Decision impact statement

Ergon Energy Corporation Ltd v Commissioner of Taxation

Venue: High Court
Venue Reference No: B30 of 2006
Judgment date: Special Leave refused 2 March 2007; Full Federal Court 15 August 2006
Appeals on foot:
No

Impacted Advice

Relevant Rulings/Determinations:

• None

Subject References:
Diesel Fuel Rebate

Précis

Whether purchase of diesel fuel 'for use' by public utility provider 'at' residential and other premises satisfies the criteria in s78A(1) of the Excise Act 1901. Whether a question of law was sufficiently formulated.

Brief summary of facts

1. The claim was for rebates of duty pursuant to s.164 of the Customs Act 1901 or s.78A of the Excise Act 1901 paid in respect of a proportion of diesel fuel used in generating electricity for use by communities at Gununa (Mornington Island), Mabuaig Island, Murray Island (Mer) and Thursday Island (Waiben).

2. The diesel fuel was purchased for the generation of electricity at Gununa during the period from 20 November 1996 to 30 June 1999 and at Mabuiag, Mer and Waiben from 10 June 1997 to 7 April 2000.

3. The basis of the claim was that a proportion of diesel fuel had been used to generate electricity at residential premises (all islands), at hospitals or medical facilities (Gununa, Mabuaig and Waiben) and at aged care facilities (Gununa and Waiben), thereby attracting a rebate under the legislation.

4. The Commissioner accepted that Ergon Energy purchased diesel fuel to power generators located on each of the islands and that a proportion of the fuel purchases was used to generate electricity supplied to residential premises (all islands), hospitals or medical facilities ((Gununa, Mabuaig and Waiben) and to aged care facilities (Gununa and Waiben).

5. It was also accepted that the residents of all communities used the electricity supplied to their homes for the provision of lighting, refrigeration and other household purposes.

6. Ergon Energy was obliged to supply electricity to residents and other retail customers on all four islands by virtue of section 49 of the Electricity Act 1994.

7. Ergon Energy charged all users on all four islands for the electricity supplied at the rate of 12 cents per kilowatt hour.

8. The price had been decided by the Minister pursuant to s90 of the Electricity Act. The price varied according to the category of use, but was the same throughout Queensland for each category

9. Thus, the rate of 12 cents per kilowatt hour was charged by Ergon Energy to all similar users throughout Queensland.

10. The cost of generating and supplying electricity (including the cost of diesel fuel) on all four islands exceeded the price paid by users. Such cost varied from 28 cents per kilowatt hour at Waiben to 62 cents per kilowatt hour at Mabuiag.

11. Ergon Energy also received payment from the Queensland Government in the nature of a grant to subsidise the cost of community service obligations although Ergon Energy had not provided any evidence of the extent of the payment.

Gununa

12. At Gununa, there were three diesel generators.

13. During the relevant period, there were approximately 1300 people living on the island. The residential premises were between 30 metres and 1.26 km from the generators. The hospital and aged nursing home were, respectively, 210 metres and 750 metres from the generators. Prior to early 1998, the aged nursing home was located 195 metres from the generators.

14. During the relevant period, 38.97% of all electricity generated was supplied to 29 installations other than residential premises, the hospital and aged nursing home. There were 165 residential premises.

Mabuiag

15. At Mabuiag, there were three diesel generators.

16. During the relevant period, there were about 210 people living in the community. The residential premises were between 20 metres and 660 metres from the generators. The medical and nursing centre was located 120 metres from the generators.

17. During the relevant period, 5.52% of all electricity generated was supplied to 11 installations other than residential premises and the medical facility. There were 51 residential premises.

Murray Island

18. At Mer (Murray Island), there were three diesel generators.

19. During the relevant period, there were about 450 people living there. The residential premises were between 10 metres and 1.6 km from the generators.

20. During the relevant period, 23.97% of all electricity generated was supplied to 15 installations other than residential premises. There were 93 residential premises.

Waiben

21. At Waiben (Thursday Island), there were five diesel generators.

22. During the relevant period, there were approximately 3,500 people living on the island. The residences were between 320 metres and 1.5 km from the generators. The hospital and aged care facility were, respectively, 1.6 km and 1.2 km from the generators.

23. During the relevant period, 51.99% of all electricity generated was supplied to 64 installations other than residential premises, the hospital and aged care facility. There were 340 residential premises.

Issues decided by the court or tribunal

Ergon Energy applied for Special Leave to appeal from the majority decision of the Full Federal Court ([2006] FCAFC 125).

The Special Leave application raised the issue of whether the notice of appeal contesting the decision of the AAT raised any question of law.

The Majority of the Full Federal Court decided there was a question of law.

Ergon Energy argued that the question stated was a question of fact as it fell within the exception to the fifth proposition in the test stated in Pozzolanic. This exception, was set out by the Full Court in Pozzolanic as follows:

This principle is qualified when a statute uses words according to their ordinary meaning and the question is whether the facts as found fall within those words. Where it is reasonably open to hold that they do, then the question whether they do or not is one of fact -

In addition, the issue of whether the criteria in paragraphs 78A(1)(b), (c) and (d) of the Excise Act 1901 were satisfied was raised.

The Majority of the Full Federal Court decided it was not open to the AAT to find that, at the time of purchase, Ergon Energy purchased the fuel for use by it for the specific purpose(s) contemplated by paragraphs 78A(1)(b), (c) and (d), including for use by it "at" residential premises in meeting domestic requirements or at a hospital or home for the aged. Ergon Energy used the diesel fuel purchased by it to generate electricity for sale to, amongst others, residential customers for use in meeting their domestic needs and to hospitals and aged persons' homes.

The High Court considered that the majority of the Full Court of the Federal Court found that the Tribunal had addressed the wrong question and made findings that were not open on the facts. Classically, these were questions of law. Accordingly, the matter did not raise a question suitable for the grant of special leave and special leave was refused.

Tax Office view of Decision

The decision of the Full Court aligns with policy intent in that electricity generators who generate and provide electricity to "all and sundry" were not entitled to the rebate under the provisions. The decision of the High Court to refuse Special Leave to appeal aligns with the Commissioner's view that the matter involved a question of law.

Administrative Treatment

Implications on Law Administration Practice Statements

None

Court citation:
[2007] HCATrans 101

Legislative References:
Excise Act 1901
78A(1)

Customs Act 1901
164(1)

Electricity Act 1994 (Qld)
49

Case References:
Ergon Energy v Commissioner of Taxation
[2006] FCAFC 125
(2006) 153 FCR 551
(2006) 64 ATR 130

Collector of Customs, Tasmania v Flinders Island Community Association
(1985) 7 FCR 205
60 ALR 717

Collector of Customs v Rottnest Island Authority
(1994) 48 GCR 177

Collector of Customs v Pozzolanic Enterprises Pty Ltd
(1993) 43 FCR 280
115 ALR 1

Vetter v Lake Macquarie City Council
(2001) 202 CLR 439

Cowell Electric Supply Company Ltd v Collector of Customs
(1995) 54 FCR 1
127 ALR 257