ATO Interpretative Decision

ATO ID 2004/643 (Withdrawn)

Excise

• This ATO ID should be withdrawn as the fuel tax credits scheme has replaced the energy grants credit scheme for eligible fuel acquired from 1 July 2006 for the purpose of electricity generation.
  This decision is applicable to eligible fuel purchased between 1 July 2003 and 30 June 2006 for the purposes of the Energy Grants (Credits Scheme) Act 2003. Entitlement to a credit for eligible fuel acquired from 1 July 2006 for use in generating electricity is dealt with under the Fuel Tax Act 2006 and Fuel Tax (Consequential and Transitional Provisions) Act 2006.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does an entity which carries on a sheet metal enclosure manufacturing and sale business have the retail sale of goods and 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

No. An entity which carries on a sheet metal enclosure manufacturing and sale business does not have the retail sale of good and 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 sheet metal enclosure manufacturing and sale business. The sheet metal enclosures are pre-ordered and manufactured individually to meet the specific requirements of each customer. The customers purchase the enclosures for use by them and do not on-sell them.

The entity's premises are substantially used for manufacturing the enclosures, with some area taken up by offices, storage, and staff facilities. There is also a small shopfront with a display area set up within the premises.

The entity has hired a generator to generate electricity for its business operations. It purchases the diesel fuel used in the generator.

The generated electricity is only used at the premises, and only for the purposes of the manufacturing and sale of the sheet metal enclosures.

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 regulations, 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 supply of services or the provision of hospitality, it must be making retail sales of goods. Secondly, the 'principal purpose' of the enterprise being carried on at the premises must be the retail sale of goods.

Is the entity making 'retail sales' of goods?

'Retail sale' is not defined in the EGCSA. However, the ordinary definition of 'retail' as contained in The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW 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. 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 makes sales to ultimate consumers who may or may not be in business themselves. As the enclosures are manufactured to individual buyer's specifications, it follows that they are sold in small quantities. Therefore, the entity makes 'retail sales' as required by the provision.

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

Although it is acknowledged that the enterprise conducted by the entity involves making retail sales, 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 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.

Therefore, 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.

In this instance, the entity carries on a sheet metal enclosure manufacturing enterprise. Such an enterprise is not considered to be an enterprise that has, as its principal purpose, the retail sale of goods or services for the purposes of paragraph 53(4)(a)(i) of the EGCSA, even though it makes retail sales in the course of carrying on that enterprise.

As the principal purpose of the enterprise being carried on at the premises is not the retail sale of goods or services or the provision of hospitality, the requirements of subparagraph 53(4)(a)(i) of the EGCSA are not satisfied.

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

Other References:
The Macquarie Dictionary, 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 of eligible fuel at certain premises
EGCS use to generate electricity
EGCS use to generate electricity as its principal purpose
EGCS use to generate electricity at a retail/hospitality enterprise
Energy grants (credits) scheme

Business Line:  Excise

Date of publication:  6 August 2004

ISSN: 1445-2782