ATO Interpretative Decision

ATO ID 2005/266 (Withdrawn)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• This ATO ID is withdrawn from 1 July 2012, the date the Energy Grants (Credits) Scheme Act 2003 was repealed.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 an entity mining for minerals for the purposes of subparagraph 11(1)(b)(i) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA) if the entity is mining lime sand for use as a flux?

Decision

Yes. An entity is mining for minerals for the purposes of subparagraph 11(1)(b)(i) of the EGCSA if the entity is mining lime sand for use as a flux.

Facts

An entity holds a registered mining lease.

The mining of lime sand is conducted on this lease.

Diesel powered machinery is used to recover lime sand from the mine face.

The lime sand is a form of sand.

Oversize particles from the sand and other deleterious material, such as organic material and naturally bound limestone rock or rubble, are removed in a screening process.

After screening, the lime sand will be stockpiled and subsequently used as a flux in a manufacturing process. Tests have been conducted to ensure its suitability for this use.

The lime sand mined is principally (90%+) calcium carbonate (CaCO₃), present as calcite and aragonite. Other minerals present are magnesium oxide (MgO), silica (Si₂) sulfur trioxide (SO₃) and water (H₂O) plus other minerals totalling less than 1%.

Reasons for Decision

Subsection 53(1) of the EGCSA provides that, subject to various conditions and restrictions specified in the regulations, an entity is entitled to an off-road credit if it purchases or imports into Australia off-road diesel fuel for a use by the entity that qualifies.

Subsection 53(2) of the EGCSA provides that use in mining operations (otherwise than for the purpose of propelling any vehicle on a public road) is a use that qualifies.

The term 'mining operations' is defined in section 11 of the EGCSA to mean a number of activities. One activity, set out in subparagraph 11(1)(b)(i) of the EGCSA is:

(b)

operations for the recovery of minerals, being:

(i)

mining for those minerals including the recovery of salts by evaporation

or

...

Section 20 of the EGCSA provides the following definition of minerals:

The expression minerals means minerals in any form, whether solid, liquid or gaseous and whether organic or inorganic, except:

(a)

sand, sandstone, soil, slate, clay (other than bentonite or kaolin), basalt, granite or water; or

(b)

limestone (other than agricultural use limestone).

Lime sand is a type of sand. Given the exclusion of sand from the definition of minerals, the entity is not mining for minerals if it is mining for the lime sand. However, if the entity is in fact seeking a mineral contained within the lime sand, it can be argued that the entity is mining 'for' that mineral, notwithstanding that the substance extracted during the mining process is in fact a form of sand.

The effect of the exclusions from the meaning of minerals in section 20 of the EGCSA was considered by the Full Federal Court in Chief Executive Officer of Customs v. Adelaide Brighton Cement Ltd [2004] FCAFC 183 (the Adelaide Brighton Case).

The Federal Court considered whether Adelaide Brighton was in fact mining for limestone or mining for minerals contained within the limestone.

In making its decision, the Federal Court attempted to determine the purpose of the exclusions from the definition of minerals in section 20 of the EGCSA. The diesel fuel rebate scheme (which was the precursor to the energy grants (credits) scheme) contained similar exclusions from the definition of minerals. The Federal Court, at paragraph 123, referred to the explanatory memorandum that discussed the introduction of the exclusions in the previous scheme. The explanatory memorandum stated:

[The] purpose of the amendment proposed in this item is to exclude from eligibility for the payment of rebate diesel fuel for use in extracting certain materials from the ground because they are valuable as extracted, rather than for the purpose of recovering their inherent mineral qualities. For example the use of diesel fuel in the mining of sand for its use in concreting, rather than for the purpose of extracting the minerals contained in the sand, is to be excluded from eligibility for rebate. (Emphasis added.)

At paragraph 124 of the Adelaide Brighton Case, Tamberlin, Sackville and Finn JJ. sought to interpret the intention of the amendment based on the above passage:

These extrinsic materials suggest that the amendment was intended to exclude operations for the recovery of certain minerals, including limestone, that are valuable in the form in which they are extracted from the ground. Thus if limestone were extracted and used for building materials in road works, the intention was that the fuel rebate would not be payable in connection with the mining operations. However, it was not intended to exclude from the rebate operations to extract limestone which was sought for its 'inherent mineral qualities'. While this distinction is not precise, it suggests an intention that the rebate should be payable in connection with mining operations designed to produce a blend of particular mineral compounds that are found in a particular limestone, but not necessarily in the proportions required by the operator.

At paragraph 116 of the Adelaide Brighton Case, reference was made to a number of matters that the AAT took into account when considering whether Adelaide Brighton was mining for minerals. Some of the factors that were used as a guide in determining whether an entity is mining 'for' the minerals contained within limestone (rather than the limestone itself) were:

1.

The entity requires mineral compounds to be present within the limestone in particular proportions.

2.

The entity plans its quarrying operations so as to produce stockpiles of a certain grade and continually analyses the composition of the stockpiles to ensure they meet the entity's requirements, making adjustments when required.

3.

Although limestone generally, but not always, contains the desired minerals, the entity can obtain any missing minerals from other sources.

4.

The entity devotes considerable time and effort to ensuring that the minerals are present in the correct proportions and that other minerals found in the limestone are diluted by blending.

5.

Limestone by itself is 'very, very rarely ever suitable for cement manufacture' (and therefore the desired minerals often need to be supplemented from other sources or by blending amounts of limestone).

After due consideration of the above factors (and various others) the AAT concluded that Adelaide Brighton was in fact mining for the four minerals contained within limestone, rather than the limestone itself. The Federal Court accepted that it was open to the AAT to arrive at this decision based on the particular facts.

Whilst the Federal Court and AAT were focused on matters in relation to the mining of limestone, the points they raised also provide a useful guide in determining if an entity is mining for sand (in this case lime sand) or a mineral or minerals contained within the sand.

The lime sand mined by this entity is principally (90%+) calcium carbonate (CaCO₃) present as calcite and aragonite. The lime sand is used as a flux. A flux is a substance that lowers the melting temperature of another substance. For example, a flux is added to silica to facilitate fusing in the manufacture of glass. Fluxes are also added to enamels in order to lower their fusion point to below that of the glass body to which they are to be applied.

It is the calcium carbonate content of the lime sand that allows it to be used as a flux.

Addressing some of the points considered by the AAT in relation to limestone, the lime sand is mined for its calcium carbonate content and draws its value from the presence of this mineral. Calcium carbonate can be obtained from numerous other sources, including other forms of sand and shellgrit. The lime sand is analysed to ensure it contains the necessary calcium carbonate concentration. It is only the presence of calcium carbonate in high quantities that renders the lime sand usable as a flux.

These points support the conclusion that the entity is mining for calcium carbonate, rather than for the lime sand itself. This conclusion is also consistent with the purpose of the exclusions from the definition of minerals as identified by the Federal Court at paragraph 124 of the Adelaide Brighton Case. The entity is mining lime sand for its 'inherent mineral qualities' - in this case calcium carbonate.

Accordingly, an entity is mining for minerals, for the purposes of subparagraph 11(1)(b)(i) of the EGCSA if the entity is mining lime sand for use as a flux.

Legislative References:
Energy Grants (Credits) Scheme Act 2003
   section 11(1)
   paragraph 11(1)(b)
   section 20

Case References:
Chief Executive Officer of Customs v. Adelaide Brighton Cement Ltd
   [2004] FCAFC 183
   56 ATR 267

Other References:
Johns RK Coffin Bay Calcareous Sand Deposits. Mining Review # 120 Department of Mines, South Australia 1961

Keywords
Calcium carbonate, CaCO₃
Lime sand
Minerals
Mining operation

Business Line:  Indirect Tax

Date of publication:  23 September 2005

ISSN: 1445-2782