Reynolds Australia Alumina Ltd. & Ors v. Federal Commissioner of Taxation.
Judges:Northrop J
Court:
Federal Court
Northrop J.
INDEX TO HEADINGS OF JUDGMENT
Title Page
A. Introduction 4,307
B. The general issues 4,307
C. History of the Worsley project 4,309
D. The mining lease and the Crown
leases 4,311
E. Activities at the mine site 4,312
F. Activities on the conveyor 4,313
G. Activities at the refinery 4,314
H. Item 14 - Meaning of mining
industry 4,315
I. Item 113 - Aids to manufacture 4,323
A. Introduction
The issue raised by these proceedings, commenced in the High Court of Australia but remitted to the Federal Court under sec. 44 of the Judiciary Act 1904, is whether the applicants or any of them are liable to pay sales tax in respect of any constituent part of an overland conveyor between the Worsley Mine site at Mount Saddleback in the State of Western Australia and the Worsley Refinery site near Worsley in the State purchased for or applied to its own use by Worsley Alumina Pty. Ltd. as the manager of the other four applicants as participants in the Worsley Joint Venture. In particular, the applicants are seeking a declaration that the constituent parts of the overland conveyor, or alternatively some of them were, at the relevant time, exempted from sales tax by the provisions of the Sales Tax (Exemptions and Classifications) Act 1935 and in particular by the provisions of Item 14(1) or of Item 113C of the First Schedule to that Act. The effect of these provisions, if applicable, is to exempt the applicants and each of them from liability to pay tax under one or more of the Sales Tax Assessment Acts with respect to constituent parts of the overland conveyor. The details of the tax liability, if any, are not raised in these proceedings but the Court was informed from the bar table that the total amount of sales tax involved is of the order of $5,000,000.
B. The general issues
For present purposes, under Item 14, sales tax is not payable upon the sale value of:
"14(1) Machinery, implements and apparatus (other than road vehicles of the kinds ordinarily used for the transport of persons or the transport or delivery of goods, or parts for those road vehicles), for use in the mining industry in carrying out mining operations or in the treatment of the products of those operations
(2) Parts for goods covered by sub-item (1)"
For present purposes, under Item 113C, sales tax is not payable upon the sale value of:
"113C. Goods (other than lubricants) applied by a registered person to his own use as aids to manufacture (as defined by regulations made under the Sales Tax Assessment Acts) or as auxiliaries to aids to manufacture (as so defined)"
It is noted that prior to 24 August 1983, the provision "(other than lubricants)" was not present. Reference will be made later to the definitions referred to in Item 113C.
The pleadings in these proceedings gave no indication of the extensive nature of the evidence to be led at the trial. The following facts are admitted by the pleadings. Each of the five applicants is incorporated. The first four applicants are members of a joint venture ("the joint venture") named the Worsley Joint Venture, which carries on the business of mining bauxite and refining it into alumina in the Darling Ranges in Western Australia. The fifth applicant ("Worsley Alumina") has exclusive possession of the joint venture assets for the purpose of managing the said business by virtue of a management agreement entered into between the members of the joint venture on the one part and Worsley Alumina on the other part dated 7 February 1980. Worsley Alumina is a registered person pursuant to and within the meaning of the Sales Tax Assessment Act (No. 1) and associated legislation relating to the imposition and collection of and exemption from sales tax. Worsley Alumina, as manager as aforesaid for the purpose of carrying on the said business constructed certain mine facilities, constructed an alumina refinery and constructed between the mine facilities and the refinery an overland conveyor facility for bauxite. Since then, Worsley Alumina has carried on the business of mining bauxite and refining it into alumina. The constituent parts of the overland conveyor facility were purchased by Worsley Alumina (in its capacity as manager aforesaid) from Raymond Engineers
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Pty. Ltd. and Cable Belt (Australia) Pty. Ltd. and applied by it (in that capacity) to its own use on or about 13 March 1985.From the submissions of counsel for the applicants and by counsel for the respondent, the following facts are not in dispute with respect to Item 14(1). The proceedings relate to machinery, implements and apparatus used in the construction of the overland conveyor facility ("the conveyor"). The particulars of those goods are not relevant for the purposes of these proceedings. Mining operations are conducted only at the mine facilities at Mount Saddleback ("the mine site"). Bauxite is recovered from the ground at the mine site constitutes mining operations in the mining industry. Bauxite, being the product of those mining operations, is treated at part of the alumina refinery at Worsley ("the refinery") some 51km distance by the conveyor from the mine site and in a south westerly direction from the mine site. The conveyor connects the mine site and the refinery and is used to convey the bauxite recovered from the mining operations at the mine site to the refinery where the bauxite is treated. Although the respondent concedes that the relevant machinery, implements and apparatus used in the construction of the conveyor was for use in the mining industry, he denies they were for use in carrying out mining operations and he denies they were for use in the treatment of bauxite being the product of the mining operations at the mine site. Thus the question arising under Item 14(1) is whether, on the facts of this case, the transporting of the bauxite by the conveyor from the mine site to the refinery constitutes within the mining industry either mining operations or treatment of bauxite. An affirmative answer to either of those questions would result in the applicants succeeding in these proceedings. A negative answer to both of those questions would result in the applicants failing in that part of these proceedings.
Further or in the alternative, the applicants claim exemption from liability for sales tax under Item 113C. That Item has been set out earlier in these reasons. For the purposes of this case, the exemption applies if the relevant goods were applied by Worsley Alumina as aids to manufacture, as defined, or as auxiliaries to aids to manufacture as defined. The definitions are contained in reg. 4(1) of the Sales Tax Regulations. The relevant parts of the definition of "aids to manufacture" in operation at the relevant time are set out:
"`aids to manufacture' means goods for use by a registered person in the course of carrying on a business (where that use is exclusively, or primarily and principally, for the purposes of that business), being -
- (a) machinery, implements and apparatus for use exclusively, or primarily and principally -
- (i) in the actual processing or treatment of goods to be used in, wrought into or attached to goods to be manufactured;
- (ii) in any processing or treatment by which the goods to which that processing or treatment is applied are used in, wrought into or attached to goods to be manufactured;
- (iii) in any processing or treatment for the purpose of bringing goods into, or maintaining goods in, the form or condition in which they are to be marketed or used by the manufacturer of the goods;
- ...
- (viii) in the transportation, within premises in which any activity is carried out by him as specified in this paragraph (not being an activity carried out by the use of machinery, implements or apparatus expressly excluded from this definition) of goods in relation to which that activity has been, is, or is to be, carried out by him;
- (ix) in the storage, within premises in which any activity is carried out by him as specified in this paragraph (not being an activity carried out by the use of machinery, implements or apparatus expressly excluded from this definition) or premises contiguous to such premises of goods in relation to which that activity is to be carried out by him;
- ..."
Reference should be made also to the following definition contained also in reg. 4(1):
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"`goods to be used in, wrought into or attached to goods to be manufactured' means goods to be so used or dealt with that those goods, or some essential element thereof, will form an integral part of the goods to be manufactured;"
The question arising under Item 113C is whether the machinery, implements and apparatus used by Worsley Alumina, which is a registered person, in the construction of the conveyor were used as aids to manufacture in the transportation, within premises in which bauxite was mined and refined to produce alumina, of goods in relation to which that activity is to be carried out by Worsley Alumina. The answer to this question depends upon a consideration of all the evidence led in this case.
At the hearing, much oral evidence was led by the applicants. The witnesses called by the applicants were cross-examined in detail. In addition, a large number of exhibits were tendered in evidence. The respondent called no witnesses and tendered no exhibits. Some documents prepared by the respondent were in fact tendered by the applicants. All parties co-operated to ensure all relevant factual material was before the Court. At the request of the parties I inspected the mine site, the conveyor and the refinery. Counsel agreed that I could use the inspection as evidence in the sense of treating as evidence what I saw on the inspection. The inspection occurred before the first witness called to give evidence had completed giving his evidence. Matters noted during the inspection were made the subject of oral and exhibit evidence. Accordingly, I do not use as evidence what I saw during the inspection. Nevertheless, the inspection was of enormous assistance in an understanding of the evidence given in Court and in an understanding of the very able submissions made by counsel.
From the final submissions made by counsel, it became apparent that there was no real dispute about the facts. The effect of some of the documents in evidence was in dispute and the application of the law to the facts was debated strongly.
C. History of the Worsley project
Bauxite is the common name given to a rock-like substance consisting basically of alumina tri-hydrate and other substances which, for present purposes, can be described as mud, and has the chemical formula Al2O3H2O. Alumina tri-hydrate is commonly known as gibbsite. Bauxite is the basic material used in a refining process to produce aluminium oxide, sometimes described as anhydrous aluminum oxide. Aluminium oxide is commonly known as alumina and has the chemical formula Al2O3. Alumina is the basic material used in a smelting process to produce aluminium which has many and varied uses in modern society. Gibbsite, alumina and aluminium are each metals. This case concerns gibbsite and alumina only although some mention is made later to the third metal, aluminium, with respect to its smelting and its fabrication.
The amount of gibbsite in bauxite varies from region to region as well as within regions. In the understanding of persons engaged in the business of mining bauxite and refining it into alumina, the greater proportion of gibbsite in bauxite, the richer the bauxite. The mud content of bauxite comprises waste for which, at present, there is no commercial use. It is economically feasible to transport by ship bauxite rich in gibbsite or in other words high grade bauxite to sites far removed from mining operations in order to refine alumina at those sites. It is not economically feasible to so transport by ship bauxite poor in gibbsite or in other words low grade bauxite, since that involves the transport of large quantities of mud from which small quantities of alumina can be refined. The bauxite deposits at Gove in the Northern Territory and at Weipa in Queensland are high grade in that bauxite mined at those sites comprise some 45% gibbsite. Large amounts of bauxite are shipped from those areas although some is refined at Gove.
Large deposits of bauxite exists in the Darling Ranges in Western Australia. Generally, these deposits comprise low grade bauxite containing some 30% gibbsite. It is not economically possible to transport by ship the bauxite from these deposits since any cargo so carried comprises some 70% of mud which is a waste material. It was only during the 1950s that it became recognised that the bauxite in the Darling Ranges could be exploited commercially. Thereafter, with the active support of the State of Western Australia, various companies became involved in proposals for the mining of bauxite and its refining into alumina. The Alumina Refinery
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(Bunbury) Agreement Act 1970 was enacted, as its long title provides:"to ratify an Agreement between the State and Alwest Pty. Limited for the establishment of a refinery at or near Bunbury to produce alumina and for incidental and other purposes."
The Act ratified that agreement which is dated 18 November 1970 and is contained in the Schedule to the Act. The recital to the Act is:
"WHEREAS the State has agreed to grant to the Company the right to mine bauxite and the Company has undertaken to process that bauxite into alumina, or to arrange for such processing to be carried out by another company approved by the Minister and, subject to the provisions of this Agreement, at a refinery to be erected at or near Bunbury in the said State and also, possibly, at another refinery to be erected at some other place within the said State."
In the agreement, and subject to context:
"`bauxite' means ore which either with or without crushing washing and screening is sold as bauxite or is used for processing into alumina;"
The agreement contains provisions relating to special grade bauxite, which is defined to mean expressly high grade bauxite, but for the purposes of these proceedings no further reference need be made to this matter.
Under the agreement, Alwest Pty. Limited convenanted with the State, as soon as reasonably possible, to do a number of things including to commence the construction of a refinery at or near Bunbury and to produce specified amounts of alumina, to transport bauxite mined from mining leases to be granted to it to the refinery and for that purpose to construct along a route approved by the relevant Minister of the Crown an appropriate conveyor or pipeline between the mineral lease area and the refinery and to pay to the State a royalty on all alumina produced at the refinery. The agreement imposed obligations upon the State including an obligation to grant a mineral lease to Alwest Pty. Limited to enable it to mine bauxite to be used in the refining and in so mining to be subject to special conditions which need not be referred to in these reasons, to acquire land to enable Alwest Pty. Limited to perform its obligations under the agreement including the provision of land to enable Alwest Pty. Limited to construct, install, establish, operate and maintain "a pipeline or conveyor for the transport of bauxite from the mineral lease to the refinery site".
The venture envisaged by that Act involved two main aspects, namely the mining of bauxite and the refining of bauxite into alumina. Following the agreement, further investigations were carried out concerning the feasibility of the proposed venture, how it should be established and who should carry out the venture. Additional companies became involved. The site of the refinery was changed to a site near Worsley, inland from Bunbury and situated in the Darling Ranges. The site was near by to Collie, at which coal was produced, and was close to the rail line connecting Collie to Bunbury. Coal was needed to fuel the furnaces necessary to provide energy sources used in the mining and refining operations including the transport of the bauxite on the conveyor. In addition, the site was suitable for the supply of water necessary in the refining process and for the disposal of the mud, known as red mud, removed from the bauxite in the refining process.
The Alumina Refinery (Worsley) Agreement Act 1973 was enacted, as its long title provides:
"to authorize the execution on behalf of the State of an Agreement with Alwest Pty. Limited and Dampier Mining Company Limited relating to the establishment at or near Worsley of a refinery to produce alumina and for incidental and other purposes."
The new agreement was executed by the parties, and is set out in the Schedule to the Act. The 1973 Act repealed the Alumina Refinery (Bunbury) Agreement Act 1970. The new agreement is in similar form to the earlier one. The recitals to the agreement refer to the earlier agreement, to the interests of the new companies in a joint venture, to the suitability of the Worsley site for use as a refinery and the reserves of bauxite available to be used to recover bauxite for refining at the refinery site. The word "bauxite" has the same meaning. Mining leases are to be given to the joint venturers to enable them to conduct mining operations subject to special conditions. In the agreement, and subject to context:
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"`refinery' means a refining plant established pursuant to this Agreement in which bauxite is treated to produce alumina;"
Under the agreement, the obligations of the joint venturers and of the State are similar to the obligations contained in the earlier agreement. The joint venturers were to commence construction of the refinery at the site near Worsley with a specified capacity, to transport the bauxite mined within the mineral lease to the refinery and to transport the alumina produced at the refinery to the port of Bunbury for shipping.
The joint venturers were to construct the appropriate conveyor or pipeline to enable the bauxite to be transported to the refinery and to construct rail links to enable coal and other materials for use at the refinery site to be brought to the site and to enable the alumina to be taken to the port of Bunbury. The joint venturers were required to pay royalties based on the amount of alumina refined at the refinery. Except with the consent of the Minister, all bauxite, other than special grade bauxite, mined by the joint venturers, was to be used in the manufacture of alumina and associated chemicals and by-products at the refinery.
As in the earlier agreement, the State was to take all steps necessary to enable the joint venturers to construct, install, establish, operate and maintain the pipeline or conveyor. The agreement contained detailed provisions concerning conservation matters relating to the environment both at the mining areas, the conveyor areas and the refinery areas.
Since 1973, a number of alterations have been made to the agreement contained in the 1973 Act. These alterations are ratified by the Alumina Refinery (Worsley) Agreement Act 1978 and the Alumina Refinery (Worsley) Agreement Act 1982. The agreement contained in the 1982 Act names the first four applicants to these proceedings being the joint venturers, as the parties of one part to the agreement set out in the 1973 Act as varied by the latter two Acts. It is not necessary to refer to the details of the amendments to the agreement, but it is noted that under those amendments, the State acquired greater control over environmental aspects of the project.
The Worsley Joint Venture Agreement was entered into by the joint venturers on 7 February 1980. The Joint Venture Agreement is a lengthy document containing detailed provisions relating to the construction, development, operation and maintenance of the Worsley project. The project includes all the mining leases and other interests in land vested in the joint venturers and all buildings, structures, fixtures, improvements, plant, equipment or works relating to the project and in particular includes the bauxite mine, facilities at the mine site for the handling and crushing of bauxite, facilities for the transportation of bauxite from the mine site to the refinery and the facilities at the refinery. Under the agreement, the joint venturers agree that they have associated themselves in the joint venture with the objective, inter alia, of developing the project:
"so that it will be sufficiently completed to allow production of Sandy Alumina in substantial quantities on a regular basis."
It is noted that sandy alumina is alumina in a fine granular form as distinct from a powdery form. The latter form gives rise to environmental and health problems. The project was to be developed in conformity with the Alumina Refinery (Worsley) Agreement Acts and the agreements contained in the Schedules to those Acts.
Contemporaneously with the execution of the Joint Venture Agreement, the joint venturers entered into the management agreement with Worsley Alumina which is controlled by the joint venturers. The management agreement is not in evidence before the Court but it is agreed that Worsley Alumina has exclusive possession of the joint venture assets for the purpose of managing the business of mining bauxite and refining it into alumina pursuant to the Alumina Refinery (Worsley) Agreement Acts and the agreements contained in the Schedules of those Acts and in conformity with the Joint Venture Agreement.
D. The mining lease and the Crown leases
The mine site is situated in the Darling Ranges near the township of Boddington which is some 135 km south-east of Perth. The mine site is situated on land held by the joint venturers under Mining Lease No. 258 S.A. dated 16 August 1983 and granted pursuant to the Mining Act 1978 and theAlumina Refinery
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The conveyor is constructed along a corridor of land connecting the mine site and the refinery. The joint venturers own the freehold of some of that land while the balance is land held by the joint venturers under Crown lease No. 3116/8513 dated 16 August 1986 and granted pursuant to theLand Act 1933 and the Alumina Refinery (Worsley) Agreement Act 1973. This lease is granted for the purpose of enabling the joint venturers to construct and operate a conveyor for the transport of bauxite from the mining lease area to the refinery site and for ancillary and incidental purposes at an initial rental of $5,000 per year and for a term commencing 28 October 1980. This lease was not granted formally until after the construction of the conveyor. Initially at the hearing of these proceedings, discussion took place concerning this aspect, but in the result the respondent accepted the issues should be tried on the basis that the conveyor was constructed on land either owned in fee simple by the joint venturers or occupied by them under this Crown lease. It should be noted that the corridor of land over which the conveyor operates is subject to a mining lease granted to a company unconnected with the joint venturers, but in my opinion, nothing turns upon that fact. This lease does not authorise the joint venturers to mine bauxite in the conveyor land corridor. The conveyor land corridor is not in a straight line from the mine site to the Worsley Refinery. This is the result of environmental considerations. As a result, the conveyor is in two parts, Flight 1, which is some 30 km long, and Flight 2, which is some 21 km long.
The refinery is situated on land held by the joint venturers under two Crown leases numbered 3116/7574 and 3116/8072 respectively and dated 6 February 1981 and 19 March 1982 respectively and granted pursuant to the Land Act 1933 and the Alumina Refinery (Worsley) Agreement Act 1973. These leases are granted for the purpose of the joint venturers constructing and operating an alumina refinery thereon and for ancillary and incidental purposes thereto, including the disposal of the red mud, at a peppercorn rent. The refinery site comprises the refinery and all associated works including a reservoir, a dam, the red mud disposal area, railway tracks and many other facilities. Part of the conveyor is constructed on this land.
E. Activities at the mine site
A brief description only is needed to describe the activities carried on at the mine site, the refinery and on the conveyor corridor. The mine site is within a compound, entry to which is controlled. The method used in recovering the bauxite has the appearance of quarrying but traditionally has been called mining. The bauxite to be mined is contained in discrete areas called pods. The pods are covered by a shallow overburden of topsoil and gravel. Normally, the top of the bauxite pod comprises "hardcap" bauxite which requires to be blasted. Below the hardcap, there exists friable bauxite which can be removed without blasting. Through the bauxite there may be pockets of clay bands containing reactive silica which causes problems in the refining processes. The floor of the bauxite comprises clay containing reactive silica. The floor is uneven and clay pinnacles often protrude into the bauxite. The quality of the bauxite varies between different pods and within pods. Detailed drilling on a grid basis to determine the depth and quality of the bauxite in each pod has been carried out and the results recorded. A typical test bore could show an overburden of 1m, a bauxite hardcap of 1m, friable bauxite of some 4.5m and then the clay. The percentage of gibbsite in the bauxite could vary from 21.7% to 32.8% while the percentage of reactive silica could vary from 7% to 2.6%. In the refining process it is important that the bauxite being fed into the process should as far as possible contain the same percentage of gibbsite, namely 30.7%, and as far as possible, a constant percentage of silica. Any variation from the standards set causes problems in the refining process. The methods by which the standards are maintained is called blending. As will be described later, the blending process commences at the mine site and the results of the test bores form the
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basis on which part of the blending process depends.In the mining process, the overburden is removed, and stockpiled and stored for reclamation purposes. Where necessary, the hardcap bauxite is blasted. Large rocks are broken by a heavy mechanical hammer. The bauxite is then loaded into dump trucks. The loader operator has a "picture" of the pod on which he is operating derived from an examination of the test bore records. In addition, he exercises visual care to avoid loading clay from any pinnacle and from any clay bands and from the clay at the floor of the bauxite. The bauxite is taken to the primary crusher and tipped into a surge hopper with a capacity of about 150 tonnes. The crushed bauxite is then carried by a conveyor belt to the secondary crusher and fed into the surge bin which has a capacity of some 3,000 tonnes. The bauxite, which has been crushed to a size compatible for carriage on the conveyor, is then fed by a conveyor to a surge pile which has a "live" capacity of some 3,000 to 9,000 tonnes and a "dead" capacity of some 40,000 tonnes. The bauxite is recovered from the surge pile by means of feeders placed under its base. The bauxite is fed onto the surge pile from a fixed point high above the feeders. If the feeders are closed and the surge pile is constructed, it appears as a giant cone pointing to the sky. When the feeders are opened, the bauxite from the middle of the base is removed by force of gravity resulting in the surge pile being reduced in the centre but retaining its outside rim thereby taking on the appearance of a volcano with a hollow centre. The outside walls of the surge pile, referred to as the dead capacity, can be pushed inwards and so be fed into the feeders. The feeders are controlled from the secondary crusher but the rate of flow is controlled from the control room at the refinery. From the feeders, the bauxite is fed onto an accelerator belt and from there is fed onto the overland conveyor belt being Flight 1 of the conveyor. The speed of the accelerator belt and the conveyor belt are controlled from the control room at the refinery. If for any reason the conveyor stops, all conveyors, including the accelerator belt, stop automatically and the feeders under the surge pile close. This safety mechanism prevents bauxite piling up on the conveyor. The withdrawal rate is normally about 2,040 tonnes per hour. The bauxite normally takes some 2¼ hours to travel from the mine site to the refinery, the conveyors travelling at about 22 k.p.h. The total weight of bauxite on the conveyor belts when fully operational is about 5,000 tonnes. Normally two shifts a day on a nine day fortnight are worked on the mine site. When necessary, additional work is done outside the normal shifts. Maintenance work is done outside the normal shifts as well as during the normal shifts.
F. Activities on the conveyor
The point at which the bauxite is fed onto the overland conveyor belt, Flight 1, is on the mine site. The conveyor continues over the mine site for some distance and then enters upon the conveyor corridor. The conveyor corridor traverses rough and hilly country. It passes through State forests. It crosses rivers and some roads. At some times the conveyor goes underground while at other times it is built up on viaduct-like bridges to traverse a river or a valley. It is not level but, except in the cases mentioned, it follows the lie of the land.
A roadway is built alongside the conveyor. This is a private roadway used by and with the permission of Worsley Alumina. The conveyor corridor is not fenced. When it crosses roads, fences have been built along the road boundaries and then back some distance into the forest on each side of the conveyor corridor. Locked gates exist to enable traffic using the private roadway to cross the other roads. The fences are designed to prevent unauthorised persons from entering the conveyor corridor. The roadway is used for the purpose of inspecting and maintaining the conveyor and for access between the mine site and the refinery and any place between the two. Safety mechanisms allow the conveyor belt being stopped by action taken at any place along the conveyor. In addition, cables for communication purposes extend over the conveyor corridor. The power lines providing the electricity for use at the mine site extend along the conveyor corridor. In addition, there is a microwave communication system between the refinery and the mine site but this is on a direct line of sight course and does not follow the line of the conveyor corridor.
The overland conveyor consists of a cable belt system where the belt which carries the bauxite rests on steel cables to which the power
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is applied to move the belt. The cables are supported by pulley wheels fitted onto the conveyor system. The belt is covered by a roof to prevent pollution and to prevent the bauxite becoming wet from rain while being conveyed to the refinery. The conveyor is designed to allow fauna to move from one side of it to the other.Normally, the conveyor operates only while the bauxite is being fed onto the surge pile. If any breakdown occurs at the mine site, the dead capacity of the surge pile may be pushed in to feed the conveyor. Maintenance on the conveyor is done both while the conveyor is operating and while it is idle. Normally, the bauxite is not removed from the conveyor before it is stopped. It takes about 45 minutes to bring the conveyor from a stationary position to its normal operating speed.
The overland conveyor cable belt used on Flight 1 of the conveyor is powered by electric motors situated at the end of Flight 1 nearest to the refinery. The electricity used for driving the motors is provided by the power station at the refinery. The housing for the motors is built on the conveyor corridor. Flight 1 of the system extends in a straight line from the mine site to the transfer point at the end of Flight 1. At the transfer point the bauxite is fed from the cable belt used on Flight 1 to the cable belt used on Flight 2 which then continues in a straight line, but in a different direction to Flight 1, to the refinery. It continues along the conveyor corridor until it reaches the refinery site. It continues over part of the refinery lease area until it reaches the end of Flight 2. The electric motors used to drive the cable belt on Flight 2 are situated on the refinery land.
Nothing is done to the bauxite while it is travelling on the conveyor belts. The conveyor is used solely for the purpose of transporting bauxite from the mine site to the refinery.
G. Activities at the refinery
As the bauxite arrives at the refinery, samples are taken every 15 to 20 minutes by an automatic mechanism. These samples are tested to determine the quality of the bauxite. The bauxite, after arrival at the refinery, is fed onto one of four stockpiles on the refinery site. Each stockpile has a capacity of about 100,000 tonnes. The method of stacking the stockpiles and the recovery of bauxite from the stockpiles complete the blending process of the bauxite prior to it being fed into the refinery process. Each stockpile is constructed by a moving loading arm on a loading mechanism which travels lengthways along the length of the stockpile. Each stockpile is rectangular in shape at the base with a gabled top, each gable extending to the base of the stockpile. To construct the stockpile, the loading arm is lowered and the bauxite is fed onto the centre of the base while the loading mechanism traverses the length of the stockpile. The loading mechanism then traverses backwards and forwards and then as the pile increases in height, the loading arm is raised. This process places the bauxite in thin layers over the length of the stockpile. Each stockpile is over 10 times larger than the live capacity of the surge pile at the mine site and thus there is no undue concentration of bauxite from any part of the surge pile placed in any one part of a stockpile.
The bauxite is recovered from the stockpiles by a bucket wheel which recovers the bauxite from across the narrow face of the stockpile. The bucket wheel traverses the narrow face and proceeds upwards across the face of the stockpile thus cutting across layers of bauxite as contained in the stockpile. The recovery of the bauxite completes the bauxite blending process.
From the analysis made of the samples of bauxite taken when the bauxite arrives at the refinery, the quality of the bauxite being used to construct the stockpiles is ascertained. From the information so obtained, instructions are sent to the mine site as to the quality of bauxite to be used in further deliveries of bauxite to ensure the correct blend of bauxite in the stockpiles. These instructions are used to direct the recovery of bauxite from particular pods or particular parts of particular pods so that the proper blending of the bauxite may be maintained. In this sense, it is true to say that the blending process commences at the mine site with the removal of the bauxite from the pods.
At the refinery, alumina is refined from the bauxite by using the Bayer process. Broadly speaking, that process involves digestion, separation, precipitation and calcination. The Bayer process is most complex involving the use of large amounts of water and heat. It involves chemical changes brought about by the mixture of different materials to react chemically under heat and pressure. It is not
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necessary in these proceedings to describe the details of the process. It is sufficient to say that the bauxite is recovered from the stockpiles at the refinery and carried by conveyor to the bauxite grinding equipment. At recovery, the bauxite in theory has been blended to the required quality, viz. 30.7% gibbsite. Any substantial variation from that quality will cause problems and difficulties in the refining process. The bauxite is first ground to a powder. Thereafter there are four separate stages where significant chemical changes occur. These four stages have been described earlier in these reasons as digestion, separation, precipitation and calcination. At the digestion stage, the ground bauxite is mixed with sodium hydroxide, commonly known as caustic soda, which has the chemical formula NaOH. The caustic soda reacts with the gibbsite to produce sodium aluminate and water, the chemical process being 2NaOH + Al2O3.3H2O → 2NaAlO2 + 4H2O. The chemical formula of sodium aluminate is NaAlO2. As a result of this process, gibbsite, viz. alumina tri-hydrate, disappears and a new compound sodium aluminate is produced. This new compound forms part of the mixture of the mud from the bauxite including the silicates. In the same process, another chemical process occurs. The caustic soda tends to react with carbon dioxide contained in the mud and the atmosphere to produce sodium carbonate. Lime is introduced into the process to react with the sodium carbonate to produce sodium hydroxide and calcium carbonate. A separation process occurs as the mud, including the calcium carbonate, together with other impurities is removed from the mainstream. The main volume of material so removed is the red mud which is directed to the red mud disposal unit and area by methods which need not be described.The next stage is precipitation. There the sodium aluminate, under different conditions, reacts with water to produce alumina tri-hydrate and sodium hydroxide; the chemical change being 2NaAlO2 + 4H2O → Al2O3.3H2O + 2NaOH. Alumina tri-hydrate has been produced but in a pure form, not being mixed with all the impurities contained in bauxite. Ground Worsley bauxite has a russet colour appearance. Ground red mud has a darker russet appearance. The alumina tri-hydrate, after precipitation, has a cream coloured appearance. If this form of alumina tri-hydrate were mixed with the ground red mud in the proportions 30:70, the resultant mixture should have the same colour as ground Worsley bauxite. Alumina is white.
The next chemical reaction occurs at the calcination stage. At this stage, the alumina tri-hydrate is treated at high temperatures to break its molecular bond with the water. The chemical process produces aluminium oxide and water, the formula being Al2O3.3H2O → Al2O3 + 3H2O. It will be remembered that aluminium oxide is commonly called alumina. It is a white substance with the chemical formula Al2O3. The alumina is then stored pending rail transport to Bunbury. Alumina is not readily soluble and is used in a smelting process to produce aluminium. Any water molecules present at the time of smelting would be very dangerous. That is why alumina tri-hydrate cannot be used in the smelting process. Thus the alumina must be refined to a very exact tolerance.
Normally, the refining process operates on a 24 hours seven days a week basis. The stockpiles of bauxite, when built to their full extent, contain enough bauxite to serve the refining process for about a month. This reserve of blended bauxite operates as a safety buffer for the refining process.
H. Item 14 - Meaning of mining industry
I turn to consider whether Item 14(1) applies to exempt the applicants from liability to pay sales tax on the relevant machinery, implements and apparatus used by Worsley Alumina in the construction of the conveyor ("the machinery etc."). The respondent admits that the joint venturers and Worsley Alumina carry on the business of mining bauxite and refining it into alumina. The respondent concedes, quite correctly in my opinion, that the machinery etc. was for use in the mining industry, but it is necessary to consider what the words "mining industry" mean in the context of Item 14(1).
The word "industry" is not a precise technical term. The word has been considered on many occasions by the High Court but reference need be made to a few only of those authorities. The words "the Coal Mining Industry" as appearing in the National Security Regulations, were considered in
ATC 4316
R. v. Hickman; Ex parte Fox and Clinton (1945) 70 C.L.R. 598 and
R. v. Central Reference Board; Ex parte
"The meaning of `Coal Mining Industry' is unfortunately indefinite and flexible. It affords no clear and certain guide either to the Board or to the courts of law as to the exact ambit of the Board's authority. In the present case the coal-mining that affects the question for decision is done by an open cut, and we are told that, owing to the short period over which that method has been seriously practised in New South Wales, no usages or common understandings have been established which would assist us in determining what marginal functions and activities fall within an accepted conception of that branch of the coal-mining industry.
The function or activity with which we are concerned is the major repair and overhaul of the earth-moving and excavating equipment used in removing the over-burden and in winning the coal from the open cut. As a matter of reason, it seems to me that such repairs and overhauls may be carried out as an integral part of the operations of open-cut mining so as to form an indivisible element in the undertaking or may be relegated to separate and independent engineering operations outside the undertaking. In the one case I should have thought that they might quite well be considered part of the industry. In the other case I do not think they ought to be so considered. The difference must depend upon circumstances, the chief of which must be separateness of establishments in point of control, organization, place, interest, personnel and equipment. It must in the end come down to a matter of degree. It is not like the cases of Ex parte Fox and Clinton (1945) 70 C.L.R. 598 where the distinction rested upon the character of the operations, upon function. There we thought that the transport of coal in distribution was to be distinguished from coal-mining as an industry.
In the present case the prosecutor has not satisfied me that the major repair and overhaul of the machines is conducted otherwise than as an integral part of the mining undertaking, because of the following factors. The operations, although carried on by a distinct company, are under one control and management with the mining operations. The distinct company is a subsidiary. The works are situated close to the open cut, about three-quarters of a mile away, and the site was obviously chosen for that reason. The site is variously described as `upon' the open cut, as adjacent to but outside the area of the open cut and as upon the mine-owner's land but outside the fence. Although some other work has been done, the repair and overhaul of the mining machinery was the purpose of setting up the engineering shop and substantially, it has no other present purpose. It was set up because of the inconvenience, and I would assume cost, of having the work done by outside engineering establishments. Another work-shop for minor repairs and adjustments is in the open cut. Though that belongs to the mining or excavating company there is an interchange of tools and spare parts. The major repair and overhaul of the machines doing the mining is of course essential to the mining operation and to do it as part of the same undertaking may be considered to give all the advantages of expedition, co-ordination and reduction of cost that are supposed to arise from unity of control and proximity. The fact that the operations of mining and of major mechanical repair are divided between distinct legal entities ought not, where the question is whether they form a main and an incidental part of the same undertaking, to weigh against the facts that they are under one control and management and conducted in the same interest."
In this respect, reference is made to what Latham C.J. said in Hickman at pp. 608-609:
"The term `industry' is not a precise technical term. One industry sometimes overlaps into another industry. In my opinion, no absolute rule can be laid down for determining the limits of a particular industry. The question whether a particular industrial operation belongs to one industry rather than another cannot be decided merely by considering the nature of that operation itself. For example, a clerk may be employed in the boot-making industry, the coal industry, the transport industry, or
ATC 4317
almost any industry. The problems associated with the overlapping of craft and industrial unions are well known, and have to be carefully considered by industrial authorities when they are determining the terms of their awards. In my opinion, all the circumstances of each case must be taken into account. If coal is taken in skips by employees of colliery owners from the pit top to a place of storage on the colliery, such work would be work in the coal mining industry. Similarly, examples are given in affidavits filed on behalf of the respondents of railways, owned and controlled by proprietors of collieries and operated by employees of such proprietors, upon which coal is conveyed considerable distances to railway sidings or wharves. Such transport of coal may be regarded as falling within the coal mining industry."
In
R. v. Coldham; Ex parte The Australian Workers' Union (1982-1983) 153 C.L.R. 415, the High Court had to consider whether employees of independent contractors engaged in construction works for the Worsley Project at the mine site, the refinery and on the conveyor were engaged in specified types of labour in or in connection with the industry of "metalliferous mining". The High Court answered that question in the affirmative. Reference is made in particular to the joint judgment of Deane and Dawson JJ. commencing at p. 425.
These authorities illustrate that in determining the question of what is a particular industry, consideration must be given to aspects of function, control, integration, purpose and object of the activities carried on by the relevant person engaged in that industry. In the present case, the applicants are admitted to be engaged in the business of mining bauxite and refining it into alumina. On the facts found in this case, it is clear that the applicants are engaged in the mining industry in carrying out their activities at the mine site, the refinery and on the conveyor. The fact that in addition they may be engaged in other industries at those places does not deny the fact that, in setting up and operating the Worsley Project, the applicants were and are engaged in the mining industry. There is the one employer, Worsley Alumina, the one control with respect to each of the activities carried on, the one operation identified as the Worsley Project and the one integrated overall activity.
Counsel for the respondent contended that neither of the second limbs of Item 14(1) were satisfied, namely that the transporting of the bauxite from the mine site to the refinery was neither the carrying out of mining operations nor the treatment of the products of those operations. A summary of their contentions can be given by a series of propositions:
- 1. Mining operations are conducted only at the mine site and are concluded when the bauxite is recovered in manageable dimensions fit for use, transport or delivery. In this case this occurs, at the latest, when the bauxite emerges from the secondary crusher and is deposited on the surge pile.
- 2. The transport of the bauxite from the mine site to the refinery is not a mining operation nor the treatment of the products of those operations. It is solely the transport of minerals after the mining operation has concluded.
- 3. The blending of the bauxite which occurs at the refinery by reason of the combined effects of the stacking and reclaiming operations is not a mining operation but it is, nevertheless, within the second limb of Item 14(1) as being the treatment of the product of those operations.
- 4. Once the bauxite is recovered and introduced into the Bayer process the manufacturing of alumina commences. This is a distinct and separate process from the mining operations or the treatment of the products of mining operations. This commences, at the latest, when the bauxite is fed into the grinding stage of the Bayer process and meets the caustic soda stream.
- 5. Alternatively, it commences with the recovery of the reclaimed bauxite from the stockpile, or even as a further alternative, with the stacking of the bauxite. In the case of these two alternatives there would be some overlapping between the manufacturing process and the blending process (i.e. the treatment of the products of mining operations).
- 6. No processing or treatment of any description (mining or manufacturing occurs on or within the conveyor.
ATC 4318
The reference in proposition 4 to the commencement of the manufacturing process to produce alumina is more relevant to a consideration of the application of Item 113C and will be discussed later in these reasons. Alternatively, proposition 5 suggests that the manufacturing process commences with the stacking of the bauxite into the stockpiles at the refinery. The emphasis on the importance of the commencement of the manufacturing process arises because it was contended that the manufacture of alumina did not constitute the treatment of bauxite and therefore it became necessary to determine when the manufacture commenced. Counsel's concession that the bauxite blending process constituted the treatment of the products of mining operations under Item 14(1) was in my opinion correct, but on the facts found, that blending process commenced with the extraction of bauxite at a pod at the mine site. In any event, the crux of the contentions rests upon the fact that no treatment of the bauxite occurs while it is being transported on the conveyor.
A major premise upon which the contentions of the respondent rests is that the manufacture of alumina by the Bayer process does not constitute the treatment of bauxite. The acceptance of that premise presupposes that the treatment of the product of mining operations by a chemical process cannot come within the second limb of Item 14(1). That supposition is of doubtful value when the refinery itself is an activity in the mining industry, or in other words, the carrying out of the manufacturing of alumina by the Bayer process is within the mining industry. The object of the Worsley Project is to produce alumina. That object is achieved in the mining industry by the extraction of bauxite and the treatment of that bauxite to obtain the alumina. In this context, the fact that a chemical process was used in the production of alumina of itself would not prevent the whole process from being properly described as mining operations; cf.
F.C. of T. v. Henderson (1943) 68 C.L.R. 29.
The application of Item 14(1) was considered recently by the Supreme Court of Victoria in F.C. of T. v. Hamersley Iron Pty. Ltd. That action was tried by Gobbo J. and his judgment is reported at 80 ATC 4509; (1980) 33 A.L.R. 251. On appeal by the Federal Commissioner of Taxation, the judgment of the Full Court, Lush, Kaye and Brooking JJ., is reported at 81 ATC 4582; (1981) 37 A.L.R. 595. That case also concerned the application of Item 113C. For the purposes of the present case, the issue was whether certain machinery purchased by the taxpayer for use in equipment for the stacking and reclaiming of iron ore at a port a long distance from an iron ore mine inland from that port came within the exemption created by Item 14. The relevant facts of that case are set out in the reasons of Lush J. at ATC pp. 4584-4589; A.L.R. pp. 597-603. The activities therein described have a marked similarity to the facts of the present case. There the taxpayer mined ore in the Hamersley ranges. The ore went through various crushers and then was loaded into rail trucks for transportation to the port. Ore was obtained from various parts of the mine depending upon its quality and as directed after results of samples taken of the crushed ore. At the port, the ore was stockpiled and recovered by methods essentially similar to those used at the refinery site at Worsley. The need for the blending process of the iron ore was to maintain as near as possible a quality of iron ore in conformity with the requirements of a contract under which the taxpayer sold the iron ore to customers in Japan and to prevent any undue concentration of impurities, one of which, strangely, was said to be alumina. The effect of the system used is summarised at ATC p. 4587; A.L.R. p. 601:
"From this description of the method of operating and the machines, certain conclusions may at once be drawn. In the first place, the stackers were used with the obvious aim and with the result of distributing materials of different characteristics as evenly as possible throughout the stockpile, so that in toto the proportions of the various minerals in the stockpile would be as close as possible to those aimed at. That the two forms of reclaimer would have the effect, with varying degrees of efficiency, in further intermingling the component materials of the stockpile appears to be beyond doubt as would, with its own degree of efficiency, the tunnel loading method. Moreover, the evidence leads to the conclusion that they were intended to have this effect, and that their having this effect was a part of the system by which ore was brought to uniform quality for delivery."
ATC 4319
Commencing at ATC p. 4589; A.L.R. p. 604, Lush J. considered the application of Item 14(1). It was accepted that the relevant goods were parts for machinery "for use in the mining industry". His Honour then said:
"The appellant contended that they were not for use `in carrying out mining operations', upon the ground that those operations ended, at latest, at the mine ex screenhouse stockpiles. For this, counsel relied upon
F.C. of T. v. Broken Hill Proprietary Ltd. 69 ATC 4028; (1969) 120 C.L.R. 240;
F.C. of T. v. I.C.I. Australia Ltd. 72 ATC 4213; (1972) 127 C.L.R. 529 and
F.C. of T. v. Utah Development Corporation 76 ATC 4119; (1976) 50 A.L.J.R. 678. The respondent did not concede this point, but in effect conceded that its argument could not be successfully put before this Court."
That conclusion was based on the fact that the end product of the operation was iron ore. In the present case, where the end product is alumina, different considerations might apply. For the purpose of deciding this issue, I will assume that mining operations ended, at the latest, when the bauxite was placed on the surge pile at the mine site.
His Honour, commencing at ATC p. 4589; A.L.R. p. 604, then considered the application of the second limb of Item 14(1), namely were the parts for machinery for use in the treatment of the products of mining operations. This involved a consideration of the words "for use in" in relation to "the treatment" of products. These matters were not in issue before me. After referring to a number of authorities, his Honour said at ATC pp. 4591-4592; A.L.R. pp. 606-607:
"In deciding this issue, it is necessary to decide what are the `products of mining' which are under discussion. For the Commissioner, it was argued that the products were the individual pieces of ore emerging from the tertiary crusher, and it followed that these were virtually unchanged except by an inevitable process of degradation in handling until they were shipped. For the respondent, it was contended that the product was bulk iron ore, which was changed by being brought to a desired state of low variability.
The respondent's argument identifying the product should be upheld. Support for it may be found in
Hudson's Bay Co. v. Thompson (1960) A.C. 926, and the cases there cited, in which, the relevant question being whether goods had been `adapted for sale', it was held that the goods to be considered were not the individual items, but either the general bulk or the unit sold. The adoption of this view goes far to deciding the item 14 issue. The goods, so identified, are shown by the evidence to have been subjected to a desired change. If a chemical change is sought, the change wrought in the goods is a reduction of variability in the concentration of chemicals throughout the ore. If a change in form, nature or condition is sought, then the goods have been changed in such a way that, if they have not been made marketable, they have at least been made marketable to the better advantage of both seller and buyer. In a word, the change in the goods justifies the application of the word treatment to the mode of producing the change. If it be necessary, it should be held that in the context of item 14 chemical change is not of the essence of treatment.The claim to exemption under item 14 should therefore be upheld."
On this aspect of the appeal, Kaye and Brooking JJ. agreed with Lush J.
In the present case, it is my opinion that the relevant "products of mining" comprise alumina. The Worsley Project was designed and implemented to produce alumina. The Project is in the mining industry. Royalties are paid on the volume of alumina produced. Alumina is taken to Bunbury to be shipped to other ports. Alumina is the end product.
On this conclusion, it is clear that at least the blending process carried out at the refinery comes within the description of treatment of the products of mining operations.
This conclusion, however, does not dispose of this issue since the machinery etc. used in the present case relates to the conveyor. The conveyor is used to transport the bauxite from the mine site to the refinery. The conveyor is in the mining industry but it is said that the transport of the bauxite is not treatment of the products of mining operations. It was pointed out that in Item 14(1) there are no words of expression such as "in or in connexion with" appearing before the words "treatment of the
ATC 4320
products" of mining operations. It was contended therefore that in order to come within the second limb of Item 14(1), the machinery etc. had to be used in the actual treatment of the products.Consistently with that contention, counsel for the respondent submitted that conveyors used in transporting bauxite at the mine site from the primary crusher to the secondary crusher, from the secondary crusher to the surge pile and from the surge pile along the accelerator belt to the conveyor, and at the refinery from the delivery point to the machines used in constructing the stockpiles and from the recovery machinery to the grinding equipment could not constitute machinery etc. used in the treatment of the products of mining operations. This result did not affect those conveyors since the respondent conceded that those conveyors came within the exemption created by Item 113C. Nevertheless, the issue is the same with respect to all these conveyors, the only difference being a matter of degree resulting from the length of the conveyors.
In support of his contentions, counsel for the respondent relied on a number of authorities based upon different legislation where the words "mining operations" were being considered. They referred to F.C. of T. v. Broken Hill Proprietary Company Limited 69 ATC 4028; (1967-1969) 120 C.L.R. 240; F.C. of T. v. I.C.I. Australia Ltd. 72 ATC 4213; (1971-1972) 127 C.L.R. 529 and
Utah Development Co. v. F.C. of T. 75 ATC 4103; (1975) 5 A.L.R. 474 and on appeal to the High Court, 76 ATC 4119; (1976) 9 A.L.R. 660. These authorities were referred to and relied upon by the Supreme Court of Victoria in Hamersley in holding that the machinery therein in issue was not for use "in carrying out mining operations". That conclusion did not prevent a finding that the machinery came within the second limb of Item 14(1).
Likewise, in
Northwest Iron Co. Ltd. v. F.C. of T. 85 ATC 4316 and on appeal
F.C. of T. v. Northwest Iron Co. Ltd. 86 ATC 4202; (1986) 64 A.L.R. 436, provisions of the Income Tax Assessment Act 1936 were under consideration with respect to the carrying on of "mining operations on a mining site". One of the installations under consideration was a pipeline some 85 km long extending from the iron ore site at Savage River in Tasmania to Port Latta. The pipeline was used to transport concentrated ore in a slurry form to Port Latta for pelletisation before being shipped to other ports. In his judgment, with which Bowen C.J. and Toohey J. agreed, Lockhart J. said at ATC pp. 4210-4211; A.L.R. pp. 446-447:
"The taxpayer adopted the method of moving the concentrated ore in a slurry form through the pipeline to Port Latta for pelletisation because it regarded it as the only economically feasible method available. The object of the taxpayer's activities is the production of pellets after treatment of the ore, essentially by wet processes and the eventual removal of the water content from the slurry. It is not the object of the taxpayer's operations to produce `fines'. The slurry, the water content of which is finally removed in the pelletisation process, is not a slurry used merely for the purpose of transporting `fines' otherwise free of water; it is the result of the treatment process of the ore itself which, prior to transportation, results in a slurry containing powdered metal. It is true that further water and some chemical is added for ease of movement through the pipeline; but the mining operations extend until the completion of the pellet producing process. The process of pelletisation is integral to the whole operations of the mining venture and essential to the development of the potential of the low-grade ore of the Savage River site by means of the taxpayer's technology. The pipeline is essential to the end product. It is not different in essence from a necessary conveyor line conveying material from one section to another within a mining complex. The end product of the taxpayer's mining activities is the production of pellets.
It is unreal to draw a line between the operations being conducted at Savage River (up to a point where some adjustment was made to the water content of the slurry and some chemical introduced immediately before the slurry was pumped into the pipeline) and the operations thereafter. Practical and businesslike considerations clearly lead to the conclusion that the whole of the relevant operations of the taxpayer to the final stage where the pellets emerge are part of its mining operations. Although at first sight it may seem somewhat incongruous that a pipeline, extending for
ATC 4321
some 85 kilometres from the Savage River to Port Latta, is part of the taxpayer's mining operations, the apparent incongruity disappears when the role of the pipeline is considered in the context of the taxpayer's activities as a whole."
The application of the principles discussed in that passage could lead to the view that in the case before me and having regard to the fact that the end product sought to be recovered from the mining operations under the Worsley Project is alumina, the mining operations continue until the alumina has been produced. I do not find it necessary to decide that issue at present but the passage quoted is of assistance in considering the question of whether the conveyor is used in the treatment of bauxite being the product of the mining operations at the mine site.
Machinery etc. for use in the mining industry in the treatment of the products of mining operations is not limited to machinery which is used in the direct treatment of the products. Thus the conveyor used to transport the bauxite from the primary crusher at the mine site to the secondary crusher, by analogy with the Northwest case, is used in the mining industry in carrying out mining operations. Similarly, the conveyor used at the refinery to transport the bauxite from the point at which it is received at the refinery to the stockpile machinery is used in the mining industry in the treatment of bauxite.
Counsel for the respondent rely upon the fact that under the Crown lease for the conveyor corridor, the applicants are not permitted to engage in any mining or manufacturing operations. It must be remembered that the applicants are not permitted to carry out mining operations on the refinery lands. These facts do not prevent the applicants being engaged in the mining industry both at the refinery and on the conveyor. In my opinion, the fact that the Crown lease of the conveyor corridor does not permit the applicants to carry out manufacturing operations on that land does not of itself deny that machinery etc. used on that land may be for use in the mining industry in the treatment of products of mining operations.
As a basis for their submissions, counsel for the respondent contended that the mining operations at the mine site and the manufacturing process at the refinery were separate and distinct activities and that the conveyor belonged to neither. Counsel relied strongly on opinions expressed in the B.H.P. case by Barwick C.J., McTiernan and Menzies JJ. at 69 ATC 4028 at p. 4032; (1969) 120 C.L.R. 240, p. 275:
"The simplest matter now in dispute between the Commissioner and the taxpayer is expenditure and appropriations for expenditure upon the installation of the taxpayer's pelleting plant at Whyalla. We agree with Kitto J. that the expenditure made or provided for by appropriations is not deductible. In our opinion it was not expenditure in connexion with the mining operations carried on by the taxpayer upon its mining property in the Middleback Ranges and it was not upon development of that mining property. Iron ore mined as, or degraded in the course of transport into, small particles - `fines' as they are called - is, at this pellet plant, agglomerated into pellets about half an inch in diameter by a process which includes the addition of water and ventilite and subjection to heat and mechanical treatment. Pellets are more valuable than fines. They can be transported more easily than fines and, unlike fines, they can be used in blast furnaces. It is not necessary to determine a question upon which there was some debate, i.e., whether pellet making is a process of manufacture. It is sufficient to say that upon our understanding of what constitutes mining operations, pellet making is not such an operation, and, expenditure upon a pellet plant, is not for the purpose of more effectively carrying on the taxpayer's mining operations in the Middleback Ranges. Furthermore, it does not develop the taxpayer's mining property there."
This passage illustrates the difficulties of applying decisions under one Act to questions arising under another Act where different words are used. In the legislation under consideration in the B.H.P. case, there was no provision similar to the second limb in Item 14(1). Under that Item, a limiting factor is that both limbs apply in the mining industry. The Hamersley case makes it clear that, in all probability, if Item 14(1) had applied in the B.H.P. case, the activities involved in the pellet-making may well have been the treatment of the products of the mining operations at the Middleback
ATC 4322
Ranges. In the present case, the legislation makes no reference to any particular type of mining so questions similar to those discussed inR. v. Drake-Brockman; Ex parte National Oil Pty. Ltd. (1943) 68 C.L.R. 51 do not arise. The Northwest case draws attention to the fact that if the end product of the mining is a product in a form suitable for shipping, the treatment at a place far from the mine site may be mining operations. As has been said already, the end product of the mining operations in this case is alumina, but for present purposes, I am assuming that part of the bauxite blending process is carried out at the refinery site and that that process constitutes, in the mining industry, the treatment of the products of mining operations, namely bauxite.
In further support of their submissions that the mere transport of the bauxite on the conveyor corridor does not constitute "treatment", counsel for the respondent relied upon
Ready Mixed Concrete (Vic.) Pty. Ltd. v. F.C. of T. 69 ATC 4038; (1969) 118 C.L.R. 177 in which Kitto J. held that transit mixers on ready mix concrete trucks constituted machinery for manufacture even though they were used for transportation of goods. They distinguished that authority by arguing that further manufacture took place at the destination where further water was added at the point of delivery. If anything, the authority is against the respondent in that in the present case, on the assumption that the bauxite blending process constitutes "treatment", that process commences before the bauxite is first placed on the conveyor and is completed after the bauxite is delivered to the refinery. It is true that there is no blending process occurring on the conveyor but that, in my opinion, is not of relevance since the transportation is within the mining industry.
The decision of
Moreton Central Sugar Mill Co. Ltd. v. F.C. of T. (1967) 116 C.L.R. 151 can be distinguished because there the taxpayer had limited rights of passage only over the tramlines. This authority is discussed later in these reasons. For similar reasons, the decisions
Norton Harvesters Pty. Ltd. v. F.C. of T. 74 ATC 4080 and on appeal in the High Court 74 ATC 4230; (1974) 48 A.L.J.R. 332 do not assist the respondent on this aspect of the case. All these last-mentioned cases involve the concept of manufacture and to have any relevance in the present case, it must be accepted that the exemption to sales tax contained in Item 113C, based as it is on manufacture, excludes the operation of Item 14(1) from that part of the Worsley Project that constitutes manufacture at the refinery. Having regard to the views expressed in the Hamersley case, I do not accept that proposition and proceed on the basis that the second limb of Item 14(1) applies to the bauxite blending process carried out at the refinery site.
Counsel for the taxpayer attempted to distinguish the reasoning applied in the Northwest case. There, one mining lease only had been granted. It applied to the mine site, the pipeline corridor and the facilities at the port. In theory, it was argued, mining operations could be carried out over the whole of the mining lease. There would be grave practical difficulties in conducting mining operations on the pipeline corridor, but more importantly, in the present case, the activities of transporting the bauxite on the conveyor corridor is in the mining industry. For that reason, there is much to be said to adopt the approach of the Full Court of the Federal Court and rely upon what was the end product to be recovered in the integrated mining industry project. It is not appropriate to treat bauxite as the intermediate product of mining operations and the alumina as the end product of a manufacturing process separate and distinct from the mining operations. Even on the limited basis on which I am considering this part of the case, the bauxite blending process constitutes "treatment" within the second limb of Item 14(1) and on that basis the transport of the bauxite on the conveyor is to be considered as part of an integrated operation of treating the bauxite. It is clear that the Worsley bauxite, of itself, has no commercial value. It must be processed to obtain alumina before a commercial product is obtained.
Counsel for the respondent attempted to answer this conclusion by asserting that the ultimate end product is not alumina but rather aluminium or even the products obtained by the fabrication of aluminium. The facts of any one case determine the limits of the enquiry relevant to determine that case. It is true that the Worsley Agreements contain provisions for the possible establishment of an aluminium smelter but the applicants were under no obligation to establish a smelter. They have not done so. Therefore, there is no need to consider
ATC 4323
whether any smelter, if established, would be in the mining industry. For present purposes the end product cannot go beyond alumina.In the result, I conclude that the transportation of the bauxite on the conveyor forms part of the treatment of the bauxite. That treatment is in the mining industry. It follows therefore that Item 14 applies to exempt the applicants from liability to pay sales tax on the relevant machinery instruments and apparatus.
I. Item 113 - Aids to manufacture
This conclusion is sufficient to decide these proceedings but, in the circumstances, I should consider the application of Item 113C; cf. the Hamersley case per Lush J. at ATC pp. 4583-4584; A.L.R. p. 596. This consideration is based on the opinion that each of the exemptions contained in Item 14 and Item 113C can apply to the one set of facts - in other words, they are not mutually exclusive.
For the purposes of Item 113C, the relevant goods comprise the same machinery, implements and apparatus used on the conveyor as those referred to when considering the application of Item 14. It must be remembered that some of that machinery etc. is on the mine site land and some, including the machinery etc. used to drive the Flight 2 conveyor belt, is on the refinery land while the balance is on the conveyor corridor land. These goods were applied by Worsley Alumina, a registered person under Item 113C, to its own use. The issue is whether the use of these goods was "as aids to manufacture". Reference is made to the definition of "aids to manufacture" set out earlier in these reasons. The issue is whether the relevant goods were used by Worsley Alumina:
"in the course of carrying on a business (where that use is exclusively, or primarily and principally, for the purposes of that business), being -
- (a) machinery, implements and apparatus for use exclusively, or primarily and principally -
- ...
- (viii) in the transportation, within premises in which any activity is carried out by him as specified in this paragraph... of goods in relation to which that activity has been, is, or is to be, carried out by him;
- ..."
It should be noted that the word "goods" appearing in subpara. (viii) has a different meaning to the word "goods" appearing in the opening paragraph of the definition of "aids to manufacture". In the present case, the relevant "goods" for the purpose of subpara. (viii) comprise the bauxite being transported on the conveyor belts being part of the conveyor. Earlier in these reasons subpara. (i), (ii), (iii) and (ix) are set out as being the relevant provisions for the purpose of subpara. (viii) but of these, the most relevant subparagraph is (i). Thus the issue is whether the relevant machinery etc. used for the transporting of the bauxite from the mine site to the refinery is an activity:
"(i) in the actual processing or treatment of goods to be used in, wrought into or attached to goods to be manufactured;"
In the present case, the goods first referred to in subpara. (i) comprise the bauxite carried on the conveyor while the goods secondly referred to comprise alumina. In the present case, an issue arises as to whether that bauxite constitutes "goods to be so used or dealt with that those goods [bauxite], or some essential element thereof [alumina tri-hydrate], will form an integral part of the goods to be manufactured [alumina];" - see the definition of "goods to be used in, wrought into or attached to goods to be manufactured" set out earlier in these reasons.
In the present case, the respondent admits that Worsley Alumina has the exclusive possession of the joint venture assets for the purpose of managing the business of the four members of the joint venture. The respondent admits that the business being carried on is "the business of mining bauxite and refining the same into alumina in the Darling Ranges in Western Australia". The facts found by me show that that admission was correct. The importance flowing from this is that there is one business only being conducted by Worsley Alumina, namely the business of mining bauxite and refining it into alumina.
From what appears earlier in these reasons, the evidence shows that the blending process for the bauxite commences at the mine site. The bauxite, as so partially blended, is then transported on the conveyor to the refinery where the blending process is completed.
ATC 4324
Thereafter there are a number of different processes undertaken whereby the alumina is produced. Counsel for the applicants contended that each of these processes, namely the blending, the digestion, the separation, the precipitation and the calcination constitutes actual processing or treatment of goods within subpara. (i), and that the transportation of the bauxite from the mine site to the refinery on the conveyor is transportation "within premises" in which that actual processing or treatment is carried out. For this purpose they contended that the interest of the applicants in the land the subject of the Crown leases and the mining lease and the land owned in fee simple by the applicants constitutes the one "premises" within the meaning of subpara. (viii).A summary of the contentions made on behalf of the respondent can be given by a series of propositions:
- 1. The conveyor corridor is not to be regarded in any relevant sense as premises since it is not fenced nor is there:
- (a) any other physical boundary to the conveyor corridor; and
- (b) no activity other than transport takes place on the conveyor corridor.
- 2. Alternatively, if the conveyor is or is upon premises:
- (a) the conveyor corridor is not premises within which any relevant activity is conducted; and
- (b) such premises cannot properly be regarded as part of the premises occupied by either or both of the mine site or the refinery.
- 3. To come within Item 113C "aids to manufacture" reg. 4(a)(viii), a relevant manufacturing activity must be conducted within the premises where the transportation occurs. Here:
- (a) the manufacturing activity occurs only at the refinery;
- (b) the mine site is of a different tenure and no such relevant "processing or treatment" occurs there; and no processing or treatment occurs at any part of the conveyor corridor.
- 4. It is wrong to approach the characterisation of the operations being conducted at the various stages of the project from the point of view of:
- (a) an overall integrated process; or
- (b) alumina being the relevant end product, because this fails to apply the proper characterisation process and is inconsistent with the authorities. Further, such an approach tends to finesse or evade the proper analysis of the activity being performed and overlooks the differences in the activities being undertaken at different stages of the process, the effect which they have on the bauxite and the nature of the technologies involved.
In the Hamersley case, in the Full Court, Lush and Kaye JJ. held that Item 113C applied to grant exemption to sales tax with respect to parts of machinery used at the port in the blending process of the iron ore. They held that the blending was "treatment" and that the machinery parts were for machines for use in the "processing or treatment" of the ore within the definition in the Regulations of "aids to manufacture", subpara. (i): see pp. 607-608. It is interesting to see what was said by Lush J. at ATC p. 4588; A.L.R. p. 603:
"For the Commissioner it was contended that the contribution of the stacker and the reclaimers to the uniform intermingling of the mixed ore was insignificant; that the desired result was really achieved in the selection of ores to be delivered to the crushers and was virtually complete when the mine stacker stockpiled the ore from the mine screenhouse. The functions of the subsequent reclaiming and stacking processes were properly to be classified as handling, transportation and storage.
The exercise of classification in this way is relevant to questions arising in relation to item 113C, but not to item 14. Each of the three machines played a part in handling, transportation and storage operations, but the evidence establishes that the Paraburdoo [mine site] reclaimer completed a blending or intermingling phase the foundation for which had been laid by the operations of the mine stacker, that the Parker Point [port] stacker intermingled on the stockpiles Mount Tom Price [mine site] and Paraburdoo ore, and in the case of fines, return fines from the Parker Point
ATC 4325
screenhouse, and that the Parker Point reclaimer completed the intermingling of fines the foundation for which had been laid by the stacker. It also establishes that these results of the various operations were intended and desired, and that the contribution of each to the end result was significant."
By parity of reasoning, in the present case the blending of the bauxite at the refinery completes the blending process commenced at the mine site and constitutes the processing or treatment of bauxite. Of necessity, if the end product is to be treated as alumina, the processing or treatment of goods continues at the subsequent stages of the refinery process and the details of the chemical process that occurs at the various stages become irrelevant.
In the Hamersley case, no question arose with respect to the transportation within premises of the iron ore from the mine sites to the port. A related question, arising under different legislation, was considered in the Northwest case. It will be recalled that in that case, the one mining lease was with respect to the mine site, the port area and the long narrow strip of land connecting the two and upon which the pipeline was constructed. The reports do not show whether that narrow strip was fenced or not but it would be surprising to see fencing along the rough and remote areas through which the pipeline passed. The Full Court held that the pipeline was wholly within the mining property. The Court had to consider whether complex provisions of income tax legislation operated to prevent the taxpayer from claiming deductions with respect to the cost of constructing the pipeline. Part of the legislation referred to "transportation within premises". At 86 ATC pp. 4212-4213 and 64 A.L.R. p. 449, Lockhart J., with whose judgment the other members of the Full Court agreed, after referring to the legislation, said:
"I do not find it necessary to decide this question because in my opinion the pipeline is not used by the taxpayer primarily, principally and directly, or indeed at all, in the concentration of a metal or in the treatment or processing of a metal after its concentration. The pipeline is part of the taxpayer's mining operation; but its role is to convey slurry containing magnetic particles from the Savage River site to the Port Latta facilities and that is all it does. It is a misconception to regard the pipeline as being for use either in the processes of separating the metal from its ore or in the treatment or processing of metal after its separation. Hence, subsec. 62AA(4) does not apply to the pipeline.
In my opinion subsec. 62AA(2) does apply with respect to the pipeline. It is for use primarily, principally and directly in the transportation of `goods', namely, the slurry containing metallic particles which are, I think, liquids or substances within the statutory definition of `goods' stated in subsec. 62AA(1). The pipeline, notwithstanding its length of some 85 kilometres, is within the `premises' on which the taxpayer conducts its mining operations."
On the findings made in the present case, it appears that Item 113C applies to exempt the applicants from liability to pay tax on the relevant machinery etc. Accordingly, it is necessary to see whether legal authority constrains the Court to come to the contrary conclusion.
The essential feature of the contentions made on behalf of the respondent is that each process must be treated separately. Thus, it was contended that the mining operations ceased at the mine site and the treatment of the products of the mining operations commenced at the earliest at the refinery. That contention has been rejected. It was contended further that the manufacturing process commenced at the earliest when the raw product is treated or processed to produce something new. It was said that in this case, that commenced when the blended bauxite was fed into the grinder and met the caustic soda stream. As a secondary argument, it was contended that in any event, the manufacturing process could not commence before the blending process commenced at the refinery. In either event, the conveyor corridor, it was said, constituted a type of "no man's land", and could not constitute premises on which the activity of the actual processing or treatment of goods occurred.
For reasons given earlier, these contentions are rejected. In my opinion, the manufacturing process began at the mine site with the partial blending of the bauxite and was completed at the refinery with the production of the alumina. That was the very basis on which the joint venture was founded. That was the basis of the
ATC 4326
Worsley Agreements and the Worsley legislation. The Crown leases and the mining lease were granted to give effect to the Worsley Agreements and the Worsley legislation. Special conditions were contained in the various leases to do that. The normal provisions applicable in Crown leases under the Lands Act and mining leases under the Mining Act did not apply. There was but one project, one business, one premises, but the latter conclusion requires further elaboration.On the question of when manufacture commences, counsel for the respondent relied upon a number of authorities in which other legislation was being considered. Most of those authorities are not of real assistance in the present case. The particular facts of this case are very different from the facts of those cases. The legislation was different. Thus Norton Harvesters Pty. Ltd. v. F.C. of T. 74 ATC 4080 and on appeal 74 ATC 4230; (1974) 48 A.L.J.R. 332 depends upon its own facts and the Income Tax legislation. Likewise with respect to Utah Development Co. v. F.C. of T. 75 ATC 4103; (1975) 5 A.L.R. 474 and on appeal F.C. of T. v. Utah Development Co. 76 ATC 4119; (1976) 50 A.L.J.R. 678, and the Moreton Central Sugar Mill case. The Ready Mixed Concrete case does not assist the respondent.
Counsel for the respondent attempted to distinguish the principles applied in the Northwest case. He referred to the fact that there was one mining lease only in that case and that there was no intermediate product. On this latter point, it must be remembered that the Worsley bauxite has no commercial value in itself. Its only value is in its use in the production of alumina at the Worsley Refinery. As in the slurry being transported in the Northwest case, the goods have no commercial value until the processing or treatment is completed after arrival at the port. No manufacturing or processing occurred in the pipeline. In the present case, I am of the opinion that the bauxite does not constitute an intermediate product, and the cases which are earlier mentioned do not assist the respondent.
Counsel relied on statements appearing in
Davis Coop and Co. Ltd. v. F.C. of T. (1949) 77 C.L.R. 299 to support their contention that manufacture in the present case, for the purposes of subpara. (i), (ii) and (iii), commenced at the stage when at the earliest the soda stream is added to the ground bauxite and that the premises on which transportation occurred, to come within subpara. (viii), had to be on the same premises. Similar principles are enunciated in the Moreton Central Sugar Mill case. This proposition was not disputed by counsel for the applicants. This issue must be determined on the facts of this case.
In my opinion, the fact that the conveyor corridor is not completely fenced is immaterial. Where the corridor does cross roads, entry to the corridor is restricted by locked gates and fences. As in the Northwest case, it would not be practical to fence the whole of the corridor as it extends along the rough and remote areas between the mine site and the refinery. Further, environmental requirements insisted that native fauna be permitted to pass through the corridor. The leases contain the traditional words "demise and lease". They are for different tenures but all designed to enable the applicants to carry out the Worsley project. The interests the applicants have in the land is more than a mere licence. They have the right to exclusive possession and have exercised that right. The whole of the mine site land, the refinery land and the conveyor corridor land constitute premises and the one premises to enable the applicants to carry on the one business of mining bauxite and refining it into alumina.
In the result, the relevant machinery etc. used by Worsley Alumina in the conveyor were goods applied by it to its own use as aids to manufacture. In coming to this conclusion, I am satisfied that the relevant machinery is being used in the transportation within premises within the meaning of para. (a)(viii) of the definition of "aids to manufacture" contained in reg. 4 of the Sales Tax Regulations.
Accordingly a declaration will be made in the form of the first declaration sought.
THE COURT ORDERS THAT
the respondent pay the applicants' costs.
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