ATO Interpretative Decision

ATO ID 2004/684 (Withdrawn)

Excise

• This ATO ID is withdrawn as it is superseded by Product Grants and Benefits Ruling PGBR 2005/1.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the debarking of timber at a timber processing facility using rotary blades, the 'milling of timber at a sawmill or a chipmill' as required by paragraph 35(d) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

Decision

No. The debarking of timber at a timber processing facility using rotary blades is not the 'milling of timber at a sawmill or a chipmill' as required by paragraph 35(d) of the EGCSA.

Facts

An entity operates a timber processing facility. The facility is located outside the forest where the timber is felled.

The timber is received at the facility and fed into a mill that uses rotary blades to remove bark from the log and shave the sapwood from the exterior of the log.

Reasons for Decision

Under subsection 53(1) of the EGCSA, an entity is entitled, subject to certain prescribed conditions, to an off-road credit if they purchase diesel fuel for a use by them that qualifies, including 'primary production'.

Primary production is defined in section 21 of the EGCSA as meaning, in part, forestry. 'Forestry' is then defined in section 35 of the EGCSA.

The definition of forestry in section 35 of the EGCSA covers a number of activities, the most pertinent of which is contained in paragraph 35(d) which states that forestry includes:

The milling of timber at a sawmill or chipmill that is not situated in the forest or plantation in which the timber was felled

Therefore, the entity's activities will be considered to be the 'milling of timber at a sawmill or a chipmill' if:

1.

they constitute the milling of timber; and

2.

they occur at a sawmill or a chipmill.

Each test will be considered in turn.

In considering each test it will be necessary to understand the meaning of the terms 'milling of timber', 'sawmill', and 'chipmill'. These terms have been considered by the Administrative Appeals Tribunal (AAT) a number of times in relation to the Diesel Fuel Rebate Scheme (DFRS). The DFRS was the immediate precursor to the Energy Grants (Credits) Scheme, and was administered under the Customs Act 1901 and the Excise Act 1901. The DFRS relied on a definition of 'forestry' identical to that contained in the EGCSA, so those decisions are still considered relevant.

1. Are the activities the 'milling of timber'?

It is accepted that the client is using timber in their activities.

The meaning of the phrase 'milling of timber' has been considered a number of times by the AAT. It was first considered in Re Wesfi Pty Ltd v. Collector of Customs (WA) No. W84/46 (1984) 7 ALN N8 (Wesfi), where at paragraph 9, the AAT accepted the ordinary meaning of the term 'milling' as follows:

The Shorter Oxford English Dictionary gives this relevant meaning of "milling":

"1. the action or process of subjecting something to the operation of a mill, as corn, etc. b. The treatment of a substance to material in any kind of mill; e.g. the operation of fulling cloth, rolling metals, crushing minerals etc."

In relation to machinery, the word mill is a word of wide meaning. It is not practicable to attempt a definition which definitively states its meaning by reference to specified criteria. However, the Shorter Oxford English Dictionary gives this relevant meaning:

"5. A machine which does its work by rotary motion, esp. a lapidary's mill"

This general approach was subsequently adopted by the Tribunal in Re Brymay Forests Pty Ltd v. Collector of Customs Victoria No. V85/305 AAT No. 2496; (1985) 9 ALN N177 (Brymay) and in Re T J Depiazzi & Sons v. Collector of Customs No. W92/114 AAT No. 8770 (1993) 17 AAR 557 (Depiazzi).

In this instance, the debarking machinery operates using a rotary action, and it is therefore accepted that the entity is engaged in the milling of timber.

2. Are the activities carried out at a 'sawmill' or a 'chipmill'?

The meaning of the term 'sawmill' was also considered by the AAT in Wesfi, where the Tribunal determined at paragraph 18 that:

In our opinion, the word "sawmill" is used in the definition in its everyday sense. That sense is given in the Shorter Oxford English Dictionary as:

"A factory in which wood is sawn into planks or boards by machinery (now usu. propelled by steam or electricity)."

We understand a sawmill to be a mill in which wood is converted from one form to another by means of saws. That is not to say that a sawmill may not use other machinery additionally to convert timber into a required form or to dry timber or for like associated purposes; but it is the saws which give to the mill the character of a sawmill ...

The approach taken by the AAT in Wesfi was subsequently adopted in Brymay where the AAT stated:

... for a mill to be characterised as a sawmill, sawing of timber must be the main or predominant process performed ...

As the client is not operating a mill that uses saws, the mill is not a place where the sawing of timber is the main or predominant process performed. Consequently, it cannot be said that the entity carries out the milling of timber at a sawmill.

The meaning of 'chipmill' was considered by the AAT in Depiazzi where it was determined at paragraph 30 that a chipmill is a 'mill at which the "chipping" of timber or parts of timber occurs'.

As the client is not operating a mill where the timber is chipped, it cannot be said that the entity carries out the milling of timber at a chipmill.

Therefore, the clients activities are not undertaken at a sawmill or a chipmill.

Conclusion

As the client is not undertaking the milling of timber at a sawmill or a chipmill, the debarking of timber at a timber processing facility using rotary blades is not the 'milling of timber at a sawmill or a chipmill' as required by paragraph 35(d) of the EGCSA.

Legislative References:
Energy Grants (Credits) Scheme Act 2003
   section 21
   section 35
   paragraph 35(d)
   subsection 53(1)

Case References:
Re Wesfi Pty Ltd v. Collector of Customs
    (WA) No. W84/46 (1984) 7 ALN N8

Related ATO Interpretative Decisions
ATO ID 2003/814
ATO ID 2004/465

Keywords
EGCS forestry
EGCS milling

Business Line:  Excise

Date of publication:  20 August 2004

ISSN: 1445-2782