Federal Commissioner of Taxation v. Reynolds Australia Alumina Ltd. & Ors.
Judges:Beaumont J
Wilcox J
Burchett J
Court:
Full Federal Court
Beaumont J.
Reynolds Australia Alumina Ltd., The Shell Company of Australia Limited, BHP Minerals Ltd. and Kobe Alumina Associates (Australia) Pty. Limited ("the joint venturers"), four of the respondents in this appeal, are members of a joint venture ("the joint venture") carrying on the business of mining bauxite and refining it into alumina in the Darling Ranges in Western Australia. Worsley Alumina Pty. Ltd., the fifth respondent, a company controlled by the joint venturers, is the manager of the joint venture. The respondents have constructed near Worsley, W.A., mine facilities and an alumina refinery and the present dispute concerns sales tax claimed by the Commissioner of Taxation in respect of an overland conveyor facility ("the conveyor") operating between the mine facilities and the refinery. The Commissioner claimed that the respondents were liable to pay sales tax in respect of the constituent parts of the conveyor applied to their own use. The respondents disputed this, contending that the constituent parts of the conveyor were exempt from sales tax for several reasons. In the first place, they said that the conveyor fell within Item 14(1) in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 as follows:
"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."
(Emphasis added.)
Alternatively, the respondents claimed exemption by virtue of Item 113C of the First Schedule as "Goods... applied by a registered person to his own use as aids to manufacture (as defined by [the Regulations])...". Regulation 4(1) of the Sales Tax Regulations defines "aids to manufacture" to mean:
"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;
- ...
- (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..."
(Emphasis added.)
A Judge of this Court upheld the respondents' claim for exemption from tax, making a declaration that none of the respondents was liable to pay sales tax in respect of any constituent part of the conveyor [reported at 87 ATC 4305]. The Commissioner now appeals from this order.
Bauxite is a rocklike substance; it consists of alumina trihydrate together with other substances which for present purposes can be described as "mud". Geologists refer to alumina trihydrate or hydrated aluminium oxide as gibbsite. Aluminium oxide is commonly known as alumina and alumina is the basic material used in a smelting process to produce aluminium. The amount of gibbsite in bauxite varies so that the greater the proportion of gibbsite in bauxite, the richer the bauxite; the mud content of bauxite is a waste product for which there is no commercial use. It is feasible to transport bauxite rich in gibbsite (high grade bauxite) long distances to refine alumina elsewhere; but, because of transport costs, this is not a viable proposition if the bauxite is poor in gibbsite (low grade bauxite).
There are large deposits of low grade bauxite in the Darling Ranges. Since the deposits contain some 30% gibbsite only, it is not practicable to transport the bauxite from these deposits to overseas refineries. In 1957, it was realised that the commercial exploitation of these deposits was possible. In the 1960s, with the support of the State of Western Australia, a number of proposals for the mining of this bauxite and its refining into alumina locally were brought forward. In 1970, the State
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entered into an agreement with Alwest Pty. Ltd. ("the Bunbury agreement"). Under the Bunbury agreement, which was ratified by the Alumina Refinery (Bunbury) Agreement Act 1970 (W.A.), Alwest covenanted to commence the construction of a refinery near Bunbury and to produce specified amounts of alumina; to transport to the refinery bauxite mined from mining premises in respect of which mineral leases would be granted and, for that purpose, to construct an appropriate conveyor or pipeline between the mineral lease area and the refinery or effect alternative means of transportation; and to pay to the State a royalty on all alumina produced at the refinery.After the making of the Bunbury agreement, further feasibility studies were carried out and other parties became involved. The site of the refinery was changed to a site near Worsley, inland from Bunbury in the Darling Ranges. The refinery site was not far from Collie, near which coal is produced: coal is needed to fuel the furnaces necessary to provide energy used in the mining and refining operations including the transport of the bauxite on the conveyor. The Worsley site offered a supply of the water required for the refining process itself; also, water is needed for the disposal of the mud, known as red mud, which is removed from the bauxite at the refinery. The mine site is near Boddington, approximately 50 km from Worsley.
In 1971, a subsidiary of Broken Hill Proprietary Limited, Dampier Mining Company Ltd. ("DAMCO"), acquired a 50% interest in Alwest's rights under the Bunbury agreement. Reynolds Metals Company, a North American corporation, was invited to participate in the development proposed. Further feasibility studies conducted during 1973 led to the execution in 1974 of another development agreement between Alwest, DAMCO, and the State ("the Worsley agreement") which was authorised by the Alumina Refinery (Worsley) Agreement Act 1973 (W.A.). Thereafter, by various agreements, the joint venturers acquired in proportionate shares the Worsley agreement rights and various other assets and rights necessary for the implementation of the Worsley joint venture agreement. The joint venturers undertook to construct a refinery; 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. They further agreed to facilitate such transport and the transport of coal and other materials required by them for use at the refinery. To that end they were to construct an appropriate conveyor or pipeline between the mineral lease and the refinery and a pipeline from the refinery to Bunbury. 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. The State agreed to take all steps required on its part to permit performance of the Worsley agreement. After 1973, a number of amendments were made to the Worsley agreement, which were ratified by the Alumina Refinery (Worsley) Agreement Act 1978 and the Alumina Refinery (Worsley) Agreement Act 1982 . These amendments are not presently relevant.
The Worsley Joint Venture Agreement was entered into by the joint venturers on 7 February 1980. Under that agreement, the parties agreed that they associate 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". The joint ventures also entered into a management agreement with Worsley Alumina. 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.
Construction of the project facilities comprising the facilities at the mining compound, the overland conveyor and the refinery facilities began in 1980. The first alumina was produced in April 1984. The mine is on a large area of land held by the joint venturers under a mining lease granted pursuant to the Mining Act 1978 (W.A.) and the Alumina Refinery (Worsley) Agreement Act 1973 for the purpose of mining for bauxite. Part of the conveyor is constructed on this land. The conveyor is constructed along a corridor of land connecting the mine site and the refinery. The joint venturers hold freehold title to some of this land; the balance is held by them under a Crown lease granted pursuant to the Land Act 1933 (W.A.) and the Alumina Refinery (Worsley) Agreement Act 1973 for the purpose of constructing and operating a conveyor for
ATC 5021
the transport of bauxite from the mining lease area to the refinery site and for ancillary purposes. The joint venturers have no authority to mine in the corridor. Because of environmental considerations, the corridor is not in a straight line from the mine site to the refinery. It consists of two lines - flight 1, which is 30 km long; and flight 2, which is 21 km long. The refinery is situated on land held by the joint venturers under Crown leases granted pursuant to the Land Act and the Alumina Refinery (Worsley) Agreement Act 1973 for the purpose of constructing and operating an alumina refinery and for ancillary purposes. Part of the conveyor is constructed on this land. The refinery site comprises the refinery and all associated works including a reservoir, a dam, the red mud disposal area and railway tracks.The floor of the bauxite to be mined comprises clay containing reactive silica. The floor is uneven and clay pinnacles often protrude into the bauxite. The quality of the bauxite varies. The percentage of gibbsite in the bauxite ranges from 21.7% to 32.8% while the percentage of reactive silica varies from 0.7% to 2.6%. In the refining process it is important that, as far as possible, the bauxite being fed in contains the same percentage of gibbsite, optimally 30.7% and, as far as possible, a constant percentage of silica. Any variation from these standards causes problems in the refining process. These standards are maintained by a blending procedure; this process takes place partly at the mine site and partly at the refinery site.
As part of the mining procedure, the overburden is removed; where necessary, the hardcap bauxite is blasted. 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. The bauxite is taken to a primary crusher and tipped into a surge hopper; the crushed bauxite is then carried by a conveyor belt to a secondary crusher and fed into a surge bin; it is then fed by a conveyor to a surge pile and recovered from the surge pile by means of feeders placed under its base. The bauxite is next fed on to an accelerator belt and then transported by the overland conveyor belt (flight 1 of the conveyor). The speed of the accelerator belt and the conveyor belt are controlled from the control room at the refinery. The withdrawal rate is about 2,040 tonnes per hour. The bauxite takes some 2 ¼ hours to travel from the mine site to the refinery, moving at about 22 k.p.h. The weight of bauxite on the conveyor belts when fully operational is about 5,000 tonnes.
The point at which the bauxite is fed on to flight 1 is on the mine site. The conveyor then enters upon the conveyor corridor, traversing hilly country and crossing rivers and roads. A private roadway is built alongside the conveyor. The corridor is not fenced but when it crosses roads, fences have been built along the road boundaries. The roadway is used for the purpose of maintenance of the conveyor and for access between the mine site and the refinery. Although the total distance traversed is 51 km, most of the corridor is State forest with very little development of any kind en route.
The conveyor consists of a cable belt system. The belt carrying the bauxite rests on steel cables and power is applied to the cables to move the belt; the cables are supported by pulley wheels. The belt is covered by a roof. 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.
As the bauxite arrives at the refinery, samples are taken to determine the quality of the bauxite. From the analysis made of the bauxite arriving at the refinery, 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. The bauxite is stockpiled at the refinery site. The method of stacking the stockpiles and the recovery of bauxite from the stockpiles complete the blending process of the bauxite prior to its being fed into the refinery procedures.
At the refinery, alumina is refined from the bauxite by the "Bayer" process. This involves a number of procedures: digestion, separation, precipitation and calcination. It is not necessary for present purposes to examine the detail of these procedures.
A . Item 14(1)
The primary Judge dealt first with the claim for exemption under Item 14(1). It will be recalled that this item exempts "[m]achinery, implements and apparatus (other than road
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vehicles of the kinds ordinarily used for the transport of persons or the transport or delivery of goods...), for use in the mining industry in carrying out mining operations or in the treatment of the products of those operations". It is convenient to consider separately the meaning and application of the three limbs of the provision as follows: (1) "for use in the mining industry"; (2) "in carrying out mining operations"; and (3) "in the treatment of the products of those operations"."For use in the mining industry"
It is common ground that the respondents carry on the business of mining bauxite and refining it into alumina. It is also common ground that the conveyor is machinery, implements and apparatus "for use in the mining industry". The primary Judge was of the view that, in the light of the decisions and reasoning in
R.
v.
Hickman
;
Ex parte Fox and Clinton
(1945) 70 C.L.R. 598
at pp. 608-609
;
R.
v.
Central Reference Board
;
Ex parte Thiess (Repairs) Pty. Ltd.
(1948) 77 C.L.R. 123
at pp. 140-142
;
F.C. of T.
v.
Hamersley Iron Pty. Ltd.
81 ATC 4582
at p. 4589;
(1981) 37 A.L.R. 595
at p. 604
; and
R.
v.
Coldham
;
Ex parte The Australian Workers' Union
(1983) 153 C.L.R. 415
at p. 425
, this concession by the Commissioner was correctly made. In this connection, his Honour placed particular reliance upon the circumstances that, with respect to the activities at the mine site and the refinery, there was "the one employer, Worsley Alumina, the one operation identified as the Worsley Project and the one integrated overall activity". I respectfully agree with the primary Judge's conclusion that the conveyor facility was for use in the mining industry.
"In carrying out mining operations"
Before the primary Judge and before us the Commissioner disputed that this limb was satisfied here. It was said that "mining operations" were conducted only at the mine site; that such operations were concluded when the bauxite was recovered in manageable dimensions fit for use, transport or delivery; and that this stage was reached when the bauxite emerged from the secondary crusher and was deposited on the surge pile. Thus, it was submitted, the transport of the bauxite from the mine site to the refinery was not part of a mining operation.
Because his Honour was of the view that other provisions of the legislation provided an exemption from tax, he did not need to decide this question.
In my opinion, the conveyor facility is part of the mining operations conducted by the respondents within the meaning of this limb of Item 14(1).
It is possible to deduce from the settled course of authority in this area a number of general propositions:
- (i) Because the object of a provision such as Item 14(1) is to encourage the production of minerals in Australia, the exemption should be construed and applied liberally (see
F.C. of T. v. ICI Australia Ltd. 71 ATC 4253 , and 72 ATC 4213 at pp. 4216, 4227; (1971-1972) 127 C.L.R. 529 at pp. 563; 581 ). - (ii) The notion of "mining" is a flexible rather than fixed one so that, conceptually, it is capable of accommodating technological change (see the ICI case at 72 ATC p. 4226; C.L.R. p. 579).
- (iii) "Mining operations" means operations pertaining to mining and "operations" is a very wide expression. For instance, "mining operations" is wider than "the working of a mining property" (see
Parker v. F.C. of T. (1953) 90 C.L.R. 489 at p. 494 ). - (iv) The present question is one of fact and degree (see the
ICI case;
F.C. of T. v. Northwest Iron Co. Ltd. 86 ATC 4202 at p. 4209; (1986) 64 A.L.R. 436 at p. 445 ). - (v) In determining whether the exemption is applicable, it is appropriate to have regard to practical and businesslike considerations and, for this purpose, to look at the matter in the context of the taxpayer's activities as a whole (see the Northwest Iron case at ATC pp. 4210-4211; A.L.R. pp. 446-447).
It follows, in my view, that the ultimate question of characterisation in the present case, one of degree and thus of judgment, is whether the conveyor facility may fairly be seen to be part of the activities carried on at the mine site in the sense of being ancillary to those activities or whether, on the other hand, the conveyor facility should be perceived as something which stands apart from, and is independent of, the activities at the mine site (see
F.C. of T.
v.
Henderson
(1943) 68 C.L.R. 29
at pp. 39, 45, 50
;
ATC 5023
F.C. of T. v. Broken Hill Pty. Co. Ltd. 69 ATC 4028 at pp. 4030-4031; (1968) 15 A.T.D. 43 and 226 at pp. 46-47; (1967-1969) 120 C.L.R. 240 at pp. 244-245; 272-273; 275 ).
The conveyor facility should, I think, be seen as something ancillary to the activities at the mine site and therefore part of the mining operations conducted by the respondents (cf.
Lopinot Limestone Ltd.
v.
A.-G. of Trinidad
&
Tobago
(1987) 3 W.L.R. 797
at pp. 801-802
). As has been said, to determine when mining operations begin and end is one of fact and degree. The considerations which, in my view, indicate a sufficient connection for present purposes between the conveyor operations and the actual process of winning the product at the mine site are as follows: first, the circumstance that the conveyor belt activity commences within the mine site area is, I think, significant. It emphasises the physical proximity between the various activities at the mine site, especially the recovery, withdrawal and movement of the mineral product. The conveyor is anchored, so to speak, in the mine site. Secondly, the conveying of the product is part of a single, integrated operation which commences at the surge pile and continues until the product is dumped and then blended at the stockpiles at the refinery. Given this proximity and this integration, any attempt to fragment the respondents' activities into a number of distinct compartments must run the risk of producing an artificial and unrealistic result. I will return to this later.
On behalf of the Commissioner, it was strongly submitted that the reasoning of the Full High Court in the BHP case was decisive for present purposes. It will be necessary to refer to the facts and legislation in that case in some detail. The taxpayer worked ironstone deposits in the Middleback Ranges in South Australia and transported the ore 30 miles by rail to Whyalla which was the nearest seaport. It improved the harbour facilities at Whyalla by installing an ore-loading jetty, and constructed a pelleting plant for the conversion of powdered ore into pellets for convenience of loading, shipment and subsequent use in blast furnaces. The taxpayer claimed that the expenditure on the pelleting plant and on the harbour improvements were allowable deductions under sec. 122(1) of the Income Tax Assessment Act 1936 as follows:
"When a person, in connexion with the carrying on by him of mining operations upon a mining property... for the purpose of gaining or producing assessable income, has incurred expenditure of a capital nature on necessary plant, development of the mining property... an amount ascertained in accordance with this section shall be an allowable deduction in respect of that expenditure."
It will have been noted that sec. 122(1) differed from Item 14(1) in significant respects. Section 122 required that the expenditure be incurred in connection with the carrying on of mining operations upon a mining property; further, the expenditure had to be incurred in respect of necessary plant or in the development of the mining property. Kitto J., sitting at first instance, held that the cost of the harbour improvements was deductible but that the expenditure on the pelleting plant was not.
In construing sec. 122, Kitto J. explained the meaning of the phrase "mining operations" (at A.T.D. p. 47; C.L.R. pp. 244-245):
"This expression is wider than `the working of a mining property'. It embraces not only the extraction of mineral from the soil, but also all operations pertaining to mining... Thus it comprehends more than mining in the narrow sense which imports the detaching of lumps of material from the position in which in a state of nature they form part of the soil. It extends to any work done to a mineral-bearing property in preparation for or as ancillary to the actual winning of the mineral (as distinguished from work for the purpose of ascertaining whether it is worthwhile to undertake mining at all)... Likewise it extends to any work done on the property subsequently to the winning of the mineral (e.g., transporting, crushing, sluicing and screening) for the purpose of completing the recovery of the desired end product of the whole activity... In each case it is the close association of the work with the mining proper that gives it the character of operations pertaining to mining. Accordingly, such subsequent procedures as above mentioned, if carried out at a distance from the mining property, may be in particular cases so dissociated from the mining that they are properly to be considered as standing on their own feet (so
ATC 5024
to speak) and to be characterised not by reference to the mining but by reference only to the result which they themselves achieve."(Emphasis added.)
On appeal, it was held by the Full Court ( Barwick C.J., McTiernan, Menzies and Owen JJ.) that Kitto J. correctly disallowed the claim to deduct the cost of the pelleting plant. On the question of the deductibility of the expenditure on the harbour improvements, the majority ( Barwick C.J., McTiernan and Menzies JJ., Owen J. dissenting), reversing Kitto J. on the point, held that no deduction should be allowed. Barwick C.J., McTiernan and Menzies JJ., in a passage now heavily relied on by the Commissioner, said (at ATC p. 4031; C.L.R. pp. 272-274):
"We agree entirely with his Honour's view that `mining operations' covers `work done on a mineral-bearing property in preparation for, or as ancillary to, the actual winning of the mineral', but, with regard to the statement, that `it extends to any work done on the property subsequently to the winning of the mineral (e.g., transporting, crushing, sluicing and screening) for the purpose of completing the recovery of the desired end product of the whole activity', we have a reservation. We do not doubt that to separate what it is sought to obtain by mining from that which is mined with it, e.g., the separation of gold from quartz by crushing etc., or the separation of tin from dirt by sluicing, is part of a `mining operation' but we would not extend the conception to what is merely the treatment of the mineral recovered for the purpose of the better utilisation of that mineral. Thus to crush bluestone in a stone crushing plant so that it can be used for road making, or to fashion sandstone so that it becomes suitable for building a wall or a town hall is not, as we see it, a mining operation. Nor would the cutting of diamonds or opals which have been recovered by mining operations fall within the description of mining operations... once the iron ore is obtained in manageable lumps then its further treatment, either to reduce or increase its size so that it can be conveniently transported from the mine and better utilised in industry, forms no part of the mining operation. In the same way we would not regard the converting of brown coal into briquettes as part of a mining operation; nor would we regard the treatment in a refinery of naturally occurring hydro-carbons in a free state as part of the operation of mining for petroleum... because we think `the end product' of the mining activity in this case is iron ore to be taken away from the mining property, we consider that `mining operations' ends when the iron ore is in a state suitable for this. The taking away from the mining property of ore which has been mined, whether that be done by the mining company or by someone else, is a step subsequent to the conclusion of the mining operations."
(Emphasis added.)
In the ICI case, where the meaning and application of sec. 122(1) were also considered, Barwick C.J., McTiernan and Menzies JJ. elaborated upon the significance of the recovery process in defining the activities comprehended by the expression "mining operations". Their Honours also spoke further of the distinction, in this context, between mining activities and the process of treatment of minerals. The taxpayer was lessee under mining leases under the surfaces of which were substantial quantities of brine at up to three times the normal salt concentration of sea water. The taxpayer sank bores and pumped brine to the surface in a series of pools where it was concentrated by natural evaporation. After crystallisation, the salt was removed and washed. Walsh J. held that the taxpayer was carrying out mining operations on a mining property. On appeal, his Honour's decision was affirmed by a majority ( Barwick C.J., McTiernan and Gibbs JJ., Menzies J. dissenting). Barwick C.J., McTiernan J. concurring, said (at 72 ATC p. 4218; C.L.R. p. 565):
"The next question arising in the appeal is whether the process of evaporating the brine in the controlled fashion described forms part of the mining operation. Of course, if the evaporation was of sea water or of salt water obtained otherwise than from below the surface of the earth, the evaporative process would not itself be a mining operation any more than the pumping of the water from the sea or from a lake would be a mining operation. But though the evaporative process is similar in each case the facts that the brine is the immediate product, as I think, of a mining operation and that the recovery of the mineral raised by the mining operation is not complete
ATC 5025
until the evaporative process has taken place lead me to conclude that that evaporative process is itself so associated with the raising of the brine and the recovery of the metal, sodium chloride, as to be part of the mining operation."
Menzies J. was of the view that there was no "mine" at the site in question. But his Honour added (at 72 ATC p. 4222; C.L.R. p. 573):
"I should, however, add that if I were wrong in this and that ICI is at Port Alma carrying on mining operations upon a mining property, I would consider that the pumping of brine from the aquifer to the surface is the only mining operation there carried on. ICI is, within the relevant provisions of the Act, mining brine; the evaporation of sufficient water from the brine to enable salt crystals to form is not, in my opinion, part of its mining operation. At Osborne the evaporation of sea water is not a mining operation; at Port Alma the evaporation of sea water is not a mining operation; nor, I think, is the evaporation of water from the brine which has been obtained by a mining operation. Once the brine is pumped from the aquifer into the evaporation tanks, the mining operation comes to an end... the bringing of the brine to the surface is, having regard to the Act as a whole, a mining operation to obtain brine, the treatment of that brine and sea water to obtain salt is not. In F.C. of T. v. Broken Hill Proprietary Co. Ltd. ... it was pointed out that what was being mined at Middleback Range was iron ore, not iron, and the treatment of that iron ore was not a part of the taxpayer's mining operation. So here the treatment of the brine mined is, as I see it, no part of the operation to mine brine."
In considering whether the mining operation ceased when the brine had reached the surface, Gibbs J. said (at 72 ATC p. 4228; C.L.R. p. 583):
"In my opinion, the treatment of the brine after it had been pumped to the surface and before it was harvested in the crystallisers was for the purpose of separating that which it was sought to obtain by mining, viz. salt, from that which was mined with it, namely water and the calcium and magnesium salts. The object of ICI's operation was, I consider, to obtain salt, not to obtain brine. I agree, therefore, with the view taken by my brother Walsh that all the operations up to crystallisation formed part of the mining operations."
This division of judicial opinion in the BHP case and in the ICI case indicates the often difficult task involved in determining when mining begins and ends in a given case. At the conceptual level, it is legitimate to draw a distinction between the process of recovery on the one hand and the treatment of the product on the other. The practical application of such a test is another matter. Being a question of fact and degree, it is not easy to articulate a test for the drawing of the correct dividing line which can be applied in every case. The difficulty is pointed up in the present case. Starting from the initial recovery procedures at the mine site, the respondents embark upon a series of steps leading to the feeding of the bauxite into the refining process. These steps are not isolated, independent events. Each step is part of a single complex of activities (cf. the BHP case per Kitto J. at A.T.D. p. 53; C.L.R. p. 254; affirmed on appeal at C.L.R. p. 275). Given the obvious conclusion that mining operations have begun at some stage, the question remains: when do the operations end?
It is, I think, convenient to consider the question in stages: (1) The actual recovery of material from the pods and the loading of the bauxite on to dump trucks. These are clearly part of the mining operations. (2) The primary and secondary crushing activities. It is conceded by the Commissioner, correctly I think, that these are comprehended within the mining operations. (3) The conveyance of the crushed bauxite to the surge pile. Again, it is properly acknowledged by the Commissioner that this forms part of the mining operations. (4) The feeding of the product on to an accelerator belt and thereafter its transportation by the overland conveyor facility. This is the point of departure between the parties and raises the present question.
As has been noted, the Commissioner correctly recognises that stages (1), (2) and (3) above form part of the respondents' mining operations. Yet it is said that at the surge pile the respondents' activities assume a different character, that is to say, the transport of the product. This statement may be accurate in a narrow sense but the present question, one of
ATC 5026
characterisation, calls for a broad view (cf. per Kitto J. in the BHP case at A.T.D. p. 53; C.L.R. p. 254). A similar type of argument was put on behalf of the Commissioner in the ICI case. He contended that what the taxpayer had been engaging in was brine-pumping, not mining (at 71 ATC p. 4268; C.L.R. p. 557). The argument was rejected. Barwick C.J. said (at 72 ATC p. 4217; C.L.R. p. 565):"To speak of brine pumping is, in my opinion, but to describe the particular method of recovery employed, that is to say, conducting the mining operation."
In the present case, it is not in contention that there are mining operations being conducted at the mine site. The only question is where those operations end. In the ICI case, a more fundamental issue arose because the Commissioner argued that the taxpayer's activities were entirely different from the traditional concepts of mining. Here, the issue is one of degree only, that is to say, the extent of those operations.
In my opinion, the location of the conveyor facility on the mine site at its commencement point together with its role as part of a single complex of operations occurring between the surge pile at the mine site and the blended stock piles at the refinery site suggest that there is only one relevant activity being carried on; and that this activity should be viewed as operations pertaining to mining rather than the independent activity of the transportation of minerals. Put differently, to fragment the respondents' activities in the way suggested by the Commissioner leads to arbitrary and therefore artificial distinctions being drawn within what is acknowledged to be an integrated activity. The preferable view is that the conveyor facility is so closely associated with and ancillary to the respondents' mining activities as to be part of those activities. It is an operation which pertains to mining.
"In the treatment of the products of [mining] operations"
The primary Judge found that this limb of Item 14(1) was satisfied. In essence, his Honour's reasons for deciding that the transportation of the bauxite on the conveyor formed part of its treatment were as follows: the statutory concept is not limited to machinery, etc. used directly in the treatment of the products, e.g. (a) the primary crusher at the mine site or (b) the conveyor used at the refinery site to move the bauxite from the point at which it is received to the stockpile machinery; the end product of these mining operations is alumina; part of the bauxite blending process is carried out at the refinery site; that process constitutes, in the mining industry, the treatment of the products of mining operations, viz., bauxite; and, although no blending process occurred on the conveyor, this was immaterial because, by analogy with the reasoning in the Northwest Iron case, the transportation of the bauxite on the conveyor should be considered to be part of the integrated activity or operation of treating the bauxite.
The Commissioner now challenges this approach. He contends that all that is involved in the function of the conveyor is the transport of minerals after the mining operation has concluded. The Commissioner accepts, correctly I think, that the blending of the bauxite which occurs at both the mine stockpile and the refinery site by virtue of the combined effects of the stacking and reclamation procedures, constitutes the treatment of the products of mining operations (see the Hamersley Iron case ). But he fastens upon the circumstances that no blending occurs by the use of the conveyor; and that no processing or treatment of any description, mining or manufacturing, occurs on or with the use of the conveyor.
If I be wrong in my conclusion that the second limb of Item 14(1) was satisfied there, then, in my view, the third limb of that item was satisfied.
It may be accepted, as the Commissioner contends, that nothing except its movement happens to the bauxite during the course of its transit upon the conveyor. But to characterise this aspect of the respondents' activities merely as transportation is, I think, to take an unduly restricted view of the function of the conveyor. As has been said, it is part of a single complex of activities commencing at the surge pile at the mine site and ending at the stockpile in the refinery area. It is only in an artificial and unreal sense that it is possible to fragment the respondents' activities into a number of discrete parts. The preferable approach is to look at those activities as they really are, that is to say, as an integrated operation. So regarded, the conveyor facility should be seen as something
ATC 5027
ancillary to, and therefore part of, the actual treatment process rather than something independent of that process.Again, the question is one of fact and degree which, in the ultimate analysis, calls for an exercise of judgment as to what is the real function or place of the conveyor in the scheme of the respondents' activities. In my opinion, to see the conveyor facility as something incidental to the treatment of the bauxite accords better with the practical and businesslike considerations which should influence the proper approach to be taken in the present context. And, as has been said, it is appropriate that Item 14(1), in all its aspects, should be construed and applied liberally.
Again, the Commissioner's argument, if accepted, leads to difficulties, in the present type of case, in the drawing of a satisfactory dividing line to establish where the process of treatment begins and where it ends. It is conceded by the Commissioner that the blending procedures, which are commenced at the mine site and are completed in the refinery area, amount to "treatment" for present purposes. The conveyor operates between these points. There is sufficient proximity, physically and functionally, in all of these activities to justify the classification of the facility as something incidental to the treatment process.
It may be accurate, in a limited sense, to speak of the conveyor's function as that of transportation; but the question remains of attributing to the facility its real or true character for present purposes. This calls for a broad view, judged in the context of the respondents' activities taken as a whole. Merely to describe the facility's mechanical functions is not enough (see per Barwick C.J. in the ICI case at 72 ATC p. 4217; C.L.R. p. 565 in the passage cited above). Viewed more broadly, the conveyor may be seen in its real role, that is to say, as something ancillary to the mining operations or to the treatment of the minerals or to both of these things. On any view, the respondents qualified for exemption under Item 14(1).
B. Item 113C " Aids to manufacture - machinery, implements and apparatus for use... (i) in the actual processing or treatment of goods to be used in goods to be manufactured... (viii) in the transportation within premises... of goods... "
The primary Judge held that the respondents qualified for exemption on this ground also. Shortly stated, his Honour's reasons for this conclusion were that the blending process commences at the mine site; the bauxite, partially blended, is then transported to the refinery area where the blending process is completed; thereafter, a number of different processes are undertaken, resulting in the production of alumina; each of these processes, viz., blending, digestion, separation, precipitation and calcination constitute "the actual processing or treatment of goods" for the purposes of subpara. (i) of para. (a) of Item 113C; the transportation of the bauxite from the mine to the refinery is transportation "within premises" in which that actual processing or treatment is carried out for the purposes of subpara. (viii); and the interests of the respondents in the lands the subject of the Crown leases and of the mining leases and in the freehold titles constitute one set of "premises" within the meaning of subpara. (viii).
The Commissioner now disputes this reasoning. He says that the conveyor itself cannot be regarded as "premises" in any relevant sense: the site of the facility is not fenced off; and there is no activity involved other than mere transportation. Alternatively, the Commissioner argues that even if the conveyor facility can be regarded as "premises" or as erected upon "premises", these are not premises within which any relevant activity is conducted; and such premises cannot properly be regarded as part of the premises occupied by either, or both of, the mine or the refinery. He says that to come within subpara. (viii), a relevant manufacturing activity must be conducted within the premises where the transportation occurs. But, he submits, the manufacturing activity occurs only within the refinery area, the mine site is held under a different tenure and no relevant "processing or treatment" occurs there; and no processing or treatment takes place upon any part of the conveyor. The Commissioner denies that the three different leases, with differing rights and tenures, can be treated as one continuous set of premises.
If I be wrong in thinking that the conveyor fell within Item 14(1), then, in my respectful opinion, the primary Judge was correct, for the
ATC 5028
reasons he gave, in concluding that Item 113C applied here.The real point of departure between the parties on this branch of the argument is whether it is appropriate to describe the whole of the lands used by the respondents for the purposes of the Worsley project as a single set of premises. In my opinion, what areas constitute a single premises, as distinct from separate premises, for present purposes, is not a question of law. Rather, it is a question of fact to be determined in the light of all the circumstances (cf.
Phonographic Performance Ltd.
v.
Pontin's Ltd.
(1968) Ch. 290
at pp. 296-297
). Where, as here, the taxpayers carry on a single complex of activities at a number of different, but adjacent, locations, it is appropriate to classify those locations together as a single set of premises (cf. the
BHP case
at A.T.D. pp. 47-48; C.L.R. pp. 245-246; the
Northwest Iron case
at ATC pp. 4211-4212; A.L.R. pp. 447, 448).
The Commissioner relies heavily, in this connection, upon the decision and reasons of
Kitto
J. in
Moreton Central Sugar Mill Co. Ltd.
v.
F.C. of T.
(1964) 116 C.L.R. 151
but the case can be distinguished here on its facts, in terms of its legislation and in point of its reasoning. A sugar mill proprietor claimed as a deduction under sec. 62AA of the
Income Tax and Social Services Contribution Assessment Act 1936
its investment in the purchase of a locomotive and trucks used for the carriage of sugar cane from points at or near fields where cane was delivered by growers. To qualify under sec. 62AA(2) plant had to be owned for use "(e) in the transportation, within premises within which any property in relation to which [the] section applies is used, of goods in relation to which that property is to be or has been used". The locomotive and trucks were used on tramlines constructed and operated by the taxpayer, but the major portion of those lines traversed land of other persons over which the taxpayer had certain rights of passage for its rolling stock. It was held that the locomotive and trucks were not used "in the transportation within premises" within the meaning of sec. 62AA(3)(e).
Kitto
J. said (at p. 155):
"The words `within' and `in' seem clearly to indicate that both the transportation and the use of the property in relation to which the section applies must take place inside the boundaries or walls of that to which the word `premises' is applied. It is not an apt use of language to speak of transportation as being `within' an incorporeal right, whether it be a right under the grant of a licence or of an easement or under a statutory provision; nor is it apt to speak of property as being used `in' an incorporeal right. Nearly all the transportation of sugar cane from the pick-up points to the mill site takes place within premises of which the appellant has for the most part neither ownership nor possession, and which therefore, in my opinion, cannot be regarded as part of the premises in which the appellant uses its milling plant."
In the present case, the respondents have either ownership or exclusive possession of the whole area in which their integrated activities take place. The respondents' rights are thus markedly different from the bare rights of the taxpayer in the Moreton case to pass over the premises of others. Given the occupation by the respondents of the whole site stretching continuously from the mine area to the refinery for the purposes of their project, and given the close association between the several procedures undertaken on that site, it is more accurate to describe that site as a single premises rather than a number of separate premises. It is true that considerable distances are involved but this circumstance cannot, of itself, divide what is in truth a single area into a number of different premises.
It is immaterial to this conclusion that not all of the conveyor's corridor has been fenced off. It is equally immaterial that parts of the area may only be used for special purposes and that a number of different titles and different types of titles are held by the respondents.
I would propose that the appeal be dismissed with costs.
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