ATO Interpretative Decision

ATO ID 2003/1074

Excise

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are you entitled to a diesel fuel rebate under subsection 78A(1) of the Excise Act 1901 or subsection 164(1) of the Customs Act 1901 for diesel fuel that you purchase and use in the processing of illminite (ilmenite) for use as an abrasive?

Decision

No. The processing of illminite (ilmenite) for use as an abrasive does not fall within the eligible category of 'mining operations' in subsection 164(7) of the Customs Act, and therefore the client is not entitled to a rebate under subsection 78A(1) of the Excise Act or subsection 164(1) of the Customs Act.

Facts

The claimant purchases illminite, more commonly known as ilmenite, which is iron titanium oxide occurring in crystal form, and is a derivative of sand mining after rutile has been extracted. The claimant receives the product as a wet black sand-like substance. Apart from the extraction of rutile, nothing else has been removed from the material before it is delivered to the claimant.

The claimant does not conduct any mining activities and they are not under contract to anyone else.

The claimant sieves the illminite and dries it in a rotary drier. They then grade it by particle size before passing it through a magnetic separator for removal of all other contaminants.

The end product of this process is an abrasive grit used in sand blasting of steel and like products. The end product is bagged and sold directly to abrasive blasting firms and distributors.

The diesel fuel is used in a burner in carrying out the processing operation.

Reasons for Decision

A claimant will be eligible for a diesel fuel rebate if they purchase diesel fuel for use in mining operations as defined in the legislation.

Subsection 164(7) of the Customs Act defines 'mining operations' in part as:

(b)

operations for the recovery of minerals, being:

(i)

mining for those minerals including the recovery of salts by evaporation; or

(ii)

the beneficiation of those minerals, or of ores bearing those minerals

A critical element of the definition of 'mining operations' is the recovery of minerals, being mining for minerals and the beneficiation of those minerals. Subsection 164(7A) of the Customs Act provides:

For the purposes of the definition of mining operations , operations for the recovery of a mineral cease:

(a)

when the process of beneficiation ceases; or

(b)

in the absence of a beneficiation process-when the mineral, or ores bearing the mineral:

(i)

are first stockpiled or otherwise stored at the place at which the mining operation is carried on; or

(ii)

if subparagraph (i) does not apply-are removed from the ore body or deposit.

Beneficiation is a technical term applicable to a range of processes undertaken in the mining or metallurgical industries. It is generally used to describe a treatment to improve, upgrade or concentrate the quality of mineral bearing ore up to, but not including the refining or final pyrometallurgical or hydrometallurgical process whereby metal is produced.

Furthermore, subsection 164(7C) of the Customs Act states:

In determining whether a particular process to which a mineral, or ores bearing a mineral, are subjected constitutes beneficiation of that mineral or those ores, regard is to be had to the nature of the technical process involved but no regard is to be had to any market considerations that might affect the decision to subject that mineral or those ores to that process.

The relevance of subsection 164(7C) of the Customs Act is that if market forces dictate that a mineral must undergo a certain process to result in a saleable product, it cannot automatically be assumed that the process will be considered beneficiation. Instead, beneficiation should be seen as a technical concept rather than an economic concept.

Furthermore, in Australian Customs Services, Chief Executive Officer v. Tasmanian Electro Metallurgical Company Pty Ltd (1997) 76 FCR 476; 97 ATC 4564; (1997) 36 ATR 346 it was stated that: 'Beneficiation is thus distinct from the process of manufacturing, or isolating, the valuable element contained in the mineral or its derivative.'

The illminite is purchased and undergoes processes including sieving, drying, grading, and magnetic separation. These processes are more aligned with operations that occur after the recovery of a mineral. In fact, these processes are more closely associated with grouping the particles of illminite based on their size rather than improving, upgrading, or concentrating the illminite.

Therefore, the activities carried out at the illminite processing plant are not considered to be beneficiation of a mineral, or ores bearing those minerals. The activities are not 'mining operations' under paragraph (b) of the definition of mining operations in subsection 164(7) of the Customs Act. Therefore, the claimant is not eligible for a diesel fuel rebate for the diesel fuel used in processing illminite.

Legislative References:
Excise Act 1901
   paragraph 78A(1)(a)
   subsection 78A(7)

Case References:
Australian Customs Services, Chief Executive Officer v. Tasmanian Electro Metallurgical Company Pty Ltd
   (1997) 76 FCR 476
   97 ATC 4564
   (1997) 36 ATR 346

Related Public Rulings (including Determinations)
Excise Ruling FGRR 2002/1

Keywords
DFRS mining
Diesel fuel rebate scheme
Excise
Excise Business Line
Excise Diesel Fuel Industry Group
Excise payments
Mining operations

Business Line:  Excise

Date of publication:  28 November 2003

ISSN: 1445-2782