ATO Interpretative Decision

ATO ID 2004/102 (Withdrawn)

Excise

• This ATO ID is withdrawn as it has been superseded by Product Grants and Benefits Ruling PGBR 2005/3
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the distillation of essential oils 'agriculture' as defined in section 22 of the Energy Grants (Credits) Scheme Act 2003 (EGCSA) for the purposes of the Energy Grants (Credits) Scheme?

Decision

No. The distillation of essential oils is not 'agriculture' as defined in section 22 of the EGCSA for the purposes of the Energy Grants (Credits) Scheme.

Facts

A client grows various herbs which are picked and immediately brought to the site of a distillation plant in mobile tubs. The distillation plant is located on the client's agricultural property.

Diesel fuel is used in a boiler to generate steam for the distillation and extraction of essential oils from the herbs.

Reasons for Decision

Under the EGCSA an energy grant is payable to a person who purchases diesel fuel for use by them in certain activities including 'agriculture'.

Section 22 of the EGCSA defines 'agriculture' as:

(a)

the cultivation of the soil; or

(b)

the cultivation or gathering in of crops; or

(c)

the rearing of live-stock; or

(d)

viticulture, horticulture, pasturage or apiculture

and includes:

(e)

a live-stock activity; or

(f)

an agricultural soil/water activity; or

(g)

an agricultural construction activity; or

(h)

an agricultural waste activity; or

(i)

a sundry agricultural activity.

Therefore, the distillation of herbs will be 'agriculture' if it is considered to be part of the gathering in of crops, or one of the specific included activities.

In Vicmint Partners Pty Ltd v. Chief Executive Officer of Customs (1997) 48 ALD 475 (the Vicmint Case), the Administrative Appeals Tribunal (AAT) considered the issue of whether the extraction of essential oils through the process of steam distillation fell within the meaning of 'agriculture' under the Diesel Fuel Rebate Scheme (DFRS).

The DFRS was the precursor to the Energy Grants (Credits) Scheme and was administered under the Excise Act 1901 and the Customs Act 1901. The Customs Act contained a definition of 'agriculture' in subsection 164(7). That definition is very similar to the definition contained in section 22 of the EGCSA and the findings of the Vicmint Case remain relevant.

The AAT considered that the gathering in of the crop finished when the picked leaves were brought to the site of the distillation plant, located on the applicant's property. As the steam distillation of the herbs occurred after the crop had been gathered in, it did not form part of the gathering in of the crop.

The AAT went on to consider whether the distillation of essential oils was eligible under any of the specific inclusions within the definition of 'agriculture'. The AAT focused its discussion on two types of activities.

The first activity considered by the AAT was the packing, or the prevention of deterioration of the produce of a core agricultural activity. Under paragraph x of the definition of 'agriculture' in the Customs Act, mirrored by subsection 27(g) of the EGCSA, such an activity will constitute 'agriculture' if it satisfies three tests.

1.

The packing or the prevention of deterioration of the produce must be carried out on an agricultural property where a core agricultural activity is carried on.

2.

There must be no physical change to the produce.

3.

The packing or the prevention of deterioration of the produce must not constitute processing of the produce.

The AAT concluded that the distillation process resulted in a physical change to the produce, and the second test was therefore not satisfied.

The second activity considered by the AAT was the removal of waste products of an agricultural activity from the property where the activity is carried on (which was contained in paragraph 164(7)(za) of the Customs Act and is mirrored in subsection 26(a) of the EGCSA. The AAT determined that this was not a relevant consideration because the distillation was not carried out for the purpose of disposing of the herbage as waste, but for the purpose of extracting the oil from the leaves and stalk.

Conclusion

As the distillation of essential oils occurs after the crop has been gathered in, and does not qualify under any of the specific inclusions in the definition of agriculture, the activity is not agriculture for the purposes of the EGCS.

Legislative References:
Excise Act 1901
   Table of Content

Case References:
Vicmint Partners Pty Ltd v. Chief Executive Officer of Customs
   (1997) 48 ALD 475

Keywords
EGCS- agriculture
EGCS cultivation or gathering in of crops
EGCS off-road
EGCS prevention of deterioration of produce
EGCS primary production

Business Line:  Excise

Date of publication:  6 February 2004

ISSN: 1445-2782