Commissioner of Taxation v Ergon Energy Corporation Ltd

REASONS FOR JUDGMENT Introduction 1 On 19 November 1999 and 27 April 2001 Ergon Energy Corporation Ltd (EECL) made applications to the Commissioner of Taxation (the Commissioner) for rebates of excise duty on diesel fuel used in operating generators to provide electricity to communities on islands in the Torres Strait. In claiming the rebates EECL argued that the diesel fuel which it had purchased was intended for use by it at residential premises on the islands to generate electricity for domestic purposes and at hospitals, nursing homes and aged persons homes. 2 The rebate claims were refused by the Commissioner and EECL lodged applications with the Administrative Appeals Tribunal (the Tribunal) seeking review of the Commissioner's decision. Applications were lodged in respect of some 17 island communities. 3 The Tribunal heard the reviews relating to four of those islands, namely Gununa (Mornington Island), Mabuiag Island, Mer (Murray Island) and Thursday Island. It upheld the applications, set aside the Commissioner's decisions and remitted the matter for determination of the claims in light of its reasons. 4 The Commissioner has now appealed against the Tribunal's decision. For the reasons which follow, I am satisfied that the Tribunal erred in law and that EECL as a supplier of electricity to communities in North Queensland, did not fall within the rebate provisions of the Excise Act 1901 (Cth). On that basis the appeal will be allowed, the decisions of the Tribunal set aside and in lieu thereof orders made dismissing the applications for review of the Commissioner's decisions. Factual and Procedural Background 5 There are some 33 small communities in Queensland including 24 in the Gulf of Carpentaria and the Torres Strait Islands which depend for their electricity supplies upon diesel-powered generators. Generators were installed at a number of Torres Strait Island communities in 1993 by the Queensland Electricity Commission (QEC). Those islands were Bardu, Boigu, Coconut, Darnley, Duan, Hammond, Moa, Mabuiag, Saibai, Stephen, Warraber, Yam and Yorke. Another Queensland government instrumentality known as the Far North Queensland Electricity Board (FNQEB), established under the Electricity Act 1977 (Qld), erected poles and power lines to reticulate the electricity where generators were installed. 6 Following the installation of the generators at the Torres Strait Island communities, FNQEB assumed ownership and control of the generators and responsibility for their operations and for the supply of electricity to the residents and other uses at the island communities. This arrangement continued until 31 December 1994. 7 On 1 January 1995 FNQEB was 'privatised' and became Far North Queensland Corporation (FNQEC), a subsidiary of Queensland Transmission Supply Corporation (QTSC) which was owned by the State of Queensland. This occurred under the Government Owned Corporations (QTCS Corporatisation) Regulation 1994. 8 On 1 July 1997 a further restructuring occurred under the Government Owned Corporations (QTCS Restructure Stage 2) Regulation 1997. FNQEC became Far North Queensland Electricity Corporation Limited (FNQEC Limited), a corporation registered under the Corporations Law. It retained ownership of the generators and purchased diesel fuel for use in their operation. North Electricity Retail Corporation Pty Ltd (NERC) took on responsibility for the supply of electricity to residents and other users at remote communities. NERC was owned by FNQEC Limited and two other corporations which were in turn owned by the State of Queensland. 9 From April 1998 the Central Electricity Retail Corporation Pty Ltd, which is now known as Ergon Energy Pty Ltd (EEPL) took over the function of NERC in supplying electricity to remote communities. FNQEC continued to own and operate the generators and to purchase diesel fuel for use in their operation. This structure continued until 30 June 1999. 10 On 30 June 1999, pursuant to a scheme of arrangement approved by the Supreme Court of Queensland, FNQEC Limited was deregistered, EECL assumed the assets and undertakings of FNQEC Limited and the five other corporations. EEPL became wholly owned by EECL, which in turn was from that time owned by Queensland Government Ministers on behalf of the State of Queensland. EECL assumed responsibility for the operation of the generators and purchased diesel fuel for use in their operation. It continued to be responsible for the supply of electricity to the residents and other users. That structure has continued since 30 June 1999. 11 In addition to the Torres Strait Island communities already mentioned, EECL is also responsible for the generation of electricity supplied to residents and other users at Thursday Island in the Torres Strait. It generates the electricity using diesel fuel generators located at Thursday Island and purchases the diesel fuel for their use. The generators on Thursday Island are located on land which is registered in the name of FNQEB. The electricity they generate is supplied to residential premises and other users on the island including the hospital and aged care facility. 12 EEPL charges residents and other users for electricity supplied to them at Thursday Island and other remote communities. The amount of the charges is determined by the Minister pursuant to s 90 of the Act. There is an intra-group charge from EECL to EEPL for the electricity supplied to the communities. 13 On 19 November 1999 EECL lodged an application with the Australian Taxation Office claiming a rebate of excise duty on diesel fuel used in operating generators at Gununa on Mornington Island to provide electricity for residential premises and hospital and aged care premises. Applications were lodged on 13 July 2000 seeking similar rebates in respect of Mabuiag, Murray and Thursday Islands and others in the Torres Strait. The periods covered by the claimed rebates were between 20 November 1996 and 9 April 2000. 14 The application for a rebate in respect of Gununa on Mornington Island was refused by the Commissioner on 8 December 2000. The remaining applications for 16 island communities were refused on 27 April 2001. The reasons for the refusals in respect of those communities were the same as those given for refusing the Gununa rebate. 15 On 8 January 2001 EECL lodged an application with the Tribunal seeking review of the decision given on 8 December 2000 refusing a rebate in respect of diesel fuel purchased for the Gununa community power station. On 16 May 2001 a further application was lodged with the Tribunal seeking review of the decisions given on 27 April 2001 in respect of other islands in the Torres Strait. 16 In the event the Tribunal's review related to diesel fuel rebates claimed in respect of the communities at Gununa (Mornington Island), Mabuiag Island, Murray Island and Thursday Island. The diesel fuel was purchased for the generation of electricity at Gununa during the period 20 November 1996 to 30 June 1999 and at Mabuiag, Murray and Thursday Islands from 10 June 1997 to 7 April 2000. It seems that these islands were taken as representative samples of the kinds of island communities involved in EECL's applications to the Tribunal. 17 The applications in respect of the four communities were heard together on 7 and 8 April 2003 and a decision given on 18 November 2003. The Tribunal upheld EECL's application. It expressed its formal decisions thus: 'The Tribunal decides: (a) to set aside the decision under review; (b) the matter is remitted to the respondent to determine the claims in the light of the Tribunal's reasons for decision; (c) these proceedings have terminated in a manner favour (sic) to the applicant; and (d) liberty to apply is reserved to both parties.' There were four decisions so expressed, one in respect of each of the matters before the Tribunal. 18 On 13 February 2004 the Commissioner lodged an appeal in the original jurisdiction of this Court against the Tribunal's decisions. The appeal was heard by Cooper J on 11 October 2004. Sadly his Honour died before delivering judgment. The appeal has therefore come on for rehearing before me. Statutory Framework 19 Section 78A(1) of the Excise Act and s 164(1) of the Customs Act 1901 (Cth) both provided, at the material times, for a rebate payable to a person who purchases diesel fuel for use by the person. Section 78A(1) of the Excise Act provides: '(b) at residential premises to generate electricity for use in: (i) providing food and drink for; (ii) providing lighting, heating, air conditioning, hot water or similar amenities for; or (iii) meeting other domestic requirements of, residents of the premises; (c) at a hospital or nursing home or at any other institution providing medical or nursing care; or (d) at a home for aged persons.' 20 The term 'use' is defined in s 164(7) of the Customs Act as not including the sale or other disposal of diesel fuel by the person to another person or the loss of the diesel fuel by the person. Section 164(7) also defines residential premises as follows: 'residential premises means: (a) premises used as a house; or (b) other premises at which at least one person resides; but does not include: (c) premises used in the business of a hotel, motel or boarding house or a similar business; (d) premises used as a hospital or nursing home or as any other institution providing medical or nursing care; (e) premises used as a home for aged persons; or (f) premises used as a boarding school.' The Tribunal's Reasons for Decision 21 The Tribunal referred to the history of electricity supply arrangements for island communities in Northern Queensland. There was no dispute that EECL and its predecessors purchased diesel fuel to power generators located on each of the islands and that an unascertained portion of the fuel purchased was used to generate and supply electricity to residential premises located on each of them. Nor was there any dispute that electricity was generated and supplied for use by hospitals and/or medical facilities on Mornington Island, Mabuiag and Thursday Island and for aged care facilities on Mornington Island and Thursday Island. The Tribunal found that EECL was obliged to sell electricity to each of the customers on the islands pursuant to s 49 of the Electricity Act 1994 (Qld) (the Act) at the same rates charged throughout Queensland. Those are rates determined by the Queensland Government. Electricity use is charged to residents on a pre-paid encoded card system. 22 The Tribunal then made findings of fact in respect of the supply of electricity on each of the islands the subject of the applications. These findings may be summarised as follows: