relation to the production or manufacture, the sale or the consumption of goods and must be of such a nature as to affect them as the subjects of manufacture or production or as articles of commerce. (In Parton v Milk Board (Victoria) (1949) 80 CLR 229 Dixon J qualified this statement to remove the reference to consumption, following the decision of the Privy Council in Atlantic Smoke Shops Ltd v Conlon [1943] AC 550.) 78 The disjunctive language used in the passages from Ha and Matthews demonstrates that a tax imposed on any one of the steps referred to will qualify as a duty of excise. For example a tax imposed on the sale of goods to consumers would be an excise, as would a tax imposed on the manufacture of goods without any necessary reference to their sale. In support of its contention Caltex relied particularly upon passages in Anderson's Pty Ltd v Victoria (1964) 111 CLR 353 (Anderson's) and Bolton v Madsen (1963) 110 CLR 264 (Bolton), which were followed by the Full Court of this Court in Commissioner for A.C.T. Revenue v Kithock Pty Ltd (2000) 102 FCR 42 (Kithock). In Anderson's, Barwick CJ said at 364: [T]he judicial formulation of the nature of a duty of excise within the meaning of the Constitution has progressed over the intervening years. It has now, however, in my opinion, received definitive exposition by this Court, and, however much other views might have been possible at an earlier stage, it ought now to be taken as settled that the essence of a duty of excise is that it is a tax upon the taking of a step in a process of bringing goods into existence or to a consumable state, or of passing them down the line which reaches from the earliest stage in production to the point of receipt by the consumer. (Emphasis added.) 79 At 374, Kitto J said: A tax must necessarily be made payable by a person; but it is not a duty of excise unless the criterion of the person's liability is the fact that some act of his possesses the quality of a contribution either to the physical character of goods as subjects of commerce or to the sequence of events which results in their being available, as in the hands of a consumer, to be put to their ultimate purpose. The reason is that a duty of excise is, at bottom, a burden upon home production or manufacture. Obviously it is such a burden if it is payable upon a step in production or manufacture in its character of such a step. (Emphasis added.) 80 In Kithock 102 FCR 42, the Full Court held that a state tax imposed on used or second-hand motor vehicles was not an excise because it was a tax imposed on goods after they had reached the hands of consumers. The Court stated at 48: In [Bolton], the authoritative pronouncement of what is an excise was made by a unanimous High Court constituted by Dixon CJ, Kitto, Taylor, Menzies, Windeyer and Owen JJ (at 271): "It is now established that for constitutional purposes duties of excise are taxes directly related to goods imposed at some step in their production or distribution before they reach the hands of consumers." (Emphasis added.) This formulation does not refer to the "ultimate" or "final" or "intermediate" consumer, but is expressed by reference to the plurality of consumers and therefore is a reference to the first consumer. In our opinion, this formulation is the authoritative test which this Court is bound to apply, with the consequence that the tax in question in this case is not an excise. 81 Each of the cases relied on by Caltex involved impugned taxes concerning goods ultimately intended for sale to third party consumers. The question of self-consumption did not arise in any of the cases and I was not referred to any cases in which the conception of a duty of excise had been limited in the manner contended for by Caltex. The Commissioner said that the statement of the Chief Justice in Anderson's 111 CLR 353was intended to do no more than identify three ways of locating the incidence of an excise duty: the steps of (1) bringing into existence, (2) bringing to a consumable state or (3) passing them down the line to the point of receipt by the consumer. I agree. The passage is consistent with the understanding that an excise may be imposed on discrete steps taking place with respect to goods, without it being necessary that every step take place. The passage does not articulate a principle that excise duties are only those taxes that affect goods destined for consumption by parties other than the original manufacturer or producer. Similarly the emphasis placed by the Full Court in Kithock on the position of consumers was necessary to explain, by way of exclusion, that goods already in circulation amongst consumers cannot be the subject of an excise duty. It is by now clear that consumption taxes are not excises. While it is an essential characteristic of an excise that goods have not yet passed into consumption, I do not accept that it is essential that goods are intended to pass into a market or to be sold to a third party, even though that will be the ordinary occurrence. 82 As Dixon J said in Matthews 60 CLRat 303-304: The basal conception of an excise in the primary sense which the framers of the Constitution are regarded as having adopted is a tax directly affecting commodities. … The tax must bear a close relation to the production or manufacture, the sale or the consumption of goods and must be of such a nature as to affect them as the subjects of manufacture or production or as articles of commerce. (Emphasis added.) 83 Assuming they fall within the Schedule, the impost in this case is levied directly on the residual oils as the "subjects of manufacture" and affects them as commodities in the hands of Caltex. The residual oils are of use to Caltex and serve an economic purpose. Without them Caltex would need to acquire fuel oil from an alternative source at higher cost. The impost is not levied upon the consumption of the residual oils by Caltex. Nor is it a tax on the ownership of the residual oils. It is an excise in the most obvious sense; a tax upon the step of manufacturing or producing a defined good. In my view, to accept the limitation contended for by Caltex would be counter to the trend of the High Court's decision making from the early decision in Peterswald v Bartley (1904) 1 CLR 497 through to Ha 189 CLR 465, which has been to enlarge the field of permissible steps of taxation in the context of duties of excise. 84 Further, Caltex's argument arrives at a position whereby excise duties would be limited to taxes bearing the characteristics of an indirect tax - a tax levied on a person with the expectation that that person will not bear the financial burden of the tax but pass it on to another. The indirectness or otherwise of a tax has been rejected as a necessary element of an excise: see Dennis Hotels Pty Ltd v Victoria (1960) 104 CLR 529 (Dennis Hotels) at 583, 585 and 590 (Menzies J); see also Ha 189 CLR at 509. The effect of adopting Caltex's position would be to reject the step of manufacture or production as an occasion in itself for the imposition of an excise and necessitate an inquiry into the subjective intentions of the relevant manufacturer. As I have said the cases demonstrate the stand alone nature of each permissible taxation step and it would not be consistent in my view to introduce a limitation focussed on intention. In this connection, I adopt what Menzies J said in Dennis Hotels 104 CLR at 583: I find nothing in the language of the Constitution which would exclude from the categories of duties of customs or duties of excise, duties to be borne as well as paid by the importer or manufacturer. In other words, unless it be by the use of the words "customs" and "excise" themselves, the Constitution does not adopt the distinction between direct and indirect taxes so that, unless the usage of the words otherwise requires, an import duty on goods imported for use or consumption by the importer would be a customs duty, and a duty upon the production of goods for the producer's own use or consumption would be an excise duty, and both would be beyond the power of the Parliament of a State. In my view a thing capable of description as a manufactured good, and consumed or otherwise applied by its manufacturer in that manufacturer's commercial operations, is capable of being the subject of an excise duty. 85 For those reasons there is no need to construe "manufactured" or "produced" in the limited manner urged by Caltex. Further, no issue of invalidity under s 55 of the Constitution arises because for the reasons I have given the tax imposed by s 5 of the Tariff Act as it applies to the residual oils may properly be described as a duty of excise. 86 One further point should be made. Some of the clarified oil at the Lytton Refinery - which forms the basis of the Lytton Refinery Fuel Oil - is in any event sold to third parties as blendstocks and, in the case of the Kurnell Refinery and the CLOR, the constituent components of the residual oils there are used as blendstocks for fuel oils sold by Caltex: see findings at [16(f)], [31] and [37]. Accordingly the residual oils or their components are at least in some cases either sold to third party consumers or used as an ingredient in other products that are sold. I can see no reason why the fact that Caltex consumes those residual oils itself in its commercial operations would render the oils any less a "manufactured good" or a permissible subject of excise duty.

issue 2 - are the residual oils "refined or semi-refined liquid PETROLEUM products"? 87 The Commissioner contends that the residual oils are "refined or semi-refined liquid petroleum products" and thus dutiable under item 11(a) of the Schedule. This turns principally on whether the residual oils should be characterised as "refined" or "semi-refined". The Commissioner's argument proceeded as follows. The residual oils are refined or semi-refined as they exist only because their original subject matter - crude oil - has been refined to produce them. The word "refined" must be understood here in the context of a petroleum refining process, being the process of separating and converting crude oil into distinct useable products (with varying hydrocarbon molecular structures). "Refined" was said not to mean "purified" but simply "separated". To support this the Commissioner referred to a "Product Glossary" prepared by Caltex, containing the following definition of "refinery": Refinery. A plant used to process crude oil or metals. An oil refinery separates the fractions of crude oil and converts them into usable products … The fact that the residual oils are a result of a process of separation and are themselves a discrete usable product was said to be sufficient for classifying them as refined products, or at least semi-refined products (where further separation and conversion might be possible). 88 Caltex said that "refined" must take its ordinary meaning - being that which is freed from impurities. Read in context, it submitted, "refined" and "semi-refined" are concerned with a process that begins with raw crude oil or other hydrocarbon feedstock and improves it by removing impurities, being the heavy hydrocarbons and contaminants like sulphur, nitrogen or heavy metals. The residual oils cannot sensibly be described as freed from impurities because they are the impurities, removed from the crude oil as it is processed and therefore removed from the refined petroleum products Caltex manufactures. 89 In response the Commissioner said that the residual oils could only be described as impurities in a relative sense, while they are contained within the other products Caltex manufactures. Once they are themselves a discrete product, they are not impure and are not unusable waste - they have a commercial use. The character of Caltex's other products, it said, is irrelevant to the characterisation of the residual oils for the purposes of classification under the Schedule. 90 The Macquarie Dictionary defines "refined" as "freed from impurities: refined sugar" and "refined" as "to bring to a fine or a pure state; free from impurities: to refine metal; to refine sugar; to refine petroleum". The Oxford English Dictionary contains the following definitions: Refine: 1. To purify or separate (metals) from dross, alloy, or other extraneous matter … 2. To free from impurities … b. To purify or clarify (a substance or product) by means of some special process; to make purer or of a finer quality … Refined: 1. Purified; freed from impurities or extraneous matter. … 91 The evidence did not establish that "refined" has any special trade meaning or particular usage in the context of petroleum manufacturing. Caltex's Product Glossary (see [87]) is not sufficient in and of itself to demonstrate a particular usage. It contains only a short, very general description of what an oil refinery does. It does not in any detail elaborate on the processes involved at an oil refinery and it makes no reference to the concepts of "refined" or "refine". 92 The words must of course be construed in context and by reference to the policies and objectives of the Tariff Act as a whole: K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309 at 315 (Mason J); s 15AA Acts Interpretation Act 1901 (Cth). The context here requires a consideration of the processes involved in petroleum production and the effect those processes have on their subject matter - crude oil. I do not see any reason however why the ordinary meaning of "refined" ("freed from impurities"; "purified"; "made purer or of finer quality") should not be given to that word as it appears in the Schedule. This is especially so where the refining of petroleum is provided as an example of the ordinary dictionary meaning (see [90] above). 93 When that is done, it follows in my view that none of the residual oils can be said to be "refined" or "semi-refined", for the following reasons. Firstly, they are not themselves freed from impurities or extraneous matter, nor are they purified or clarified. They have not been in any sense made purer or of finer quality. I do not agree that Caltex's other products should be put to one side when characterising the residual oils. A comparison is useful because those other products (kerosene, jet fuel, diesel fuel) are freed from impurities, in that the heavier, less desirable hydrocarbons and the naturally occurring contaminants in the crude oil are separated from the lighter hydrocarbons that make up those products. Those lighter streams are then treated so as to further reduce the level of contaminants and convert them into saleable products. Whereas those products are made purer or of finer quality, the residual oils are essentially the original impurities themselves. 94 Secondly, while it may be correct to say, as the Commissioner suggests, that the residual oils are not impure when considered as discrete goods, this does not mean that they are or have been purified or made finer in quality. The mere fact that they have been produced in a refinery is not sufficient in my view to give them the quality of a "refined" product. Similarly, I do not consider the fact that they have a commercial use makes them a "refined" product. Commercial value or use does not seem to me particularly relevant to whether something should be properly described as "refined". 95 In Attorney-General v The Colonial Sugar Refining Co Ltd (1900) 26 VLR 83, Madden CJ considered the construction of the term "molasses refined" in Victoria's pre-Federation customs and excise duties legislation. At 84 his Honour said: The evidence shows that the process which "molasses" undergoes at the defendant company's works practically amounts to a straining, by which foreign matters, debris, and rubbish are extracted, and nothing more. It also appears that when sugar is refined this is a preliminary part of the process it passes through, but that in the case of sugar when this is done the sugar is treated with phosphoric acid in order to eliminate certain matters, and the acid is then eliminated by the use of alum. Subsequently the sugar is submitted to other treatment, which is specifically termed in trade "refining," viz., passing it over charcoal beds, so as to eliminate from it substances naturally in it, that is intrinsic as distinguished from extrinsic impurities, and when this is done the sugar is said to be "refined." This passing over charcoal is the test which constitutes refinement as distinguished from straining and other processes. (Emphasis added.) Later, at 85-86 his Honour said: The International Dictionary, which Webster revised, gives "refined" as "freed from impurities or alloy, purified, polished, cultured, delicate, as refined gold, refined language, refined sentiment." Nobody speaks of the refinement of the gold when only separating the quartz and other like substances in which it is found, but which form no inherent part of it, from the metal. One only refines when one comes to retort the gold and the inherent alloys, silver, copper, etc., are extracted from it. Therefore we may take from the meaning in the dictionary that the refining of sugar or molasses stands in the same category as refining of gold, of silver, or of wine. I think that refinement must mean here as sugar is refined, and that the word "refined" would not be properly applied to a mere straining or filtering. 96 Accordingly his Honour held that the molasses, which similarly to the residual oils here was produced as a consequence of the refining of a raw sugar, could not be characterised as "refined" as a result of it being strained to remove extrinsic impurities (frogs, brickbats and nails) that had found their way in during storage. As is evident from his Honour's decision, some form of purification - in the sense of removing intrinsic impurities - was central to the concept of refinement or "refined" as it was held to have been used in the relevant Victorian legislation. Contrary to the Commissioner's submission, I do not consider that the process of separating the crude oil into different components in and of itself means that each separated component therefore has the character of a "refined" product. This is especially so where the component in question is essentially removed from the whole because of its inferior or impure nature. 97 It follows from what I have said that none of the residual oils fall within item 11(a) of the Schedule and are consequently not dutiable. However, in case I am wrong on this point, I intend to deal with all remaining issues, which were fully argued. This includes whether the Lytton Refinery Fuel Oil is a "liquid" petroleum product.

Is the Lytton Refinery Fuel Oil a "liquid" petroleum product? 98 It was common ground that both the Kurnell Residual Slop Oil and CLOR Residual Slop Oil are properly described as liquids and thus would fall within item 11(a) if they are "refined" or "semi-refined" products. Caltex contended however that the Lytton Refinery Fuel Oil was not a liquid, for the reasons set out at [20]. It said that the "standard" reference point for determining whether something was a liquid was a temperature of 20°C and pressure of 101.3kPa. As I have found at [27] and [28], the Lytton Refinery Fuel Oil is a solid at those standard temperature and pressure conditions but a liquid when it is produced, stored and then consumed as a burner fuel. 99 I do not accept Caltex's submission. Neither the Schedule to the Tariff Act nor the Tariff Act itself contains any stipulation that the relevant "refined or semi-refined" petroleum products in item 11(a) must be liquid at standard temperature or pressure. By contrast, the Tariff Act does in respect of other goods prescribe certain physical properties by reference to specific temperatures and pressures. For example, s 3(4) prescribes the physical characteristics of "fuel oil", which include a density and a minimum kinematic viscosity measured at 15°C and 50°C respectively. Moreover, the prescription of a standard temperature and pressure for the determination of a liquid state is used elsewhere in the Excise Act. "Condensate", for example, is defined in s 4 of the Excise Act as either: (a) liquid petroleum; or (b) a substance: (i) that is derived from gas associated with oil production; and (ii) that is liquid at standard temperature and pressure. (Emphasis added.) 100 "Liquid petroleum" is defined as: [A] mixture of hydrocarbons: (a) that is produced from gas wells; and (b) that is liquid at standard temperature and pressure after recovery in surface separation facilities; but does not include a substance referred to in paragraph (b) of the definition of condensate. (Emphasis added.) "Standard temperature and pressure" is "a temperature of 20° centigrade and a pressure of one standard atmosphere". 101 For completeness, I note that it was not seriously contended that the definition of "liquid petroleum" applies to item 11(a). This is because the definition is limited to hydrocarbons "produced from gas wells", whereas item 11(a) and the specific goods referable to item 11(a) (for example, kerosene (11(A)), heating oil (11(B)), diesel (11(C))) are typically produced from crude oil not gas wells. The definition of "liquid petroleum" applies "except where otherwise clearly intended" (see Excise Act, s 4) and I accept the Commissioner's construction - which Caltex essentially adopted - that "liquid petroleum … products" in item 11(a) is a comprehensive reference to petroleum products in liquid form. 102 In the absence of a specific temperature or set of conditions in the Schedule, I consider that the relevant products are to be characterised in the form they take when they come into existence as a discrete product. At that time, and at all subsequent material times, the Lytton Refinery Fuel Oil is in a liquid form and is therefore in my view a liquid petroleum product as described by item 11(a).

Are the residual oils a "product" for the purposes of item 11(a)? 103 Finally, Caltex also contended that none of the residual oils could be described as a "product", for the same reason it said they are not the subjects of manufacture or production: see issue 1 at [60]. For the reasons I have given in relation to that issue, the residual oils are in my view "products" for the purposes of item 11(a).

issue 3 - Do the Kurnell Residual Slop Oil and CLOR Residual Slop Oil fall within Item 11(i)(3)(d) of the schedule? 104 It was common ground that the Lytton Refinery Fuel Oil, but not the Kurnell Residual Slop Oil or CLOR Residual Slop Oil, met the definition of fuel oil contained in s 3(4) of the Tariff Act. The parties were therefore in agreement that should the residual oils fall within item 11(a) of the Schedule, then the applicable tariff for the Lytton Refinery Fuel Oil is item 11(D). In relation to the Kurnell Residual Slop Oil and CLOR Residual Slop Oil, the Commissioner contends that they fall within item 11(I). 105 Item 11(I) was at the relevant time in part as follows: (I) Other refined or partly refined petroleum products (including mineral turpentine, fuel and other recycled product) other than diesel recovered by a process not being a process of refining and product classified to item 15 of the Schedule: (1) Recycled petroleum products not elsewhere specified … (2) Other, in packages not exceeding 210 litres: … (3) Other: (a) for use as fuel in an internal combustion engine $0.38143 per litre (b) for use as fuel otherwise than in an internal combustion engine and containing at least the prescribed proportion of the marker $0.07557 per litre (c) for other use containing at least the prescribed proportion of the marker Free (d) other $0.38143 per litre

106 It will be immediately observed that item 11(I) relates to "[o]ther refined or partly refined" petroleum products. Accordingly the residual oils would not fall within that item for the same reason that I have held item 11(a) to be inapplicable. However assuming the residual oils are a 'refined' product, the Commissioner's submissions proceeded as follows. He said that item 11(I), referring to "other refined … products", specifies the rates of duty for refined or partly refined petroleum products that do not otherwise fall under items 11(A) - (L). Not being "recycled petroleum products" (see 11(I)(1)) or products "in packages not exceeding 210 litres" (see 11(I)(2)), the residual oils were said to fall under item 11(I)(3) - "Other". As they were not produced for use as fuel in an internal combustion engine and did not contain the required "marker", item 11(I)(3)(d) ("other") was identified as the applicable tariff at the rate of 38.143 cents per litre. 107 Caltex contends that the word "other" in par (d) must be read in a purposive manner and that when read in context it was clear that it was only intended to apply to products used otherwise than as fuels. Paragraph (d) was inserted into the Tariff Act by the Excise Tariff Amendment Act (No. 1) 1998 (Cth) (the 1998 Act) and Caltex in support of its contention referred to both the explanatory memorandum to the Excise Tariff Amendment Bill (No. 1) 1998 (the 1998 Bill) and its second reading speech. At page 9 of the explanatory memorandum, there appears the following: On 31 January 1998, a package of 9 Acts, which implements the Government's Budget decision to combat revenue loss through the minimisation of fuel substitution practices, commenced operation.

This involved, amongst other things, a new classification structure for petroleum products under item 11 of the Tariff.

However, the petroleum industry was concerned the new structure may create misunderstandings in relation to the excise liability of some petroleum products which are intended for uses otherwise than as fuel.

These items propose technical amendments to the new item 11, so as to eliminate any potential misunderstandings, or any unintended windfall gains. These amendments involve the introduction of new subheadings into most of the subitems of item 11 [including par 11(I)(3)(d) set out above]. These subheadings cover petroleum products for use otherwise than as fuels and provide excise duty rates of $0.42797 per litre for unleaded products and $0.44972 per litre for leaded products in line with the existing duty differential between such products. These technical amendments do not widen the scope of the fuel substitution minimisation legislation. (Emphasis added.) 108 The reference to the "9 Acts" that commenced operation on 31 January 1998 included the Excise Tariff (Fuel Rates Amendments) Act 1997 (Cth) (the 1997 Act). Among other things, that Act introduced a scheme to prevent fuel substitution practices through the use of a chemical marker. The practices targeted involved the substitution of products on which concessional duty had been paid (for example, heating oils or burner fuels) for products on which a higher rate of duty was payable (generally, road transport fuels for use in internal combustion engines). The 1997 Act had introduced a restructured item 11 which included item 11(I)(3) in similar terms to that set out above at [105], but without par (d). The explanatory memorandum to the Excise Tariff (Fuel Rates Amendments) Bill 1997 (the 1997 Bill) explained the following (at p 2): In accordance with long standing policy in relation to petroleum products, certain petroleum products are dutiable at varying rates of duty depending on the type of petroleum product. Generally, road transport fuels which are for use in internal combustion piston engines attract the highest rates of excise duty. Other petroleum products which are generally for use as burner fuels and are burnt to produce heat are dutiable at concessional rates of duty … Petroleum products for non-fuel use are dutiable at a "Free" rate of duty. … [T]he ever increasing differentials in the rates of excise and customs duty on petroleum products have encouraged the practice whereby a product on which a concessional rate of duty has been paid is substituted for a product on which the highest rates of duty are payable in circumstances where the higher duty product would normally be used. At present, however, no mechanism exists whereby this revenue leakage which results from these practices can be contained and the integrity of the policy in respect of petroleum products can be maintained. … This Bill will … introduce the requirement that petroleum products on which a concessional rate or a "Free" rate of excise duty is payable must contain a chemical marker, which must be added to the product prior to its entry into home consumption. The addition of the chemical marker will be the cornerstone of the proposed regime. 109 Caltex referred to the second reading speech for the 1998 Bill, which introduced par (d). In the speech (see Australia, House of Representatives, Debates (1998) Vol HR220, p 2737), the relevant Minister, Warren Truss MP, stated: On 31 January 1998 a package of nine acts implementing the government's budget decision to combat revenue loss through the minimisation of fuel substitution practices commenced. The prime object was to ensure that petroleum products dutiable at concessional rates of excise duty were not used as fuels in internal combustion engines. … … The petroleum industry was consulted at all stages of policy development and implementation of this package. It was concerned the new structure may create misunderstandings as to how much excise was payable on some petroleum products intended for particular uses, particularly products used otherwise than as fuels. Accordingly, the technical amendments contained in this bill are designed to remove any such uncertainty. The amendments insert new subheadings of `other' in all subitems of item 11, except subitem 11(a) and 11(d), to cover petroleum products used for purposes other than as fuel. These amendments do not widen the intended scope of the fuel substitution minimisation legislation. 110 Caltex submitted that the object of item 11(I), and par (3)(d) in particular, was made clear by the extrinsic material. Only fuels produced for use in internal combustion engines (in other words, road transport fuels) were to be subject to the highest rate of duty. Concessional rates were to apply to other fuels and a "free" rate for non-fuels, on the condition that the marker was added to ensure that any substitution could be traced. Paragraph (d) was included, said Caltex, to clarify that non-fuels, which did not contain the required marker, would attract the higher rate of duty because of their susceptibility to substitution. 111 The Commissioner said that "other" in par (d) means simply what it says - any "other" refined or partly refined petroleum product falling within item 11(I)(3) but not within either items 11(I)(3)(a), (b) or (c). In effect, this meant that it applies to any product not for use in an internal combustion engine and not containing the marker, regardless of whether or not it was intended for use as a fuel. The Commissioner pointed out that items 11(I)(3)(a), (b) and (c) each applied by reference to the use the relevant product was to be put, whereas par (d) did not. It would have been a straightforward matter, and consistent with the references to "use" elsewhere, for the legislature to expressly limit par (d) to non-fuels, if that is what had been intended. To the contrary, the Commissioner submitted, par (d) was intended to be a catchall item, which applied to products by reference to their nature (in other words, petroleum products which might be capable of substitution) and not any particular use for which they may have been intended. The Commissioner also noted that Caltex's construction would lead to the strange consequence that the absence of the marker from a non-combustion engine fuel would mean there would be no duty payable, but the inclusion of the marker by a manufacturer would bring the fuel within par (b) and render it dutiable. 112 I agree with the Commissioner's construction of par (d). Item 11(I) is divided into three paragraphs of increasing generality. The word "other" is used in a number of places - see 11(I)(1)(b), 11(I)(2) ("other, in packages not exceeding 210 litres"), 11(I)(3) ("Other") and 11(I)(3)(d). On an ordinary reading of item 11(I), it seems to me that the word "other" as it is used in each case is intended to describe goods that come within the general item description ("other refined or partly refined petroleum products …"), other than those that fall within any of the preceding, more specific, paragraphs. In other words, products that do not come within item 11(I)(1) ("recycled petroleum products not elsewhere specified") or 11(I)(2) ("Other, in packages not exceeding 210 litres"), would therefore fall to item 11(I)(3) ("Other"). Similarly, par (d) of item 11(I)(3) seems plainly to apply to any product within item 11(I)(3) that is not covered by pars (a), (b) or (c). A similar construction of the word "other" as it appears in the Customs Tariff Act 1982 (Cth) was adopted in Rheem Australia Ltd v Collector of Customs (NSW) (1988) 78 ALR 285 at 300 (Burchett J). On that construction, item 11(I)(3)(d) applies to any 'refined or partly refined petroleum product' that: · is not covered by either of the preceding paragraphs, 11(I)(1) or 11(I)(2); · is not for use in an internal combustion engine; and · does not contain the required chemical marker. Assuming they are "refined" products, the description just given is applicable to each of the residual oils. 113 Without more, it is difficult to read par (d) in the manner contended for by Caltex. Beyond reference to the extrinsic material, no explanation was offered as to why Parliament would not have clearly identified in the drafting that par (d) was to be limited to non-fuel uses. If "other" means anything, it means other than (a), (b) or (c). Between them, (a), (b) and (c) cover all possible uses. Putting to one side combustion engine fuel (dealt with by (a)), the only remaining discriminant between (b) and (c) on the one hand and (d) on the other is the inclusion of the marker. In my view this accords with precisely what Parliament had in mind when it introduced par (d). It appears from the passages in the extrinsic material quoted above that the marker was to be the "cornerstone" of the regime introduced in 1998. It was given a critical function, in that concessional status, or "free" status for non-fuels, would only apply to products if they contained the marker. This is made clear from the discussion of the proposed item 11(I) in the explanatory memorandum to the 1997 Bill. At page 12, the explanatory memorandum states: The new subitems of item 11 generally have a three tiered excise tariff rate based on the intended use of the products. Products for use otherwise than as fuels and containing the prescribed proportion of marker are dutiable at the rate of "Free". Products for use as a fuel otherwise than in an internal combustion [engine] and containing the prescribed proportion of marker are dutiable at a concessional rate. Products containing no marker and, generally, which are for use in an internal combustion engine are dutiable at the highest rates. 114 Further, the 1997 Act did not include item 11(I)(3)(d), but item 11(I)(1) was as follows: (1) Recycled petroleum products (a) Diesel fuel, and gasoline, on which customs or excise duty has been paid, recovered by a recycling process not being a process of refining Free (b) other (i) containing at least the prescribed proportion of the marker for use otherwise than as a fuel in an internal combustion engine Free (ii) other $0.34697/L

(Emphasis added.) 115 The explanatory memorandum noted at page 15: In line with the general thrust of the substitution minimisation legislation, subparagraph 11(I)(b)(ii) provides that unmarked recycled products attract the rate applying to fully paid diesel fuel. 116 It was thus a critical feature of the legislation that unmarked recycled products would attract the highest rate of duty, whether or not intended for a fuel or non-fuel use, because there was the potential for substitution. Plainly, the "other" in item 11(I)(1)(b)(ii) covered both fuel and non fuel uses. Consistently, it seems to me, the word "other" was used in the 1998 Act as a catchall item, applying to products that did not contain the prescribed marker. 117 It is true that both the explanatory memorandum and second reading speech for the 1998 Bill stated that the new subheadings would "cover petroleum products for use otherwise than as fuels". However I do not read those statements as intending to limit the operation of the subheadings to those circumstances. The reason for the introduction of the subheadings was made clear in the second reading speech (at 2737): [The petroleum industry] was concerned the new structure may create misunderstandings as to how much excise was payable on some petroleum products intended for particular uses, particularly products used otherwise than as fuels. (Emphasis added.) 118 An explanation of the industry's concerns is found in a Treasury discussion paper published on 2 June 2005, Review of the Schedule to the Excise Tariff Act - Discussion Paper (www.treasury.gov.au). It states: 6.2.3 Fuel marker scheme … While the [fuel substitution legislation] conceptually requires the marker to be added to all concessional and duty-free petroleum, in reality the use of the marker has been severely restricted because of technical issues. In certain cases, such as the use of fuels in burner applications, there is no technical reason to preclude marking. However, it soon became apparent that there are significant uses of petroleum-based products other than as a fuel, such as certain solvents, paint manufacture, agricultural processing and metallurgical applications, where unmarked product is required. An administrative scheme was then introduced under which such product could be obtained effectively duty free and unmarked, through regulations that allow remission or refund of duty in certain circumstances. Remission of duty is a relinquishment of the duty payment obligation of the manufacturer under defined circumstances, thus allowing the manufacturer to pass on the duty-free treatment to a purchaser (normally the user) of the product. 119 The "administrative scheme" referred to is effected by the Excise Regulations 1925 (Cth), which prescribe specific circumstances in which remissions, rebates or refunds of excise duty will be allowed. In the form it took during the relevant period, the Regulations included among the prescribed circumstances those where it can be demonstrated that a petroleum product, which is otherwise subject to duty under a relevant tariff in item 11, has a use approved by the Commissioner not being a fuel use (see, for example, reg 50(1)(zt)). This further explains why item 11(I)(3)(d), and each of the other subheadings introduced by the 1998 Act, imposed the highest rate of duty, as was generally applicable to combustion engine fuel. In my view, the relevant legislative intention was to catch any remaining refined or partly refined petroleum products not specifically dealt with and impose the highest rate of duty, unless the marker was used or the product was specifically approved for some non-fuel purpose by the Commissioner. 120 Finally, as the Commissioner submitted, limiting the scope of item 11(I)(3)(d) to non-fuels would lead to the strange result that a manufacturer could avoid duty entirely on a non-combustion engine fuel by not using the marker - in that circumstance, the product would not fall within any of pars (a) to (d). It is noteworthy that this would also have been the case prior to the 1998 Act, as item 11(I)(3) only included pars (a), (b) and (c), as first introduced by the 1997 Act. However it seems to me that that deficiency was part of what the "technical" amendments in the 1998 Act sought to address. In other words, the reference in the explanatory memorandum to the amendments being necessary to "eliminate any potential misunderstandings, or any unintended windfall gains" seems to me to be at least in part a reference to the potential for duty to be avoided in the circumstances of the Commissioner's example. 121 During its closing submissions on the final day of the hearing, Caltex advanced a further reason why it said item 11(I) was inapplicable to the residual oils. It said that it was apparent from the legislative history of amendments that a comma had been accidentally omitted from the prefatory phrase to the item, so that it should read: Other refined or partly refined petroleum products (including mineral turpentine, fuel and other recycled product) other than diesel, [here, Caltex said the comma should be inserted] recovered by a process not being a process of refining and product classified to item 15 of the Schedule 122 If correct, the inclusion of the comma has the consequence that the general item description - "other refined or partly refined petroleum products" - is qualified by the phrase "recovered by a process not being a process of refining". Without the comma, the qualification applies only to the word "diesel". As the residual oils are produced by a refining process, Caltex contended that the item simply does not apply to them. 123 Caltex referred extensively to the amendments made to item 11 after 1997, in particular those made by the Excise Tariff Amendment Act (No. 1) 2000 (Cth) (the 2000 Act) and the Excise Tariff Amendment (Product Stewardship for Waste Oil) Act 2000 (Cth) (the Stewardship Act). The 2000 Act introduced an amended form of item 11 to, among other things, remove certain categories of fuel that were being used to evade excise duty (in particular, gasoline and diesel for use otherwise than as fuel) and clarify the way in which certain recycled petroleum products were to be treated: see the explanatory memorandum to the Excise Tariff Amendment Act (No. 1) 2000 Bill at [2.4]. Item 11(I) in the form it then took included the following: (I) Other refined or partly refined petroleum products, including mineral turpentine and lubricants (lubricant base oils), hydraulic oils, transformer oils and fuel, other than diesel, recovered by a process not being a process of refining: (1) Recycled petroleum products not elsewhere specified … (2) Other, in packages not exceeding 210 litres: … (3) Other: …

124 It will be observed that a comma appeared after the word "diesel". This, Caltex said, demonstrated that item 11(I) was only intended to apply to products "recovered by a process not being a process of refining", which it effectively equated to "recycled products". 125 The Stewardship Act made further changes to item 11 to accommodate changes in the treatment of oils, in particular lubricating oils. Such oils had previously been subject to wholesale sales tax. Following the introduction of the GST, wholesale sales tax was removed and the Stewardship Act provided for an excise levy on lubricating oils, accompanied by a regime to use the funds raised as a subsidy for companies that adopted environmentally appropriate methods of recycling waste oil. The Stewardship Act introduced a new item 15 specifically dedicated to, among other things, "petroleum based oils … and their synthetic equivalents" other than those to be used as a fuel. A consequential amendment was made to item 11(I), as follows: Omit "Other refined or partly refined petroleum products, including mineral turpentine and lubricants (lubricant base oils), hydraulic oils, transformer oils and fuel, other than diesel, recovered by a process not being a process of refining:", substitute "Other refined or partly refined petroleum products (including mineral turpentine, fuel and other recycled product) other than diesel recovered by a process not being a process of refining and product classified to item 15 of the Schedule:". 126 This amendment, Caltex submitted, resulted in the accidental omission of the comma after the word "diesel". The removal of the comma here was said to change the whole meaning of the item, because it limited the "recycling" qualification (i.e. the phrase "recovered by a process other than a refining process") to diesel only. As there was no explanation for such a change in the explanatory material, Caltex said it must have been a drafting error. 127 At first blush it appears possible that the removal of the comma by the Stewardship Act was a mistake. However on close inspection it is evident that reinserting the comma would both distort the ordinary meaning of the sentence and introduce significant grammatical difficulties. First, the presence of the comma would mean that the introductory words "Other refined or partly refined petroleum products …" would become qualified by the phrase "recovered by a process not being a process of refining" (emphasis added). However the qualification would be contradictory and would deprive the adjectives 'refined' or 'partly refined' of any real meaning. It is not clear to me how the item would apply to a petroleum product that is "refined" or "partly refined" but which is "recovered from a process that is not a process of refining". Caltex suggested that the qualifying phrase was a reference to "recycled products". However that construction would deprive items 11(I)(2) and (3) of any meaning or operation. Item 11(I)(1) provides the relevant tariff rates for "recycled petroleum products not elsewhere specified". If item 11(I) were limited to recycled products, item 11(I)(1) would then cover all possible products falling therein, leaving pars (2) and (3) with no application at all. 128 Second, the comma would corrupt the plain and ordinary meaning intended for the concluding phrase of item 11(I) - "and product classified to item 15 of the Schedule". As enacted (without the putative comma), it is clear that the sentence is intended to exclude two classes of product from the description "Other refined or partly refined petroleum products": (1) "diesel recovered by a process not being a process of refining", and (2) "product classified to item 15 of the Schedule". That much is apparent from the way in which the intended inclusions are contained in parentheses and the exclusions follow the words "other than …". However Caltex's construction would mean that "product classified to item 15 …" would be specifically included within the item rather than excluded. This would leave "diesel" as the only exclusion, without the qualification "recovered by a process not being a process of refining". It is plain to me that the legislative intention was to exclude "product classified to item 15 …" because those products were to be dealt with under a separate item with entirely different rates of duty. The only logical reason to refer to those products in item 11(I) was because they were dealt with elsewhere and required exclusion from the catchall description "Other refined or partly refined petroleum products". Specifically including the subject matter of a separate item within the operation of a different item would not have made sense and would have confounded the application of the Schedule. Further, the exclusion of "products classified to item 15 …" from item 11(I) is consistent with other amendments made by the Stewardship Act. That Act introduced a new item 11(d) in the opening to item 11, which provided as follows: (d) other petroleum products other than products classified to item 15 of the Schedule. As a result of the Stewardship Act amendments, item 11 therefore came to include a general catchall category which expressly excluded "products classified to item 15 …." The reference to that class in item 11(I) in my view was necessary to reinforce the fact that products so classified were not also to be classified to item 11(I). 129 Third, as conveyed by the ordinary reading of item 11(I) (without the putative comma), it is consistent with item 11(C) that the qualification "recovered by a process not being a process of refining" applies only to "diesel". The qualification is first used in relation to diesel specifically, in item 11(C) which provides in part: (C) Diesel … (3) Recycled product, on which Customs or Excise duty has been paid, recovered by a process not being a process of refining Its exclusion from item 11(I) is therefore a recognition that diesel recovered by a process not being a process of refining is already dealt with by another specific item. 130 For those reasons alone, I do not accept Caltex's contention that a comma should be (re)introduced into item 11(I). This is not a case where there appears to have been a clear drafting mistake such that, if left uncorrected, the ordinary grammatical meaning of the sentence would lead to an absurdity: see Grey v Pearson (1857) 10 ER 1216 at 1234 (Lord Wensleydale); Broken Hill South Ltd v Commissioner of Taxation (NSW) (1937) 56 CLR 337 at 371 (Dixon J); see also Pearce & Geddes, Statutory Interpretation in Australia (6th ed, LexisNexis, 2006) at [2.4] and [2.24]. To the contrary, the sentence makes sense as enacted and the putative comma would serve only to obscure and distort the plain meaning. 131 In reaching this conclusion, I have also considered each of the legislative amendments and the extrinsic material referred to by both parties. It is unnecessary for me to analyse each amendment in detail. However I note that the history supports the position that the comma was intended to have been removed by the Stewardship Act. This is clear from the following: (a) The 1997 Act version of item 11(I) did not contain the qualification "recovered by a process not being a process of refining". It took the following form: (I) Other refined or partly refined petroleum products other than lubricants (including lubricant base oils), hydraulic oils, transformer oils or bitumen.

(b) The 2000 Act dealt with, among other things, the treatment of recycled products. It amended item 11 to provide in part as follows: 11 Goods as follows: (a) refined or semi‑refined liquid petroleum or shale oil products (including diesel fuel produced or manufactured by the process of refining waste oils and gasoline or diesel fuel recovered by a recycling process other than refining) but not including liquefied petroleum gas, lubricating oils (including lubricant base oils), hydraulic oils, transformer oils, bitumen or recycled products other than those recycled products specified above; … (d) lubricants (including lubricant base oils), hydraulic oils, transformer oils and fuel recovered by a recycling process.

(c) Consequently, item 11(I) was amended to: (I) Other refined or partly refined petroleum products, including mineral turpentine and lubricants (lubricant base oils), hydraulic oils, transformer oils and fuel, other than diesel, recovered by a process not being a process of refining:

(d) In that form the phrase "fuel, other than diesel, recovered by a process not being a process of refining" was an express inclusion in the class "Other refined or partly refined petroleum products". Diesel recovered by a process not being a process of refining was at the same time excluded. That result was consistent with the fact that: · "lubricants (including lubricant base oils), hydraulic oils, transformer oils and fuel recovered by a recycling process" were identified in item 11(d) and then more specifically included within item 11(I); and · "diesel" recovered by a process other than refining was specifically covered by item 11(C), and therefore required exclusion from item 11(I). (e) The Stewardship Act replaced item 11(d) as follows: (d) lubricants (including lubricant base oils), hydraulic oils, transformer oils and fuel recovered by a recycling process. (d)other petroleum products other than products classified to item 15 of the Schedule.

(f) That change necessitated consequential amendments to item 11(I). Consistently with the removal of the phrase "lubricants … and fuel recovered by a recycling process" from item 11(d) (which were now generally to be dealt with by the new item 15), the phrase "lubricants … and fuel, other than diesel, recovered by a process not being a process of refining" was removed from item 11(I). It nevertheless remained necessary to expressly exclude "diesel recovered by a process not being a process of refining", because: · "diesel fuel recovered by a recycling process other than refining" was expressly included in item 11(a) and therefore would fall within the meaning of "other refined or partly refined petroleum product" in item 11(I); but · diesel of that kind was dealt with under a specific item for diesel - item 11(C). (g) Accordingly it is evident that the comma in the former exclusionary phrase "other than diesel, …" was removed because the phrase from which "diesel" was an exclusion - "fuel … recovered by a process not being a process of refining" - was itself removed from item 11(I).

Issue 4 - were the residual oils "delivered for home consumption" by caltex? 132 Contrary to my conclusions so far, if the residual oils are "excisable goods" it becomes necessary to consider the bases for Caltex's liability under the Excise Act. Essentially, the Commissioner says that Caltex is liable either for: (a) excise duty, on the basis that it "delivered" the residual oils for home consumption and has failed to pay the requisite duty in accordance with its permissions under s 61C of the Excise Act (the "delivered" point); or (b) the amount demanded by the Commissioner pursuant to s 60 of the Excise Act, on the basis that Caltex failed to keep the residual oils safely and / or failed to account for the residual oils upon request (the "s 60" point). 133 I deal with the s 60 point below at [149]-[171]. As to the "delivered" point, the Commissioner says the liability for excise duty arises in the following way: (a) Section 54 of the Excise Act requires a licensed manufacturer of excisable goods to pay "in accordance with this Act, the Excise duty on those goods". (b) Caltex is a licensed manufacturer of the residual oils and held a permission pursuant to s 61C of the Excise Act, which: · permitted it to "deliver for home consumption" petroleum products subject to the Commissioner's control, without an entry having to be made and passed under the Excise Act; and · required it to submit a weekly return and pay excise duty in respect of all goods delivered for home consumption during the preceding week. (c) During the relevant period, Caltex delivered its petroleum products (including the residual oils) for home consumption under the authority of the permission. Caltex "delivered" the residual oils for home consumption when it dedicated them, as articles of commerce, to consumption as a refinery fuel at its premises. Accordingly, excise duty was payable in respect of those products at the rate in force at the time they were delivered (see s 59), which duty remains unpaid. 134 On that basis, Caltex's liability for excise duty depends on whether it can be said Caltex "delivered" the residual oils for or into home consumption, as that concept appears in the Excise Act (particularly ss 59 and 61C). 135 Caltex submitted that the residual oils were at no time "delivered" for home consumption because the concept of delivery in the Excise Act signifies a transfer of actual or constructive possession from one person to another. In this case, it said, there was no such transfer because it used the residual oils itself at its own premises. Caltex relied on a passage from O'Connor J's judgment in R v Lyon (1906) 3 CLR 770 (Lyon), where his Honour in the context of the customs legislation dealt with the provision for customs control over goods "until delivery for home consumption or exportation" (which provision is mirrored in s 61 of the Excise Act). His Honour stated at 784: The object of that provision, if it were necessary to give any reasons for its enactment, is obvious; if once goods go into home consumption, that is, into circulation, it becomes almost impossible to trace them. 136 According to Caltex, goods such as the residual oils which never leave its premises cannot be said to "go … into circulation" and cannot therefore have been "delivered" for home consumption. 137 As an extension of this argument, Caltex said that s 61 - which renders excisable goods subject to the Commissioner's control "until delivered for home consumption or exportation" - demonstrates that "delivery" occurs only upon an entry pursuant to s 58 or a "deemed delivery", as it put it, pursuant to s 61C. It referred to the fact that s 61 contains penalty provisions which prohibit interference with goods that are subject to control, and said that delivery for home consumption, which brings that control to an end, can only occur in a manner provided for by the Excise Act. Reliance was placed on Moama Refinery v Chief Executive Officer of Customs (2001) 115 FCR 205(Moama)where Ryan J referred to the regime in ss 58, 59, 60 and 61 and stated at [22]: There can be no suggestion, on the facts of the present case, that the subject fuel had ever been "entered" for home consumption as contemplated by s 58(1)(a) of the Act. Without such entry, or authorisation, they could not have been "delivered" for home consumption and, accordingly, by force of s 61(1) they remained subject to Customs control. 138 As the final step in its argument, Caltex submitted that s 61C (there here being no "entry" of the residual oils) makes it clear that excisable goods can only be delivered for home consumption upon being removed from the manufacturer's relevant premises. This was said to be because s 61C permits a manufacturer to "deliver for home consumption from a place specified in the permission" (emphasis added). 139 The Commissioner's submissions can be summarised as follows: (a) Upon their manufacture, Caltex did not sell or export the residual oils. It dedicated them for its own use as refinery fuel at the relevant premises. Its dedication of the oils for that use is plain on the evidence, which demonstrates that Caltex maintained and consumed the oils for that purpose. (b) The expression "delivered for home consumption" (ss 61 and 61C) is broad and should not be read down as applying only to delivery of goods between individuals or between places. Nor should "home consumption" be limited by reference to the identity of the actual consumer (i.e. whether the consumer is a third party or the manufacturer him or herself). (c) The concept of delivery for home consumption is critical to s 61(1) because it determines the period of the Commissioner's control over excisable goods. In s 61(1), the concept exists to distinguish between two places for consumption - Australia (home) or overseas (export). The use of the preposition "for" in the phrases "delivered for home consumption" and "delivered for exportation", demonstrate the section is concerned more broadly with the place of consumption rather than the transfer of possession between parties. (d) The phrase "go into circulation" used by O'Connor J in Lyon 3 CLR 770 was intended to explain the concept of home consumption not delivered for home consumption. That much is clear from the context in which his Honour used the phrase, being an explanation of the customs authorities' control over goods as a form of security until payment of the required duty. Here, Caltex's premises are in Australia and consumption of the residual oils within those premises is sufficient for the oils to "go into circulation". (e) The residual oils were delivered for home consumption in a manner provided for by the Excise Act. They were delivered pursuant to Caltex's permissions under s 61C and that delivery gave rise to a deemed entry for home consumption: see s 61C(2). Accordingly, Caltex was required as a condition of its permission to include the residual oils in its weekly return and pay the corresponding duty. 140 I agree with the Commissioner that Caltex delivered the residual oils for home consumption for the purposes of the Excise Act. The Excise Act does not refer to delivery to a person but adopts the more ample language of delivery for or into home consumption. While I accept that the typical case of delivery will involve the movement of excisable goods from one person or place to another, the language of the Excise Act is sufficiently broad in my view to apply to the less typical case of consumption by a manufacturer at its own premises. The contention that the Excise Act necessarily requires the physical removal of goods from one place to another seems to me to give the concept of delivery for home consumption a restricted meaning not warranted either by the breadth of the language used or the evident purpose of the legislation, namely to tax manufactured goods consumed in Australia. In my view the use of the words "for" and "into" demonstrates a focus by the Excise Act on the status of excisable goods (that is, their readiness for consumption) rather than whether they have necessarily been transferred between people or places. 141 Another way of considering this is by reference to s 61. Section 61 renders all excisable goods "subject to [the Commissioner's] control until delivered for home consumption or for exportation to a place outside Australia, whichever occurs first". The control residing with the Commissioner is of broad scope and is critical for the protection of the Commonwealth's excise revenue: see Lyon 3 CLR 770 and Collector of Customs (New South Wales) v Southern Shipping Co Ltd (1962) 107 CLR 279 (Southern Shipping). The section contemplates that excisable goods will be delivered for either home consumption or exportation. In my view the section evinces a legislative intention to cover the field in respect of all forms of internal (home) consumption and all exports. Historically, excise duties have been understood as running together with and supplementary to the customs duties traditionally imposed on certain goods. In Philip Morris Ltd v Commissioner of Business Franchises (Victoria) (1989) 167 CLR 399 at 427, Mason CJ and Deane J approved the following passage from Quick and Garran's Annotated Constitution of the Australian Commonwealth (1901): The fundamental conception of the term [excise] is that of a tax on articles produced or manufactured in a country. In the taxation of such articles of luxury, as spirits, beer, tobacco, and cigars, it has been the practice to place a certain duty on the importation of these articles and a corresponding or reduced duty on similar articles produced or manufactured in the country; and this is the sense in which excise duties have been understood in the Australian colonies, and in which the expression was intended to be used in the Constitution of the Commonwealth. 142 In my view it is unlikely that the concept of "home consumption" in the Excise Act would be intended not to apply to a small class of internal consumers simply because they consume their own manufactured goods. Once it is accepted that consumption in that manner is an instance of home consumption, if follows in my view that goods may be "delivered" for that purpose. 143 Contrary to Caltex's submissions, I do not accept that the reference in Lyon 3 CLR 770 to goods going into circulation necessitates a more restricted construction of "delivered for home consumption". Justice O'Connor's reference to going into circulation was used to explain how effective security over goods is lost once they have entered home consumption. His Honour was not there describing the concept of delivery nor, more importantly, intending to limit its scope. He was drawing attention to the policy of the customs legislation and the importance of the customs authorities' having a form of security over imported goods to ensure the payment of duty. I agree with the Commissioner that Caltex's dedication of the residual oils for consumption by it at its premises is sufficient, in the sense O'Connor J had in mind, for the oils to "go into circulation". 144 Similarly I reject Caltex's submission that the words "from a place" in s 61C mean that excisable goods must be removed from that place before they can be considered "delivered" for home consumption. Again, while Caltex's construction accords with what will occur in the typical case, the section is not limited to that situation. The section also accommodates and is consistent with a delivery for home consumption constituted by a use of the relevant goods at that place. Furthermore, the reference to a place in s 61C seems to me to be more concerned with the manner in which the Commissioner's control can be effectively exercised. Section 61C follows ss 61, 61A and 61B, each of which concern itself with the Commissioner's control and the granting of permissions. In the case of s 61C, it seems to me that it is a necessary or at least convenient measure in permitting deliveries into home consumption without formal entries, that such activity is authorised only in respect of certain specified premises at which the Commissioner's control and supervision can be effectively exercised. 145 For these reasons, I consider that Caltex delivered the residual oils for home consumption pursuant to its s 61C permissions. Accordingly, if I am wrong on the "refined" point, then Caltex was obliged to account for the residual oils in its weekly returns and is liable to pay the requisite duty on them. 146 One further argument in respect of the "delivery" point was advanced by Caltex. It submitted that the Commissioner had effectively conceded that the residual oils had not been "delivered" because the Commissioner requested from it an accounting for the goods pursuant to s 60 of the Excise Act. As Caltex put it, since s 60 applies only to goods "which are subject to [the Commissioner's] control" - which control ceases upon delivery for home consumption - then the Commissioner's request was an acknowledgment that the residual oils were still subject to its control and had not therefore been delivered. 147 This however is to misconstrue the section and its intended operation. Liability under s 60 is "collateral and not substitutional" for the liability to pay excise duty that may be incurred under other provisions of the Excise Act: see Southern Shipping 107 CLR at 288 (Dixon CJ); see also s 60(4) of the Excise Act. Section 60 is an alternative recovery mechanism open to the Commissioner in appropriate cases where the circumstances set out therein are met. Subject to what I say below (at [158]-[162]), it was open to the Commissioner to rely on s 60 in making the request, regardless of whether he also maintained an alternative position that Caltex was liable for excise duty having delivered the residual oils for home consumption. 148 While I was not taken to the parties' correspondence on this point in detail, I note that the Commissioner both prior to (in its Advice) and after making the request (in its objection decision) maintained a claim that Caltex had delivered the residual oils for home consumption for the purposes of s 61C. In those circumstances, I do not consider that the request amounted to any form of concession that the Commissioner accepted that the residual oils had not been delivered. In any event, a proper construction of s 60 in my view would permit the Commissioner to rely on s 60 even where the relevant excisable goods have been "delivered for home consumption", where such delivery is not accompanied by the payment of duty. For reasons I shall explain below in dealing with the s 60 point, I consider that s 60 is capable of application to excisable goods that (1) have been subject to the Commissioner's control but (2) have not been kept safely by virtue of their delivery into home consumption without the payment of duty.

issue 5 - is the commissioner's demand under s 60 valid? 149 I now turn to the Commissioner's alternative basis for Caltex's liability under the s 60 demand. The Commissioner relied on both ss 60(1)(a) and (b) in the demand. The demand stated: [Caltex] owes the Excise Collector of the Australian Taxation Office … the amount of $48,676,126.13, being the amount of the debt described in the Schedule. 150 The Schedule then described the debt as: the liability of [Caltex] under subsection 60(1) of the Excise Act 1901. The Collector's Determination under subsection 60(1) and Statement of Reasons are annexed to this Statutory Demand. 151 The "Collector's Determination" was in part as follows: In accordance with the Statement of Facts and Reasons below, the Collector has determined the following: … (2) [Caltex] failed to keep [the] excisable goods safely as required by paragraph 60(1)(a); and/or (3) when so requested by a Collector in accordance with paragraph 60(1)(b), [Caltex] failed to account for those excisable goods to the satisfaction of the Collector … 152 Caltex has sought to have the demand set aside for invalidity, on the following grounds: (a) The residual oils are not "excisable goods" and s 60 has no application to them. (b) Section 60 applies only to excisable goods that are "subject to the [Commissioner's] control". If as the Commissioner contended the residual oils were delivered for home consumption, then they were thereupon no longer subject to the Commissioner's control and s 60 does not apply. (c) Caltex did not "fail to keep [the residual oils] safely". The safety with which s 60(1)(a) is concerned is that the goods do not find their way into home consumption without the payment of duty. It is not directed at the protection of goods from damage or destruction (relying on Southern Shipping 107 CLR at 296 (Taylor J) and 299 (Menzies J)). As the residual oils were "destroyed" by Caltex and did not - and were never intended to - find their way into home consumption, there was no failure to keep them safely for the purposes of s 60(1)(a). (d) The Commissioner was not entitled to make a request pursuant to s 60(1)(b) nor to rely on that paragraph in the demand as a basis for liability. Section 60(1)(b) may only be invoked when there is doubt about the whereabouts of goods or doubt as to whether they have been kept safely (relying on Sidebottom v Giuliano (2000) 98 FCR 579 (Sidebottom)). There was no doubt as to whether Caltex had failed to keep the residual oils safely. The Commissioner was aware that the residual oils had been burnt at Caltex's refineries. In particular, he acknowledged that the residual oils had been "used to generate energy within Caltex's refineries" in the purported request he made under s 60(1)(b). (e) Even if the Commissioner was entitled to make the s 60(1)(b) request, Caltex properly accounted for the residual oils by explaining that they had been used to generate heat, which thereby demonstrated they had not gone into home consumption. (f) The demand is invalid because it claimed payment of a "debt". Liability under s 60(1) only arises upon the due making of a valid demand. Accordingly Caltex could not have owed the amount demanded prior to the making of the demand and its description as a debt renders the demand invalid. 153 As to (a), I have already held that the residual oils are not "excisable goods" and on that basis alone the demand must be set aside. However, in case I am wrong I will consider the remaining grounds. 154 In relation to (b), Caltex's submission has the effect that s 60 could only operate where excisable goods have not in fact been delivered for home consumption. The Commissioner submitted that s 60 applies whether or not goods have been delivered for home consumption. He emphasised that the purpose of the Commissioner's control over excisable goods is to ensure that duty is properly paid (relying on Lyon 3 CLR 770 and Southern Shipping 107 CLR 279) and the obligations imposed by s 60 are designed to ensure that the goods do not find their way into home consumption without proper payment (relying on Sidebottom 98 FCR 579). More particularly the Commissioner said that s 60 is aimed directly at the unauthorised relinquishment of possession, which would include delivering goods for home consumption in a manner that was not authorised, principally where there is no payment of duty. 155 It is clear that the Commissioner's control over excisable goods ceases upon the goods being delivered for home consumption (see s 61). In this case the residual oils were subject to control from the time of their manufacture or production up until they were delivered for home consumption. If I am correct in finding that they were delivered, then the Commissioner's control ceased at the time they were delivered (i.e. when dedicated as refinery fuel oil). However it is not correct to say that s 60 has no application in respect of goods over which the Commissioner's control has come to an end. The section applies where (1) a person has or has had possession of excisable goods, (2) the goods are subject to the Commissioner's control (i.e. have not been delivered) and (3) there is a failure to keep them safely or a failure to account for them. It seems to me that the requirement (2) for the goods to be subject to control is concerned with and referable to the period during which they are in the possession of the relevant person rather than the time at which the Commissioner relies on the section. The very thing the section is concerned with is the loss of goods (for example, their disappearance without adequate explanation) or the movement of goods into home consumption while subject to control and without the payment of duty. Section 60 it seems to me has no less an application to excisable goods that have ceased to be subject to control, where the cessation of that control is a result of the manufacturer delivering the goods into home consumption in an unauthorised manner. 156 Alternatively, if the residual oils were not delivered for home consumption, then they were at all relevant times subject to the Commissioner's control and Caltex's submission at (b) becomes irrelevant. 157 In relation to the failure to keep safely point at (c), the Commissioner relied on the decision of Finkelstein J in Sidebottom 98 FCR 579 and his Honour's discussion of the purposes of s 60 as explained by the High Court in Southern Shipping 107 CLR 279. What is clear from each of those cases is that s 60 imposes an essentially absolute duty to keep goods safely and to ensure they do not find their way into home consumption without the payment of duty. Where that does occur, the goods will have found their way into home consumption "irregularly", that is, in a manner not authorised by the Excise Act, and s 60 will apply in order that the revenue might be protected. The Commissioner said that the residual oils found their way into home consumption irregularly when Caltex consumed them without duty having been paid. I agree. As I said earlier, Caltex's consumption of the residual oils at its refineries amounted to "home consumption". It follows that Caltex's dedication of the residual oils as refinery fuel oil, without paying excise duty, and subsequent consumption of them by burning them, means that they found their way into home consumption irregularly. Caltex's consumption of the residual oils in this manner (by burning and thus using them up or "destroying" them) was therefore a failure to keep them safely within s 60(1)(a). As Dixon CJ said in Southern Shipping 107 CLR at 287, the safe keeping comprehended by s 60(1)(a) is the keeping safe from loss or destruction, because "the provision is pointed at the loss of goods involving the loss of excise duty". Caltex relied on the judgments of Taylor J (at 296) and Menzies J (at 299) in Southern Shipping 107 CLR 279 and their Honours' references to damage or destruction. However, their observations were directed not to a case such as the present (where the "destruction" is the consumption of the residual oils as a fuel) but to a rejection of the proposition that the section imposes a duty of care not to permit goods to be damaged or destroyed. 158 I now turn to Caltex's submission at (d). The Commissioner acknowledged that it was entitled to request an account only where the safety of the relevant goods is something less than an "undoubted" fact: see Southern Shipping 107 CLR at 305 (Owen J); Sidebottom 98 FCR 579 at [14] (Finkelstein J). It said that the section was directed to an account that shows either: · an unauthorised relinquishment of possession; · despite an unauthorised loss of possession, that the goods have not gone into home consumption without payment of duty; or · despite a failure to keep them safely, the Commissioner's control over the goods is still effective (see Southern Shipping 107 CLR at 299 (Menzies J)) 159 If it were an undoubted fact that Caltex had failed to keep the residual oils safely because it burnt them, then s 60(1)(b) would not be available to the Commissioner: Sidebottom 98 FCR 579. Conversely, if the position with respect to the residual oils was something less than an undoubted fact, it was open to the Commissioner to invoke s 60(1)(b). 160 It seems to me that it was common ground from the outset that Caltex had consumed all of the residual oils and that no duty had been paid in respect of them. The premise of the Commissioner's conclusion in the Advice that the residual oils had been delivered for home consumption and had not been accounted for (the latter of which, curiously, was not based on any request to account at that stage), was that the residual oils had been burnt by Caltex as a fuel oil. Moreover, in the Commissioner's request under s 60(1)(b) itself, he acknowledged that the residual oils had already been burnt. The only thing that could possibly have remained in any doubt was whether Caltex had paid duty, but that was not the case. The Commissioner had already stated in the Advice that "the [residual oil] that you are manufacturing is no longer present within the licensed premises and duty has not been paid". 161 In my view there was no doubt about the whereabouts of the residual oils or whether they had been, at least on the Commissioner's construction of s 60(1)(a), kept safely. This is not a case where the location of the goods (and therefore whether they had gone into home consumption) was unknown (cf. Moama 115 FCR 205), or a case where the Commissioner only had "evidence which might lead him to form the opinion that excisable goods were not kept safely" (see Sidebottom 98 FCR 579 at [16]). The facts here were clear - the residual oils had been consumed by Caltex at its premises without the payment of any duty. 162 Accordingly I do not consider that the Commissioner was entitled to make the request pursuant to s 60(1)(b): see Sidebottom 98 FCR 579 at [14]. 163 If I am wrong in that conclusion, I would reject Caltex's submission at (e) above that it had accounted for the residual oils. Its statement that residual oils were used as fuel in generating the required heat for the refineries was an accounting for their consumption, not an accounting "for the goods". It did not demonstrate that the residual oils had been dealt with in a manner authorised by the Excise Act or that, despite an unauthorised relinquishment of possession, the goods had not got into home consumption without duty being paid, or that despite a failure to keep them safely, the Commissioner's control was still effective over the residual oils: see Southern Shipping 107 CLR at 299 (Menzies J). The purported account simply recited the facts, which showed that the residual oils had not been kept safely within the meaning of s 60(1)(a). It was therefore reasonable for the Commissioner not to be satisfied that the goods had been accounted for. 164 As I have found the Commissioner was not entitled to make a request under s 60(1)(b), a question is raised as to the effect of this on the Commissioner's demand. In the demand, the Commissioner relied on Caltex's failure to keep the goods safely "and/or" its failure to account upon request. For the reasons I have given, it was not open to the Commissioner to rely on a failure to account under s 60(1)(b) to support the demand. Neither party made any submissions as to where this left the demand. 165 A similar situation arose in Moama 115 FCR 205. The Commissioner in that case issued a demand on the basis of s 60(1)(b) only, but sought at the hearing, as an alternative, to validate the demand in reliance on s 60(1)(a). After referring to Revlon Manufacturing Limited v Commissioner of Taxation (1995) 63 FCR 535 and Federal Commissioner of Taxation v Wade (1951) 84 CLR 105, Ryan J found that the demand could be justified on the basis of s 60(1)(a), even if s 60(1)(b) had not been available. His Honour stated at [40]: In my view, the amenability of Moama to the issue of a demand under s 60(1) did not depend on the exercise of any power by Customs (other than the issuing of the demand itself). It arose, as Wilcox J said in Revlon out of the operation of the Act itself. There was, accordingly, no scope for Moama to be under any misapprehension as to the basis upon which it was asked to pay duty on the subject fuel. 166 I agree with Ryan J's analysis of s 60(1). This is not a case where the Commissioner would seek to justify a demand by reference to some different, previously unraised, provision (cf. Danmark Pty Ltd v Commissioner of Taxation (Cth) (1944) 7 ATD 333; Magna Stic Magnetic Signs Pty Ltd v Commissioner of Taxation (Cth) (1989) 20 ATR 1237). This is a case where the Commissioner has relied, albeit erroneously in part, on two grounds under the same provision. The taxpayer was not under any misapprehension as to the alleged basis for its liability and in my view the demand was valid to the extent that it relied on s 60(1)(a) as a basis for Caltex's liability. 167 Finally, as to Caltex's submission at (f), I do not consider that the demand was invalid because it claimed payment of a "debt". The reference by the Commissioner to a "debt" was not a reference to an antecedently existing obligation. It was a clear reference to the obligation on Caltex under s 60(1) to pay "an amount equal to the amount of the Excise duty which would have been payable on [the residual oils] if they had been entered for home consumption" on the day of the demand. The "demand" consists of the formal demand itself, a schedule, a determination, a statement of reasons and an "Attachment A", which sets out Caltex's options and time limits. When read as a whole these documents make it abundantly clear that Caltex's liability under the demand is that arising under s 60(1) of the Excise Act. For example, par 11 of the statement of reasons states: As a result of the company's failure to keep the relevant goods safely as required by paragraph 60(1)(a), and/or the company's failure to account for those goods to the satisfaction of the Collector, as required by paragraph 60(1)(b), the company is liable, pursuant to subsection 60(1), to pay to the Commonwealth, in accordance with the enclosed Statutory Demand, an amount equal to the amount of the excise duty which would have been payable on those goods. (Emphasis added.) 168 Accordingly the word "debt" in pars 1 and 2 of the demand, as well as the Schedule, is no more than a shorthand way of describing the amount payable by Caltex under s 60(1), namely the relevant "amount equal to the amount of the Excise duty which would have been payable …". 169 Further, s 60(2) provides that "[a]n amount payable under subsection (1) … shall be a debt due to the Commonwealth and may be sued for and recovered in a court of competent jurisdiction …". There is nothing in ss 60(1) or (2) that prevents the making of a demand itself giving rise to a debt. The subsections do not comprehend two steps - the making of a demand followed by the crystallisation of a debt. The proper reading of the subsections is that the making of the demand gives rise to a debt uno flatu. On that basis the description of the amount owed as a "debt" at the time the debt arises does not assert an obligation existing before the demand. 170 In any event, even if there is a choice to be made between a construction that gives effect to the demand and one which renders it invalid, I consider that the former should be chosen. Where two constructions of an instrument are equally plausible, upon one of which the instrument is valid, and upon another of which it is invalid, the court should lean towards that construction which validates the instrument: see Langston v Langston (1834) 2 Cl & Fin 194; 6 ER 1128 at 1147; In Re Solomon; Solomon v Solomon [1946] VLR 115 at120-121; Multiplex Constructions (UK) Limited v Honeywell Control Systems Limited (No. 2) [2007] EWHC 447 at [57]. 171 Further, it seems to me doubtful that invalidity would necessarily follow if Caltex's construction of the demand were adopted. By analogy with the approach taken in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [93], I would ask whether it was a purpose of s 60(1) that to wrongly describe "an amount equal to the amount of the Excise duty which would have been payable …" as a debt, when it is quite clear what is being demanded and why, should result in invalidity. Caltex did not advance any argument as to why such an error should result in invalidity, whether on a Project Blue Sky approach or otherwise.

conclusion 172 As I have found the residual oils not to be "refined" or "semi-refined" products, they are not subject to excise duty under item 11 of the Tariff Act. Accordingly the Commissioner's objection decision the subject of the tax appeal must be set aside, together with the demand made by the Commissioner pursuant to s 60(1) of the Excise Act. The Commissioner should pay Caltex's costs of the tax appeal. 173 The s 39B proceeding is in substance dealt with by the result of the tax appeal. But for the agreement referred to at [44] it would have been necessary to fashion orders dealing with the numerous declarations contained in the application. The applicant would have obtained ten of the declarations. The Commissioner would have successfully resisted five other declarations. In the circumstances, the appropriate order is that the proceeding be dismissed and the applicant recover 66 per cent of its costs. I certify that the preceding one hundred and seventy-three (173) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg.

Associate: Dated: 19 December 2008 Counsel for the Applicant: JW de Wijn QC and FJ Alpins

Counsel for the Respondent: P Hanks QC, P Sest and R Sallis

Solicitor for the Respondent: Australian Government Solicitor