ATO Interpretative Decision

ATO ID 2004/792 (Withdrawn)

Excise

• This ATO ID is withdrawn from 1 July 2012, the date the Energy Grants (Credits) Scheme Act 2003 was repealed.
  Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of the period the Act was in force, 1 July 2003 up to and including 30 June 2012.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the heating of fuel oil to enable it to be piped from a port to a beneficiation plant an operation for the recovery of minerals under subparagraph 11(1)(b)(ii) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

Decision

No. The heating of fuel oil to enable it to be piped from a port to a beneficiation plant is not an operation for the recovery of minerals under subparagraph 11(1)(b)(ii) of the EGCSA.

Facts

An entity beneficiates ore at a plant.

The same entity imports fuel oil which is ultimately used in the mineral beneficiation processes at the beneficiation plant.

The imported fuel oil meets the definition of 'diesel fuel' for the purposes of the Energy Grants (Credits) Scheme.

The fuel oil is imported via ship and transferred to bulk storage tanks located on land at a port.

An underground pipeline links the tanks at the port with bulk storage tanks located at the beneficiation plant. To enable the fuel oil to be effectively pumped via the pipeline from the port to the beneficiation plant, it is heated to increase its viscosity.

This heating process is facilitated by oil fired furnaces. The entity uses fuel oil in these furnaces.

Reasons for Decision

In the context of the EGCSA, use of diesel fuel 'in mining operations' is a use that qualifies for an off-road credit under subsection 53(2) of the EGCSA. Mining operations are defined in subsection 11(1) of the EGCSA, with the relevant subparagraph for the purposes of this activity being subparagraph 11(1)(b)(ii) which states:

(b)

operations for the recovery of minerals, being:

(i)

...; or

(ii)

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

To determine whether an activity is 'in' mining operations one must consider the preposition 'in' which means 'in the course of' or 'in the process or act of.' Therefore, if an activity takes place 'in the course of mining operations, it takes place 'in' mining operations' (see Chief Executive Officer of Customs v. WMC Resources Ltd (as agent for East Spar Alliance) (1998) 87 FCR 482.

In 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. Chief Executive Officer of Customs [2001] AATA 801, it was deemed pertinent to consider whether there was a causal, spatial or temporal link present in determining if an activity takes place 'in the course of' something.

A causal link exists if a certain activity is 'functionally integrated' with a mining operation, thereby forming an essential part of it. Whilst the use of fuel oil is essential in the beneficiation process at the beneficiation plant, the movement of the fuel oil from the port to the beneficiation plant is not essential to the beneficiation process. That is, any fuel oil used to facilitate the movement of the fuel oil from the port to the beneficiation plant is not considered to be functionally integrated with the mining operation at the beneficiation plant. Therefore, this link does not exist.

For a spatial link to exist, an activity must take place in an area set aside or utilised for a mining operation. In this case a spatial link is not present as the entity uses fuel oil in furnaces at a place that is not an area set aside or utilised for a mining operation. The fuel oil is used in furnaces at a port rather than the beneficiation plant. Therefore, the activity is not undertaken in an area where mining takes place. This link does not exist.

Finally, a temporal link exists if the activity takes place in a timely fashion, not prior to, or after the completion of the relevant activity. The heating of the fuel oil is undertaken prior to the 'mining operation' of beneficiation because it occurs at the port before the beneficiation process takes place at the beneficiation plant. Therefore, a temporal link does not exist because the activity of using fuel oil to heat the furnaces is antecedent to the beneficiation process.

Conclusion

The heating of the fuel oil does not have the requisite causal, spatial, and temporal links with the beneficiation process. Therefore, the heating of fuel oil to enable it to be piped from a port to a beneficiation plant is not an operation for the recovery of minerals under subparagraph 11(1)(b)(ii) of the EGCSA.

Legislative References:
Energy Grants (Credits) Scheme Act 2003
   subsection 11(1)
   subparagraph 11(1)(b)(ii)
   subsection 53(2)

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)
Product Grants and Benefits Ruling PGBR 2003/3

Keywords
EGCS beneficiation
EGCS mining operation
EGCS off-road
EGCS off-road diesel
Excise
Excise payments

Business Line:  Indirect Tax

Date of publication:  1 October 2004

ISSN: 1445-2782