Commissioner of Taxation v Ostwald Bros Civil Pty Ltd

Relevant provisions of the EGCS Act 8 The scheme of the EGCS Act is to provide "energy grants" (in effect rebates on diesel fuel purchases) to those entitled to (relevantly for the present case) "off-road credits". 9 By s 53, an applicant is entitled to an off-road credit for purchase of diesel fuel for a use "that qualifies". One such use is "mining operations": s 53(2). 10 The term "mining operations" is defined in s 11 relevantly as follows (emphasis in italics added): (1) Subject to subsection (2), the expression mining operations means: (a) exploration or prospecting for minerals, or the removal of overburden and other activities undertaken in the preparation of a site to enable mining for minerals to commence; or (b) operations for the recovery of minerals, being: (i) mining for those minerals including the recovery of salts by evaporation; or (ii) the beneficiation of those minerals, or of ores bearing those minerals; and includes: (c) a mining transport activity; or (d) a mining rehabilitation activity; or (e) a mining water activity; or (f) a mining construction activity; or (g) a mining waste activity; or (h) a mining vehicle activity; or (i) a sundry mining activity. (2) The expression mining operations does not include: (a) quarrying or dredging operations to the extent that the purpose of the operations is to obtain materials for use in building, road making, landscaping, construction or similar purposes; or (b) the use of a vehicle (other than a fork lift, front end loader, tractor or other similar vehicle that is specified in the regulations) not exceeding 3.5 tonnes gross vehicle mass, other than such a vehicle that is extensively modified for use underground while it is so used; or (c) the transport, by any means, of people, equipment or goods to or from a place where a mining operation referred to in any of the paragraphs in subsection (1) is, or is to be, carried on, or to or from a place adjacent to that place, other than such transport to the extent that it constitutes the activity described in: (i) the definition of mining transport activity in section 12; or (ii) paragraph (c) of the definition of mining water activity in section 14; or (iii) paragraph (a) of the definition of mining waste activity in section 16. Note: Examples of quarrying or dredging operations that are covered by paragraph (a) include operations for obtaining materials for use as concrete aggregate, road base materials, railway ballast, fill materials, building stone or monumental stone. (3) For the purposes of the definition of mining operations, operations for the recovery of a mineral cease: (a) when the process of beneficiation ceases; or (b) in the absence of a beneficiation process - when the mineral, or ores bearing the mineral: (i) are first stockpiled or otherwise stored at the place at which the mining operation is carried on; or (ii) if subparagraph (i) does not apply - are removed from the ore body or deposit. (4)… (5)… (6)… (7) For the purposes of determining whether an operation is a mining operation: (a)… (b) paragraphs (1)(c) to (i) and (2)(a) to (c) are, subject to subsections (3), (4) and (5) and paragraph (a) of this subsection, to be construed in their own terms and not by reference to paragraph (1)(a) or (b). 11 "Mining transport activity" is defined in s 12 as follows: The expression mining transport activity means: (a) if minerals, or ores bearing minerals, are beneficiated at a place other than the mining site as an integral part of operations for their recovery: (i) the journey undertaken for the purpose of transporting the minerals or ores from the mining site to that place; and (ii) the return journey of a vehicle, a locomotive or other equipment from that place to the mining site or any part of that journey if it is undertaken for the purpose of repeating a journey referred to in subparagraph (i) or for the backloading of raw materials or consumables for use in a mining operation referred to in paragraph (a) or (b) of the definition of that expression in subsection 11(1); or (b) if natural gas is liquefied at a place other than the mining site - the transporting of the natural gas from the mining site to that place. 12 It is not in dispute that coal is a "mineral". The terms "mining" and "site" are not defined in the Act. The Macquarie Dictionary defines "mining" as: The action, process, or industry of extracting ores, etc, from mines. "Mine" in the same authority has a number of meanings, those relevant being: 1. An excavation made in the earth for the purpose of getting out ores, precious stones, coal, etc. 2. A place where such minerals may be obtained, either by excavation or by washing the soil. A relevant definition of "site" is: The area on which anything, as a building, is, has been or is to be situated.

The Tribunal's decision 13 After reviewing a number of authorities the Tribunal referred to the evidence of the respondent's expert witness Dr Eugene Gallagher. The Tribunal had earlier noted and accepted Dr Gallagher's evidence that the line was an essential part of the infrastructure for the mine development because it is the means by which the product coal is moved from the mine to the port. 14 The Tribunal returned to Dr Gallagher's evidence in these terms: 43. It is then necessary to consider the role played by the rail line in the overall operation of the mine. The evidence of Dr Gallagher refers to the rail line as being "an essential part of the infrastructure for the mine". That view, which was not challenged, accords in any event with common sense. The operations of a mine do not cease at the point where the product is brought to the surface. They must, necessarily, extend to the operations involved in transporting the product away from the mine site. Dr Gallagher describes this aptly as the "coal chain". It would be entirely unrealistic to regard a mine site without any means of economic removal of the product of mining as one where mining was able to commence, a fortiori in the case of an open cut mine. Thus, as Dr Gallagher puts it, the rail line is "core infrastructure to the operation". 15 After referring to evidence of an Xstrata press release which "emphasized" the "integral role" of the rail line the Tribunal concluded: 48. Given the importance of the rail line as an essential part of the core infrastructure of the mine development I am satisfied that the construction of the rail line and its access road was an activity undertaken in preparation of the Rolleston coal line [sic - mine?] and that it was an activity to enable mining to commence at the mine.

Error of law 16 The Tribunal asked itself the wrong question. The issue under the Act was not whether the line and road were "essential" or "integral" to the commercial operation of the Rolleston coal mine. No doubt they were. It hardly needs expert evidence to conclude that one cannot operate a commercially viable coal mine in Central Queensland without some means of transporting the coal to the coast. But that is not the criterion specified by the Act for entitlement to the benefits it provides. 17 Broadly speaking, par (a) of s 11(1) deals with preparatory activities before actual mining starts and par (b) with certain operations which occur once the mine is a going concern, that is to say, once mining has "commence(d)". Subsection (3)(b) marks out a physical or geographical limitation to "mining operations" for the purposes of the Act. Where, as in the present case, there is no off-site beneficiation, indeed no beneficiation at all, "mining operations" cease at the mine site. 18 The respondent accepted that the line and the road were not the "site" within the meaning of s 11(1)(a). Activities "in" the preparation of the site must refer to actual physical work which is done as part of the preparation of the site. The statute does not extend to activities "in connection with" or "for the purpose of" such preparation. 19 The expression "other activities" takes flavour from its association with "removal of overburden". One starts with "exploration or prospecting" which obviously enough would usually not be confined to the mine site ultimately selected. When that site is identified, work would necessarily have to be done on it before mining could commence. One kind of work would be that specifically referred to: removal of overburden. Other examples spring to mind: removal of trees and other vegetation, diverting or damming watercourses, construction of internal roads on the site. An essential element is that the activity is in preparation of the site, not activity directed towards transporting the product of the mine once the site has been prepared and the mine is in operation.

Authorities on diesel fuel rebate legislation 20 The predecessor of the EGCS Act has been the subject of three previous Full Court decisions. As will be seen, their precedential value is lessened by the substantial changes to the legislation that have occurred. Moreover, a Second Reading speech reveals an unusually explicit avowal of Parliamentary intention to overcome what were regarded as misinterpretations of legislative intention by the Federal Court and the Administrative Appeals Tribunal. In fairness to the Tribunal, it should be noted that this legislative history was not drawn to its attention. 21 In Regional Director of Customs (Western Australia) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108 at 120 the Full Court held that the point where a mining operation starts and finishes will be a question of fact to be decided in each case. The Court "should not adopt a narrow view of the extent of 'mining operations' so as to frustrate the legislative intent of providing a concession to the mining industry". Relevant to this factual conclusion will be the ascertainment of "the object of the particular taxpayer's operations". Generally the mining operation "will continue until there has been produced that which is the object of the particular taxpayer's operation of mining". 22 The next case, Chief Executive Officer of Customs v Dyno Wesfarmers Limited (1997) 73 FCR 1, was relied on by the present respondent for the proposition that it did not matter that activities took place away from the site. In Dyno Wesfarmers the taxpayer operated purpose built trucks which carried the ingredients for explosive charges. The vehicles travelled for long distances over public roads from the respondent's base in Kalgoorlie to mine sites. On reaching a mine a device on the back of the vehicle would mix the amount of ingredients needed for each particular explosive charge. 23 The Full Court upheld the decision of the Administrative Appeals Tribunal that the respondent was entitled to a diesel fuel rebate under s 164(1) of the Customs Act 1901 (Cth), a predecessor in this regard to s 11 of the EGCS Act. The Full Court at 7 rejected the argument that "mining operations" were limited to a particular site. Their Honours at 8 held it was open to the Tribunal to conclude that the use of the respondent's vehicles was "good mining practice… and… a feature of, a part of the process of, mining in the Kalgoorlie area". 24 However, the definition of "mining operations" applicable in Dyno Wesfarmers was significantly different from s 11(1)(a). The Customs Act definition was (emphasis added): exploration, prospecting, or mining for minerals, or the removal of overburden and other activities undertaken in the preparation of a site to enable mining for minerals to commence… The issue before the Full Court was whether the use of the respondent's vehicles was "mining for minerals", an expression which has no equivalent in the present Act and which was plainly not confined to activities on the mine site. 25 The third Full Court decision, Chief Executive Officer of Customs v WMC Resources Limited (1998) 87 FCR 482, also concerned s 164 of the Customs Act. Natural gas was extracted from the East Spar gas field off the West Australian coast and transported by a pipe line to Varanus Island for further processing. By the time the case got to the Full Court the case was confined to fuel used in the transport of materials from the coast to Varanus Island for the construction of the processing plant there. The Tribunal held no rebate was allowable. Lee J set aside that decision. By a majority (Carr and R D Nicholson JJ, French J dissenting) the Full Court upheld the appeal of the CEO of Customs. In contrast to Dyno Wesfarmers, the case turned on the "other activities" limb of the definition of "mining operations". 26 R D Nicholson J at 505 held that the provision was confined to acts of preparation and "not acts preparatory to enabling such acts to occur". In reference to a statement by Lee J that "acts of preparation of a site referred to in the definition are not restricted to acts on the site" his Honour at 505 pointed out that the statement from Dyno Wesfarmers cited by Lee J in support of that view was concerned with the "mining for minerals" limb of the definition. R D Nicholson J at 506 accepted Lee J's view that "to enable mining for minerals to commence" suggests "a broader scope than acts of disturbance or excavation of land". However, importantly for the present case, his Honour went on to say: Accepting, as I consider the law requires, that "mining for minerals" is to be given a broad construction, that must necessarily be the case. Thus the expression missing from the present Act was essential to R D Nicholson J's reasoning. 27 R D Nicholson J concluded at 507 that it was open to the Tribunal to find that the relevant site included the production wells, the pipeline to Varanus Island and the processing facilities on the Island. However, the act of transportation was not an activity undertaken in preparation of that site. It was "an act preparatory thereto". 28 Carr J at 499 held that it was open to the Tribunal to find either that the transport services were "other activities in the preparation of the site" or not. The finding was the result of a process "involving evaluation". His Honour "happen(ed) to agree with (the Tribunal's) conclusion, in this case, that the transport services did not have sufficient nexus to preparation of the site to be characterised as 'other activities in the preparation of a site'" although the opposite conclusion was "equally tenable". The Tribunal had understood the relevant legal principles and asked itself the right questions. 29 French J at 494 thought that the reference to removal of overburden did not limit the class of "other activities" to physical interventions at the mine site. His Honour (contrary in this respect to Carr J) at 495 read the Tribunal's reasons as not referring to the "other activities" limb. His Honour, in concluding that transportation of the material was part of the preparation of the site, said at 495: The "site" in this case is extended in space because of the offshore location of the wells. As his Honour said, the reference in the definition to a "site" does not involve a term of restricted meaning. In context it refers to the area or location utilised for the mining of minerals. And acts of preparation of a site are not to be restricted to acts on the site. The references to "exploration" and "prospecting" are inconsistent with the limitation of operations to a place such as a mining site. There is no principle of law or fact that mining operations are limited to the space of a mining site or the dimensions of a mining tenement: Dyno Wesfarmers Ltd at 7. 30 Whatever be the ratio decidendi of WMC Resources it was clearly decided that the "site" for the purposes of the applicable provision included Varanus Island. As already mentioned, it is not suggested in the present case that the respondent's rail line and road were the site, or any part thereof. We would respectfully disagree with French J's view that "other activities" is unlimited in the way he suggests. WMC Resources and Dyno Wesfarmers both have to be read in the light of the provision there under consideration which included the broad concept of "mining for minerals".

Legislative history 31 Diesel fuel rebates were first introduced by the Diesel Fuel Taxes Legislation Amendment Act 1982 (Cth). Subsequent amendments were made by the Customs and Excise Legislation Amendment Act 1995 (Cth) Sch 1 item 7 and the Customs and Excise Legislation Amendment Act 1997(No 1) (Cth). The current Act, the EGCS Act, came into force on 27 June 2003. 32 The 1997 Act amended the relevant provision of the Customs Act by removing the expression "or mining for minerals" and inserting what are now s 11(1)(a) and (b) of the present Act. The present Act introduced the various specific mining activities ("mining transport activity", "mining rehabilitation activity" etc) in s 11(1)(c) to (i). 33 In the second reading speech for the Bill containing the 1997 amendments (Australia, House ofRepresentatives, Debates (1996) Vol HR210, p 8429) it was said (emphasis added): There have been several decisions in recent times which have had the effect of expanding eligibility under the scheme beyond what the government believes was intended, with consequent effects on outlays. In some areas, the potential financial impact of decisions is very significant. The particular amendments will ensure the continuation of rebate for diesel fuel used in carrying out mining activities but will preclude from eligibility certain activities, best described as undertaken for economic-marketing reasons, rather than the physical extraction of minerals, and activities which essentially involve the transport of inputs-materials for mining or beneficiation. The government's clear intention is that rebate paid under the legislation should be confined to the narrow definition of eligible activities in the legislation - that is, the intention is not that the legislation be defined broadly and beneficially. The amendments proposed in this bill are designed to tighten and narrow eligibility. It is the government's intention to continue to adopt such an approach in the face of any future broadening. The most significant decision which has potential for expansion in eligibility related to an appeal by Dampier Salt (Operations) Pty Ltd against a decision of the AAT in relation to the point at which payment of rebate on the recovery of salt ceases. The Full Federal Court's judgment is considered to be the most far reaching ever delivered in relation to the diesel fuel rebate scheme. It represents a fundamental shift from a scheme based on the concept of an activity, in this case mining, being regarded as a physical act, that is the extraction of a product from the ground, to a concept of the activity being an economic one. The Federal Court found that even though Dampier Salt's product could be sold in the condition it was in at the first stockpile, it was uneconomic for the company to do so. It was only economic to sell into the market it actually supplied. The court determined the second stockpile activities were so closely related to the process of extraction of salt from the brine in which it was embedded, that they fell within the concept of mining operations. The government has never intended to pay rebate to these types of operations. The amendments to the definitions, particularly beneficiation, make it clear that the physical act of mining or beneficiation is eligible for rebate. It ensures that payment of rebate does not extend to activities involved in getting the product to the marketplace, such as the broad economic factors which were the basis of the full Federal Court judgment. 34 Specific reference was made to transport operations. The speech continued: Several other recent decisions addressed what might essentially be categorised as transport activities. The only transport activities intended to be covered are the transport of minerals and ores for beneficiation at facilities remote from the place at which mining activity is carried out, and certain activities specifically provided for. Amendments were made to the act in 1995 and 1996 to ensure that activities "connected with" mining were no longer eligible for rebate. The interpretation of the so-called "sweeper clauses" had been a source of contention over the years and generated most of the litigation under the scheme. These clauses were replaced with an objective list of activities that are eligible for rebate. In the decision of Dyno-Westfarmers the AAT found that driving explosive trucks over an average distance of 150 kilometres each way between the explosives depot and the mine sites was either "mining for minerals" or "the preparation of a site to enable mining for minerals to commence", as those long journeys were "an integral part of this activity". The government considers that it is wrong to apply the concept that an activity is eligible for rebate because it is integral to another eligible activity. It is the intent of the diesel fuel rebate scheme to pay rebate only on those activities that are explicitly mentioned in the legislation and not to activities that are said to be integral to, associated with or connected with these activities. The amendments are necessary to put the intent of the scheme beyond doubt. The approach adopted by the AAT in the Dyno-Westfarmers case would defeat the purpose of the amendments made in 1995 which removed the "connected with" sweeper clauses. 35 Although, as we have pointed out, s 11(1)(a) does not contain the broader concept inherent in the phrase "mining for minerals" in the introductory part of the definition of "mining operations", the respondent contends that the works described at [5] were other activities undertaken in preparation of a site to enable mining for minerals to commence. The respondent contends in reliance upon the evidence of Dr Gallagher that "the practical completion (of the works) signalled the commencement of operations at the mine". Thus, these activities were the enabling event for the commencement of coal extraction. 36 Although it is clear that the activities described at [5] were an integrated part of the overall infrastructure of the mine development, those activities enabled the transportation of coal from the mine site to the Port of Gladstone rather than the commencement of mining for minerals. There is therefore no relevant relationship, for the purposes of the section, between the activities and the commencement of mining for minerals. 37 In the present case the rail line and road were necessary in the commercial and marketing sense to "enable" mining for minerals to commence. But they were not activities undertaken in the physical preparation of the site. The proposed transport of coal along the line was not a "mining transport activity" within the meaning of the Act since coal would not be transported for the purpose of beneficiation at a place other than the mine site. The restricted definition of "mining transport activity" is consistent with a legislative policy to confine the benefits of the Act to mining regarded as a physical act of extracting minerals and only in specific cases, such as of off-site beneficiation, to allow for activities outside the mine site itself. 38 The appeal must be allowed.

Orders 39 There will be the following orders: 1. The appeal be allowed. 2. The order made by the Administrative Appeals Tribunal on 13 September 2007 be set aside. 3. The application by Ostwald Bros Civil Pty Ltd as trustee for Ostwald Bros Family Trust for review by the Tribunal of the decision of the Delegate of the Commissioner of Taxation made on 10 April 2006, disallowing energy grants credit in respect of the construction of a rail line and access road to carry minerals from a mine site to a port, be dismissed. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Heerey, Gyles & Greenwood.

Associate: Dated: 11 June 2008 Counsel for the Applicant: D Boddice SC and F Redmond

Solicitor for the Applicant: Australian Government Solicitor

Counsel for the Respondent: P J Dunning SC and D W Marks