ATO Interpretative Decision

ATO ID 2003/1039 (Withdrawn)

Excise

• This ATO ID is withdrawn from the database because it contains a view in respect of the diesel fuel rebate provisions of the Excise Act 1901 and or the Customs Act 1901 that were repealed with effect from 1 July 2003. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions for fuel purchased before 1 July 2003.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Has a mining company purchased diesel fuel for use by it in mining operations as required by subsection 164(1) of the Customs Act 1901 where they provide the diesel fuel to a commercial power supplier on the proviso that the supplier will use the diesel fuel to meet the mining company's electricity needs?

Decision

No. A mining company has not purchased diesel fuel for use by it in mining operations as required by subsection 164(1) of the Customs Act where they provide the diesel fuel to a commercial power supplier on the proviso that the supplier will use the diesel fuel to meet the mining company's electricity needs.

Facts

A mining company purchases diesel fuel.

The mining company supplies the diesel fuel to a commercial supplier of electricity (the power company) for use in their power plant to generate electricity for the mining company for use in its mining operations.

The power plant is not located on the mining site. Instead it supplies electricity through a grid system.

The power plant is the sole source of power to the mining company and also supplies the domestic and commercial requirements of the surrounding city, towns and communities.

An agreement exists between the two parties which states that the mining company will retain ownership of the fuel at all times.

Reasons for Decision

Under subsection 164(1) of the Customs Act, a diesel fuel rebate is:

... payable to a person who purchases diesel fuel for use by the person:

(a)

in mining operations (otherwise than for the purpose of propelling any vehicle on a public road)

In the phrase 'in mining operations', the preposition 'in' means 'in the course of ' or 'in the process or act of '; (see Chief Executive Officer of Customs v. WMC Resources Ltd (as agent for East Spar Alliance) (1998) 87 FCR 482 per Nicholson J ). Therefore, if an activity can be said to have taken place 'in the course of' mining operations, it can be concluded that it also takes place 'in' mining operations.

When considering whether an activity takes place 'in the course of' a mining operation, the courts have applied the following three tests (see Federal Commissioner of Taxation v. Payne (2001) 202 CLR 93, (2001) 46 ATR 228, 2001 ATC 4027; Chief Executive Officer of Customs v. WMC Resources Ltd (as agent for East Spar Alliance) (1998) 87 FCR 482; Wandoo Alliance Pty Ltd v. CEO of Customs [2001] AATA 801),

•

a causal link exists - in other words, a certain activity is functionally integrated with a mining operation, thereby forming an essential part of it

•

a spatial link exists - meaning that an activity takes place in an area set aside or occupied for a mining operation,

•

a temporal link exists - the activity takes place in a timely fashion, not prior to, or after the completion of, the mining operation.

The relevance or weighting afforded to these criteria will vary depending on the facts of each case.

In this case, the generation of electricity is not considered to be causally linked to the mining operations. To be functionally integrated an activity must be so closely related to the mining operation that it is impossible to distinguish between the activity undertaken and the mining operation. In this case, the power company is clearly supplying electricity to a number of customers, one of whom undertakes mining operations. Therefore, the power company is more properly regarded as a supplier of electricity rather than an organisation involved in mining operations.

The generation of electricity is not considered to be spatially linked because the power plant is not situated in an area set aside or occupied for a mining operation.

A temporal link is likely to occur because, depending on when the electricity is used, the activity could take place during the mining operations. However, this factor alone is not of sufficient weight to conclude that the generation of electricity occurs 'in mining operations'.

The fact that the mining company retains ownership of the fuel does not affect this decision. The eligibility of the diesel fuel rebate depends on the activity undertaken. In particular, to be eligible, the activity must be causally, spatially, and temporally linked with mining operations. Given that the electricity generation is neither causally nor spatially linked, the activity cannot be considered to be occurring 'in mining operations'.

Legislative References:
Customs Act 1901
   subsection 164(1)

Case References:
Chief Executive Officer of Customs v. WMC Resources Ltd (as agent for East Spar Alliance)
   (1998) 87 FCR 482

Related Public Rulings (including Determinations)
FGRR 2002/1

Keywords
Excise
Diesel fuel rebate scheme
DFRS generation of electricity
DFRS Mining
Mining Operations

Business Line:  Excise

Date of publication:  21 November 2003

ISSN: 1445-2782