Decision impact statement
Cooper Bros Holdings Pty Ltd trading as Triple R Waste Management v Commissioner of Taxation
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 AATA 99
(2013) 93 ATR 324
Venue: Administrative Appeals Tribunal
Venue Reference No: 2011/3815
Judge Name: F J Alpins, Deputy President
Judgment date: 26 February 2013
Appeals on foot: No.
Decision Outcome: Adverse
Impacted AdviceRelevant Rulings/Determinations:
- ER 2012/1
- PGBR 2012/1
- ATO ID 2011/68
- ATO ID 2009/122 (the note to this ATO ID only)
- ATO ID 2007/139
- ATO ID 2007/28 (the note to this ATO ID only)
Manufactured or produced
Liquid hydrocarbon derived through a recycling, manufacturing or other process
Product Stewardship Oil (PSO) scheme
Fuel tax credits
Whether AAT can have regard to material other than in a notice of private ruling
Outlines the ATO response to this case which concerned whether or not the taxpayer was manufacturing excisable goods when it applied a filtering and de-watering process to 'used oil' collected from a variety of sources.
Brief summary of facts
The taxpayer collects used oils drained from automotive sumps, machinery and transmissions serviced in mechanical workshops and industrial engineering workshops. The used oil is "quite suitable as fuel oil" at the time it is drained from an automotive sump. When the oil is drained from automotive sumps, it may contain microscopic particles of metal from friction wear and traces of unignited fuel, condensed moisture and glycol coolant.
Prior to collection, the used oil is stored in vessels where it may become further contaminated by sludge, redundant fuel, used glycol coolant and various other prescribed waste substances. In many cases, foreign objects such as nuts, bolts, rags, gloves and other matter become deposited with the oil in the storage vessels.
Drivers of collection vehicles are trained to extract the used oil out of the storage vessels to the approximate 'free water' point. The oil is passed through two separate filters, one (a coarse mesh filter) at collection point and the other (a 'filter sock or bag' with a nominal rating of 400 micron) at the taxpayer's depot.
At its depot, the taxpayer uses steam to raise the temperature of the used oil until it begins to 'simmer' (in order to accelerate the separation of substances of different relative density). The steam is not in direct contact with the used oil and it cannot react with the used oil and break down any molecular bonds.
After the used oil has been heated and cooled, it is still dark brown or black, has the same viscosity, and contains the same chemicals, additives, friction modifiers and other ingredients as it had when it came out of the sumps of the vehicles it was derived from. It is suitable as a burner or furnace fuel, but is not suitable for use as fuel in an internal combustion engine.
Issues decided by the tribunal
The primary issue decided by the Tribunal was whether the used oil that had been subjected to the filtering and de-watering processes undertaken by the taxpayer was:
- 'manufactured or produced' by the taxpayer for the purposes of subsection 5(1) of the Excise Tariff Act 1921 (the Tariff Act); and
- a 'liquid hydrocarbon product derived through a recycling, manufacturing or other process' for the purposes of item 10(d) of the Schedule to the Tariff Act.
If (as the Commissioner contended) the oil met both of these descriptions, it would be subject to excise duty.
The Tribunal also considered whether it could have regard to particular information which was not contained in the notice of private ruling, including information that the Commissioner had regard to pursuant to section 359-65 in Schedule 1 to the Taxation Administration Act 1953 (the TAA) in making his objection decision.
Manufactured or produced
The Tribunal, citing Sundberg J in Caltex, stated that the question of whether goods have been 'manufactured' or 'produced' for the purposes of subsection 5(1) of the Tariff Act "is to be answered according to the ordinary meaning of those words".
The Tribunal further stated that:
... the critical question is whether the [end product] is relevantly different from the used oil in terms of its physical characteristics or utility...
In relation to differences in utility, the Tribunal said of a passage from 5 Star Foods to which the Commissioner's submission referred, that it did:
not understand this passage to suggest that improving the existing utility of goods so that they become saleable in itself amounts to a difference in their utility such that they could properly be said on that account to have been "manufactured".
The Tribunal proceeded to state that: [t]he true question is whether the goods inherently have a different utility from that out of which they were made.
The Tribunal concluded that the end product (which it referred to as the 'fuel oil') was not manufactured or produced by the taxpayer, noting that it was:
not relevantly different from the used oil in either its physical characteristics or in its utility. Although some water and contaminants have been removed, the fuel oil is essentially the same thing as it was before. The used oil is, as described in the scheme, "quite suitable as fuel oil". The fuel oil has not been "brought into useable form"; rather, it is merely better able to be used for the same purpose...
I do not consider that the fact that the fuel oil has had some water and some other contaminants removed constitutes a relevant difference between the fuel oil and the used oil in terms of their essential physical characteristics...
... upon a comparison of the fuel oil and the used oil, in terms of "ordinary everyday language" ... one would not naturally refer to the former as having been manufactured from the latter
Liquid hydrocarbon derived through a recycling, manufacturing or other process
The Tribunal noted that:
... resolution of the issue of whether the fuel oil satisfied Item 10(d) turned on whether it could properly be said to emerge from the applicant's processes as a new and different article, being the same factual question governing whether it could properly be said to have been "manufactured" or "produced" for the purpose of s 5(1) of the Tariff Act.
The Tribunal found that the fuel oil could not properly be said to have been "derived" through the taxpayer's processes according to the ordinary meaning of that word.
Whether additional information could be taken into account
In discussing its jurisdiction in the proceedings, the Tribunal noted that:
...the Tribunal cannot make findings of fact in this proceeding. The Tribunal can only consider the stated facts comprising the scheme the subject of the ruling. Furthermore, the Tribunal cannot "redefine" the scheme ... [T]he Tribunal is confined by the scheme as it has been described in the ruling and cannot depart from that description in any respect.
The Tribunal found that it could not properly have regard to the ruling application, nor could it have regard to further information provided by the taxpayer prior to the ruling being made. On this point, the Tribunal stated that the:
private ruling in issue is a self-contained document, in that it does not describe the scheme by reference to material contained in any other document. Accordingly, the Tribunal can only have regard to the scheme as described in the ruling itself
The Tribunal said of subsection 359-65(1) in Schedule 1 to the TAA that that provision, when read in context:
... only permits consideration of material that is informative about the facts comprising the scheme, as it has been described in the ruling . Section 359-65 permits neither the Commissioner in making his objection decision, nor the Tribunal in reviewing that decision, to redefine the scheme. ... [T]he Tribunal may only consider additional information pursuant to s 359-65(1) to the extent that it bears upon the correctness of the ruling in issue. ... [T]he word "materially" in s 359-65(3) cannot properly be read as permitting additional information to be considered by the Commissioner or the Tribunal pursuant to s 359-65(1) so as to interfere with the description of the scheme in the ruling in any way [our emphasis].
Much of the additional information upon which the parties sought to rely related to customer specifications and external testing. The Tribunal stated that:
[n]o mention is made in the scheme of specifications or external testing of the kind with which the additional material was concerned...[B]y way of contradistinction, that the facts stated in the objection decision include the statement that "[y]our end products are tailored according to your customer's [sic] specifications and requirements. ..." before making reference to the particular customer specifications
The Tribunal found that it could not have regard to this and other information on the basis that the consideration of that material:
would necessarily require that the Tribunal impermissibly "travel beyond those facts as identified in the ruling"
ATO view of Decision
Manufactured or produced
The Commissioner respectfully acknowledges the Tribunal's finding that the end product was not "manufactured or produced" within the ordinary meaning of those words.
The Commissioner considers that the implications of this finding are confined to factual scenarios that are materially the same as the taxpayer's. For a scenario to be regarded as such, it must be the case that:
- an entity collects used oil which, at the time of collection, is suitable for use as burner fuel;
- the entity subjects the used oil to filtering and de-watering processes only; and
- these processes do not result in the end product attaining an inherently different utility to the used oil, but rather result in it being able to be better used for the same purpose or purposes that the used oil could be used for.
The Commissioner considers that the inherent characteristics of used oil and the inherent limitations of filtering and de-watering mean that the first and third of these points will be met in all cases in which an entity collects used oil and subjects it to filtering and de-watering processes only.
For all such cases, the Commissioner considers the Tribunal's findings would lead to the following outcomes:
- The end product would not be subject to excise duty, on the basis that it would not have been "manufactured or produced"
- The entity would not be entitled to a benefit under the Product Stewardship (Oil) Act 2000, on the basis that the end product would not have been " produced from used oil" as is required by subsection 9(1) of that Act (taking into account the definition of 'recycled oils' in section 6)
- Any customer that acquires the end product from the entity for use in its enterprise would not be entitled to a fuel tax credit for its acquisition under the Fuel Tax Act 2006, on the basis that the end product would not be "taxable fuel", as is required by section 41-5 of that Act.
The Commissioner does not consider that an oil recycler who subjects used oil to processes that are different than, or additional to, filtering and de-watering would be impacted by the decision. The application of different or additional processes could result in the end product attaining relevantly different physical characteristics or utility to the used oil.
Accordingly, the Commissioner proposes to maintain his existing views in relation to scenarios that are not materially the same as the taxpayer's.
The Commissioner acknowledges that, on one view, oil recyclers that subject used oil to a de-mineralisation process (in addition to filtering and de-watering) may also be impacted by the Tribunal's decision. The additional process would not alter the fact that, in most if not all cases, the recycler would start with oil that is suitable for use as a burner fuel and end with a product that is "merely better able to be used for the same purpose". This being the case, under the Tribunal's reasoning, there would not be a "relevant difference" in utility between the used oil collected and the end product.
The Commissioner considers, however, that the additional step of de-mineralisation may result in the removal of impurities that are more intrinsic in nature than those that would be removed through filtering and de-watering alone. It is not clear from the Tribunal's reasoning whether the removal of these impurities would lead to a different answer to the question of whether or not the end product has "relevantly different physical characteristics" (and, from this, the question of whether or not "manufacture or production" has occurred).
For this reason, the Commissioner considers these recyclers are not impacted by the decision.
Liquid hydrocarbon derived through a recycling, manufacturing or other process
The Commissioner respectfully acknowledges the Tribunal's finding that the end product was not "derived" through the taxpayer's processes within the ordinary meaning of that word. Again, the Commissioner considers that the implications of this finding are confined to factual scenarios that are materially the same as the taxpayer's. In these scenarios, the end product would not be subject to excise duty.
Circumstances in which additional information may be taken into account
The Tribunal's reasoning appears to lead to the conclusion that, in making an objection decision, the Commissioner may only have regard to additional information (pursuant to subsection 359-65(1)) which:
- is informative about the facts comprising the scheme, as it has been described in the ruling;
- bears upon the correctness of the ruling; and
- does not interfere with the description of the scheme in the ruling in any way
Additionally, in having regard to such information, on the view expressed in this case the Commissioner could not make "findings of fact".
Under this reasoning, the Commissioner would not be able to take into account information that is not relevant to the scheme, nor would he be able to take into account information that gives rise to a materially different scheme.
On one view, the remaining category of information (that is, information that is relevant to the scheme, and does not result in a materially different scheme) would generally satisfy the three requirements outlined above.
The interpretation of section 359-65 in Schedule 1 to the TAA and the question of whether or not the Commissioner (in reviewing a private ruling) or the Tribunal (in reviewing a decision on an objection against a private ruling) can make findings of fact have been considered in a number of Tribunal cases.
In Re John Hall and Commissioner of Taxation  AATA 360, Senior Member Hunt stated that, under Division 359 in Schedule 1 to the TAA:
the Commissioner has limited power to consider "additional information" when considering an objection, but still does not have a fact finding role.
Deputy President Hack expressed a contrary view in Re A Taxpayer and Commissioner of Taxation  AATA 1759, stating:
Mr Marks of counsel, who appeared for the applicant, properly drew my attention to the decision of Senior Member Hunt in Re Hall and Federal Commissioner of Taxation where at  the Senior Member seemed to suggest that under the new regime in Division 359 the Commissioner (and thus, I infer, the Tribunal) "still does not have a fact finding role".
I am, with respect, unable to agree with this view. It is, I think, expressed too broadly. If the additional information is such that the scheme is materially different to that originally considered, the Commissioner must request the applicant to make an application for another ruling and, in that circumstance, must necessarily decline to find additional facts. But short of that it seems to me that no purpose would be served by permitting the Commissioner to consider additional information if he were not permitted to find facts from that additional information.
Citing the comments of Hack DP, Senior Member O'Loughlin, in Heinrich and Commissioner of Taxation  AATA 16, noted:
Incorporating additional facts that do not change the subject matter ruled upon in a material way can be included in the subject matter ruled upon on review:
Taking into account the comments in each of the cases referred to above, the Commissioner proposes to administer the law on the basis that section 359-65 in Schedule 1 permits the Commissioner to consider additional information in making an objection decision, providing the information merely assists in understanding the scheme and does not give rise to a materially different scheme. The question of whether that involves the Commissioner, and possibly the Tribunal on review, making 'findings of fact', is an issue on which different views have been expressed by the Tribunal.
The Commissioner notes Deputy President Alpins' acknowledgement that, even if the Tribunal had been able to have regard to the additional information in Cooper Bros, its decision on the primary issue would not have been different. This, together with advice from counsel for the Commissioner that the Tribunal's decision did not disclose an error of law on which an appeal could be based, formed the basis for the Commissioner's decision not to appeal.
Implications for ATO precedential documents (Public Rulings & Determinations etc)
The Tribunal's findings conflicted in some respects with original examples 9 and 10 in Excise Ruling ER 2012/1 regarding oil recycling (or at least it was not clear, on the facts provided in these examples, what distinguished them from the present case) and original examples 3 and 5 in Product Grant and Benefit Ruling PGBR 2012/1. The Commissioner withdrew these examples from the Rulings immediately after publication of this Decision Impact Statement.
On 1 October 2014, the Commissioner published an addendum to both ER 2012/1 and PGBR 2012/1 to clarify his view of the law following the Cooper Bros decision.
Refunds of overpaid excise duty
The Commissioner considers that taxpayers that paid excise duty on burner fuel in circumstances that are materially the same as the taxpayer's would have paid duty "through manifest error of fact or patent misconception of the law" for the purposes of paragraph 50(1)(c) of the Excise Regulations 1925 (the Regulations). These taxpayers will be allowed a refund of the excise duty pursuant to section 78 of the Excise Act 1901.
An application for a refund must be in writing; be signed by the entity applying for the refund (or their authorised representative); and state, as far as practicable, the nature and particulars of the claim. The Commissioner may require a taxpayer applying for a refund to produce records or to give further information, or both.
An application for a refund of excise duty must be made within 14 days after the date on which the duty was paid. The Regulations provide that, if it is "equitable" for this 14-day period to be extended, the application may instead be made within 12 months after the date on which the duty was paid.
The Commissioner notes that an extension of the period for oil recyclers impacted by the Tribunal's decision may give rise to a windfall gain for these recyclers if, as could reasonably be expected, they have 'included' the excise duty in the price charged to customers. The Commissioner further notes that many of the oil recyclers' customers may have claimed fuel tax credits to offset much of the excise paid.
Although the Commissioner will consider each refund application on its merits, the Commissioner would generally expect to conclude that it would not be equitable to extend the refund period if the amount in question has been passed on to a customer.
Prior PSO benefits paid and fuel tax credits claimed
Taxpayers that paid excise duty on burner fuel in circumstances that are materially the same as the taxpayer's will not need to repay any PSO benefit that they were paid in accordance with the Commissioner's view as it was prior to 24 April 2013 (being the date of the partial withdrawal of PGBR 2012/1 to remove examples 3 and 5).
Similarly, any entity that acquired such burner fuel before 24 April 2013 (being the date of the partial withdrawal of ER 2012/1 to remove examples 9 and 10) will not need to repay any fuel tax credits that were taken into account in working out a net fuel amount for a tax period in accordance with the Commissioner's view as it was prior to the partial withdrawal.
|Date of amendment||Part||Comment|
|1 October 2014||Relevant case law||Inserted two new case laws|
|ATO view of Decision - heading 'Manufactured or produced'||Inserted new paragraph, including new footnote 21|
|ATO view of Decision - heading 'Circumstances in which additional information may be taken into account'||Inserted new footnote 26 at paragraph beginning 'Taking into account the comments....'|
|Administrative treatment - heading 'Implications for ATO precedential documents (Public Rulings & Determinations etc)'||Updated to advise an addendum was published to both ER 2012/1 and PGBR 2012/1 on 1 October 2014 to introduce new examples on oil recycling|
|Administrative treatment - heading 'Prior PSO benefits paid and fuel tax credits claimed'||Inserted date '24 April 2013'|
Caltex Australia Petroleum Pty Ltd v Federal Commissioner of Taxation
 FCA 1951
(2008) 173 FCR 359
(2008) 74 ATR 676
Commonwealth v 5 Star Foods Pty Ltd
 VSC 70
(2002) 167 FLR 214
Heinrich and Commissioner of Taxation
 AATA 16
2011 ATC 10-169
(2011) 81 ATR 903
Re A Taxpayer and Commissioner of Taxation
 AATA 1759
(2007) 67 ATR 959
Re John Hall and Commissioner of Taxation
 AATA 360
(2006) 64 ATR 1001
2006 ATC 2356
Re Pillay and Commissioner of Taxation
 AATA 447
2013 ATC 10-324
Re The Public Servant and Commissioner of Taxation
 AATA 247
2014 ATC 1-064
This reference to 'fuel oil', which was contained in the private ruling and reproduced in the Tribunal's decision, is not a reference to 'fuel oil' as defined in the Excise Tariff Act 1921.
Caltex Australia Petroleum Pty Ltd v Federal Commissioner of Taxation  FCA 1951; (2008) 173 FCR 359
At paragraph 92
At paragraph 87
Commonwealth v 5 Star Foods Pty Ltd  VSC 70; (2002) 167 FLR 214 at 222
At paragraph 81
At paragraph 79
Note that the Tribunal's reference to 'fuel oil' is not a reference to 'fuel oil' as defined in the Tariff Act.
At paragraph 82
At paragraph 83
At paragraph 84
At paragraph 96
At paragraph 97
At paragraph 8
At paragraph 21
At paragraphs 35, 36 and 38
At paragraph 42
At paragraph 44
The Commissioner considers that used oil has been 'filtered' if suspended impurities or solid contaminants have been removed (fully or partially) from the used oil.
The Commissioner considers that used oil is 'de-watered' if it has been subjected to a process that removes (fully or partially) the water present in the used oil.
The Commissioner considers that the inherent characteristics of used oil are such that, in all cases, it is correct to regard it as 'suitable for use as a burner fuel'. It is acknowledged that, in any given case, high amounts of water or other extrinsic impurities in the used oil at the time it is collected may make it questionable whether the oil, as it then stands, could be used as a burner fuel. However, taking into account the relative ease at which these extrinsic impurities could be removed, the Commissioner does not consider that their presence should lead to a different conclusion.
The application of filtering and de-watering processes only to the used oil could, at most, result in the removal of water and other extrinsic impurities. Although this might result in the used oil being 'able to be better used' as a burner fuel, it would not result in the product attaining an inherently different utility to the used oil.
The Commissioner considers that used oil is 'de-mineralised' if it has been subjected to a process that removes (fully or partially) soluble and insoluble metal elements; and inorganic materials and minerals (such as salts and additives) in the used oil. Typically, de-mineralisation may involve the use of a chemical surface-active reagent known as a surfactant, although alternative methods may be used. De-mineralisation requires the removal of contaminants that cannot be filtered out.
At paragraph 43
At paragraphs 12 and 13
At paragraph 14
We note that other AAT cases have considered this question in the wake of Cooper Bros. See, in particular, The Public Servant and Commissioner of Taxation  AATA 247 in which Senior Member Lazanas (citing Cooper Bros and other cases) noted at  that, when the Tribunal reviews an objection decision regarding a private ruling, the Tribunal 'has no role whatsoever in fact finding'. See also the reasoning given by Deputy President Frost in Pillay and Commissioner of Taxation  AATA 447 which Senior Member Lazanas referred to in The Public Servant to conclude, at , that 'neither the Commissioner nor the Tribunal can find facts when it comes to private rulings or reviewing objection decisions regarding private rulings, as appropriate'.
At paragraph 45
See above under the heading "ATO view of the decision Manufactured or produced" for the Commissioner's view on when an entity's circumstances can be regarded as being materially the same as the taxpayer's.
Subregulation 52(1) of the Regulations
Subregulation 53(1) of the Regulations
Paragraph 53(2)(b) of the Regulations