ATO Interpretative Decision

ATO ID 2004/801 (Withdrawn)

Excise

• This ATO ID is withdrawn from the database because of amendments to the Energy Grants (Credits) Scheme Act applying after 30 June 2006. Despite its withdrawal from the database, this ATO Interpretative Decision continues to be a precedential view in respect of entitlement to an off-road credit for the period 1 July 2003 to 30 June 2006.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does an entity which operates a crematorium have the retail sale of goods or services or the provision of hospitality as its principal purpose at the business premises, as required by subparagraph 53(4)(a)(i) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

Decision

Yes. An entity which operates a crematorium does have the retail sale of goods or services or the provision of hospitality as its principal purpose at the business premises, as required by subparagraph 53(4)(a)(i) of the EGCSA.

Facts

The entity operates a crematorium.

The entity charges members of the public a fee for its cremation services.

The entity uses a generator to generate electricity used at the premises to power the control system on the crematorium chamber and the ashes processor and for lighting the crematorium building.

The entity purchases the diesel fuel used in the generator.

The business does not have ready access to a commercial supply of electricity at the premises.

Reasons for Decision

Subsection 53(1) of the EGCSA states that, subject to such restrictions and conditions that are specified in the Energy Grants (Credits) Scheme Regulations 2003, an entity is entitled to an off-road credit if they purchase diesel fuel for a use by it that qualifies. Paragraph 53(4)(a) of the EGCSA provides that the following is a use that qualifies:

use at particular premises to generate electricity for use in the course of carrying on, at those premises, an enterprise that:

(i)

has, as its principal purpose, the retail sale of goods or services (other than electricity) or the provision of hospitality; and

(ii)

does not have, at those premises, ready access to a commercial supply of electricity

This paragraph effectively imposes three requirements for eligibility:

1.

the diesel fuel must be used at particular premises to generate electricity

2.

the electricity generated must be used in the course of carrying on at those premises, an enterprise that has the principal purpose of the retail sale of goods or services (other than electricity) or the provision of hospitality, and

3.

the enterprise must not have, at those premises, ready access to a commercial supply of electricity.

The first and third requirements are clearly satisfied.

The second requirement has two parts. Firstly, as the entity is not engaged in the retail sale of goods or the provision of hospitality, to qualify it must be engaged in the retail sale of services. Secondly, the 'principal purpose' of the enterprise being carried on at the premises must be the retail sale of services.

Is the entity making 'retail sales' of services?

'Service' is not defined in the EGCSA and therefore takes on its ordinary meaning. The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW (The Macquarie Dictionary) defines the term as:

noun 1. an act of helpful activity. 2. the supplying or supplier of any articles, commodities, activities, etc., required or demanded. 3. the providing or provider of some accommodation required by the public, as messengers, telegraphs, telephones, or conveyance. 4. the organised system of apparatus, appliances, employees, etc., for supplying some accommodation required by the public. ...

The entity operates a business which supplies a 'helpful activity' required by the public. That is, the cremation services. As such, the entity is providing a service within the ordinary meaning of that word.

'Retail sale' is also not defined in the EGCSA. However, the ordinary definition of 'retail' as contained in The Macquarie Dictionary is:

1. the sale of commodities to household or ultimate consumers, usually in small quantities (opposed to wholesale)...

The case of Collector of Customs v. Chemark (1993) 114 ALR 531 (Chemark), where the Court considered the meaning of the expression 'retail sale' in the context of an assessment of imports for customs duty further clarifies this definition. In that case, the Court said at paragraph 20:

... the words "retail sale" have generally acquired a specialised meaning of a sale to an ultimate consumer. We do not think that the usage of the term limits such consumers to ordinary members of the public. The fact that in the present case almost all of the goods imported by the respondent were directly sold to professional horticulturalists and not ordinary gardeners as ultimate consumers is, in our opinion, irrelevant. Professionals can still be described as ultimate consumers... Likewise, although more often than not a retail sale will be both a sale to the ultimate consumer and a sale of goods in a quantity not larger than necessary to satisfy the ordinary non-professional purchaser, some sales in larger quantities will also be retail ...

Such an approach has found favour more recently, in the case of Actionco Pty Ltd v. Pioneer Plasterboard Pty Ltd [2002] ACTSC 92; (2002) 170 FLR 403. In that case the Court was concerned with determining the question of whether or not sales in a store were 'retail sales' despite the fact that only a small percentage of sales were made to 'non-tradespeople'. Crispin J said at paragraph 18, applied Chemark and accepted that 'retail sales' are sales to ultimate consumers.

On this basis, it can be concluded that the following indicate a 'retail sale':

•

The sale is to an ultimate consumer.

•

Those 'consumers' do not have to be ordinary members of the public.

•

More often than not a retail sale will be of goods in a quantity not larger than necessary to satisfy the ordinary non-professional purchaser, but some sales in larger quantities will also be retail sales.

In this instance, the entity sells the service to ordinary members of the public who are ultimate consumers making arrangements for the cremation of their loved ones. Therefore, the entity makes 'retail sales' as required by the provision.

Accordingly, the entity makes 'retail sales of services'.

Is the 'principal purpose' of the enterprise being carried on at the premises the retail sale of services?

It has been acknowledged that the enterprise conducted by the entity involves making retail sales. However, the phrase 'principal purpose' clearly anticipates the situation where an enterprise may make retail sales, but not have that as the principal purpose of the enterprise that they carry on at the premises.

The former diesel fuel rebate scheme contained an equivalent entitlement to that contained in paragraph 53(4)(a) of the EGCSA. When the former provision was introduced, the second reading speech and Explanatory Memorandum to the Diesel Fuel Rebate Scheme Amendment Bill 2002 (the Bill) made it clear that the types of enterprises which were considered as having the retail sale of goods or services or the provision of hospitality as their principal purpose were caravan parks, tourist resorts and road houses.

Records of Parliamentary debate confirmed that not all enterprises would be covered by this provision. In fact, the Member for New England sought to move an amendment to extend the provision to manufacturing or service enterprises, including foundries and crash repair businesses (Australia, House of Representatives, Debates 29 May 2002, at pp 2585-2568). The amendment was not moved and the restricted scope of the provision was confirmed by the Member for Fisher and Parliamentary Secretary to the Minister for Finance and Administration (Australia, House of Representatives, Debates , 29 May 2002, p 2600).

When the Bill was before the Senate, Senator O'Brien queried why the extension applied only to retail and hospitality businesses and was not extended to 'remote manufacturing and construction industries' (Australia, Senate, Debates , 27 June 2002, p 2987). This further clarifies that the enterprises intended to be covered by this provision are those with the retail sale of goods or services in the traditional retail sector as their principal purpose, rather than enterprises engaged in manufacturing or other industrial sectors that happen to sell their own products to end users.

Accordingly, enterprises in the manufacturing, construction and other industrial sectors are not considered to be enterprises which have as their principal purpose, the retail sale of goods or services. It is recognised that the entity in this instance uses plant and equipment to provide services to the public. However, this is distinctly different from a manufacturing enterprise using plant and equipment to produce a good. Nothing is produced in this instance.

Therefore, an entity which operates a crematorium has the retail sale of services as its principal purpose at the business premises, as required by subparagraph 53(4)(a)(i) of the EGCSA.

Legislative References:
Energy Grants (Credits) Scheme Act 2003
   subsection 53(1)
   paragraph 53(4)(a)
   subparagraph 53(4)(a)(i)

Case References:
Collector of Customs v. Chemark
   (1993) 114 ALR 531

Related ATO Interpretative Decisions
ATO ID 2004/422
ATO ID 2004/643

Other References:
The Macquarie Library Pty Ltd, , 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW
Australia, House of Representatives, Debates, 2002
Australia, Senate, Debates, 2002
Explanatory Memorandum to the Diesel Fuel Rebate Scheme Amendment Bill 2002

Keywords
EGCS off-road
EGCS use to generate electricity
EGCS use to generate electricity at a retail/hospitality enterprise
EGCS use to generate electricity for ready access
Energy grants (credits) scheme
Excise
Excise payments

Business Line:  Excise

Date of publication:  1 October 2004

ISSN: 1445-2782