Collectors of Customs v Cliffs Robe River Iron Associates

7 FCR 271
1985 - 0328B - FCA; No. WA G 110 of 1984

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(Judgment by: Bowen CJ, Morling J, Neaves J)

Between: Collectors of Customs
And: Cliffs Robe River Iron Associates

Court:

Judges:
Bowen CJ
Morling J
Neaves J

Subject References:
Customs and Excise

Hearing date: 25 March 1985
Judgment date: 28 March 1985

Canberra

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Judgment by:
Bowen CJ
Morling J
Neaves J

This is an appeal from a decision of the Administrative Appeals Tribunal setting aside a decision of the Collector of Customs to refuse to pay to the respondent pursuant to s 78A of the Excise Act 1901 a rebate for diesel fuel used to generate electricity for the township of Pannawonica in Western Australia.  An appeal to this Court from a decision of the Tribunal lies only on a question of law - vide  s 44 of the Administrative Appeals Tribunal Act 1975.

The respondent is a joint venture of Cliffs Western Australian Mining Co. Pty. Limited, Mitsui Iron Ore Development Pty. Limited, Robe River Limited and Cape Lambert Iron Associates.  The joint venture is engaged in mining iron ore in the Pilbara region of Western Australia and in transporting the ore by rail from Pannawonica to Cape Lambert where it is crushed, prepared as fines and shipped.

By virtue of sub-s. 78A(1), a rebate of excise duty is payable to a person:

"who purchases diesel fuel, being diesel fuel upon which duty has been paid, for use by him-

(a)

  in mining operations ..."

Sub-section 78A(7) provides that the expression "mining operations" is to have the same meaning as it bears in s 164 of the Customs Act 1901. Sub-section 164(7) of the Customs Act provides that:

"'Mining operations' means-

(a)

  exploration, prospecting or mining for minerals;  or

(b)

  the dressing or beneficiation (at the mining site or elsewhere) of minerals, or ores bearing minerals, as an integral part of operations for their recovery,

and includes-

(c)

  other operations connected with exploration, prospecting or mining for minerals that are carried out in, or at a place  adjacent to, the area in which the exploration, prospecting or mining occurs;

(d)

  where minerals, or ores bearing minerals, are dressed or beneficiated, at a place other than the mining site, as an integral part of operations for their recovery - the transporting of the minerals or ores from the mining site to the place where they are dressed or beneficiated;

(e)

  the liquefying of natural gas;

(f)

  where natural gas is liquefied at a place other than the mining site - the transporting of the natural gas from the mining site to that place;  or

(g)

  the production of common salt by means of evaporation,

but does not include quarrying operations carried on for the sole purpose of obtaining stone for building, road making or similar purposes;"

The respondent sought review of the decision of the Collector to refuse the rebate on grounds which it expressed in the following terms:

"The diesel fuel used to generate power for the township of Pannawonica was purchased by the Applicant for use by it in mining operations as defined by the Act in that:

(a)

  the township is adjacent to the Applicant's mine site in the Robe River Valley at which minerals are mined

(b)

  the township is owned and maintained by the Applicant and houses the Applicant's employees who are engaged in the mining operations

(c)

  the generation of power for the townsite is an integral part of the Applicant's operations for the recovery of the ore bearing mineral from the mine site."

No challenge was made to the Tribunal's findings of fact and the following account of them is taken from its reasons for decision.  By an agreement dated 18 November 1964 between the State of Western Australia and Basic Materials Pty. Limited, the State granted to the company rights of exploration in the area of the Robe River Valley.  The company undertook to submit proposals for development of a mine, townsite, railway and harbour.  The respondent is the successor to Basic Materials Pty. Limited.  Pursuant to the agreement the State granted to Cliffs Western Mining Co. Pty. Limited, the manager for the joint venture, a mineral lease, a special lease of the mine townsite at Pannawonica, a special lease of an industrial area and a special lease of land to carry power transmission lines between Pannawonica and the mineral lease.

The respondent's operations in the Robe River Valley require the use of power for a number of purposes and this has meant the establishment of a power station close to the site known as the "first loadout", which is the site where the extraction of ore first began.  There is a sub-station at the "second loadout" and another sub-station near the town of Pannawonica.

The power station at the first loadout is about 19 kilometres from where mining is presently carried out and that area is about 5 kilometres from Pannawonica.  Electricity is used to power drills which make holes for explosives to blast ore so that it can be extracted, for electrical shovels which dig the ore from the mine face and load it into trucks, for electronic equipment at the mine, for lighting the operations which proceed throughout 24 hours of the day and for a number of associated purposes.  There was no issue between the parties before the Tribunal as to fuel used to generate electricity from the substation near the first loadout.  The Collector accepted that this fuel was used in mining operations as that term is defined in the Customs Act.

The issue between the parties related only to fuel used to generate electricity for the purposes of the town. Those purposes include street lighting, the lighting and air-conditioning for the houses of employees (including single quarters), for community facilities such as a school and police station, and for a limited range of commercial undertakings by persons other than the joint venturers.  The latter include a service station, store and tavern.

Pannawonica is a town of about 1200 persons.  Of these some 630 are employees of the respondent and they, with their families, constitute the bulk of the population.  There are only 10 to 15 persons who are not employees of the respondent or members of their families.  Of the 630 employees, about 140 are engaged directly in the production of ore.

Before the Tribunal, the respondent argued that diesel fuel used by it for the generation of power for the town is fuel used by it "in mining operations" in terms of both paras. (a) and (c) of the definition of that term.  The Collector contended that the generation of electricity does not constitute exploration, prospecting or mining for minerals. He argued that mining for minerals refers to the physical activities involved in dislodging and removing ore from the ground and that the words "other operations connected with ... mining for minerals" require a direct or immediate connection between the other operation and the act of dislodging and removing ore.  He contended that there was no such connection between the generation of power to provide lighting and other facilities for a town on the one hand and the removal of ore from the ground on the other.  However, the Collector did not dispute that the generation of electricity for the town was carried out at a place adjacent to the area in which the exploration, prospecting or mining occurs as those words are used in para. (c).  Thus the issues before the Tribunal were as follows:

(1)

Was diesel fuel purchased by the respondent for use in the generation of electricity for the town of Pannawonica part of the oper- ation of mining for minerals?

(2)

If it was not, was the fuel purchased for use in an operation connected with mining for minerals?

The Tribunal was of the opinion that the first question should be answered adversely to the respondent.  It reached this conclusion because it was of the opinion that para. (a) identifies particular activities and that the word "mining" carries its ordinary meaning, i.e. the extraction of ore. The respondent did not contend that it carried on exploration or prospecting activities.  However, the Tribunal thought that para. (c) widened the scope of "mining operations" by introducing "other operations" which do not answer any of the descriptions used in the preceding paragraphs, so long as those operations are connected with one  of the operations mentioned in para. (a). It said that the real question for its determination was whether fuel purchased to generate electricity for the town of Pannawonica was purchased for use in an operation connected with mining for minerals.  We agree that this was the real question for the Tribunal's decision and, indeed, the Collector did not contend otherwise.

The Tribunal held that diesel fuel purchased to generate electricity for the town was purchased for use in mining operations.  Its reasons for arriving at this decision were stated as follows:

"In our view there is a sufficient connection between the generation of electricity for the town of Pannawonica and the mining carried out at the loadouts.  The town was built pursuant to the agreement of 18 November 1964 expressly and solely to enable mining to be carried out in the Robe River Valley.  No other town was available.  Nor was any other source of power available.  The generation of electricity for the town is vital to the existence of the town and the town is vital to the extraction of ore.  The persons who live in the town do so because they are employees of Cliffs or members of the families of employees or because, in those few other cases, they provide services for the employees and their families.  The town serves no purpose other than to facilitate the mining of iron ore in the Robe River Valley.  To say, as the Collector submitted, that electricity is generated for the comfort and convenience of the residents of Pannawonica does not deny a sufficient connection between the purchase of fuel and the extraction of ore."

This conclusion was challenged by counsel for the Collector.  It was argued that for the "other operations" referred to in para. (c) to be connected with mining, there must be a sufficient connection (Federal Commissioner of Taxation v Broken Hill Co. Limited (1969) 120 CLR 240 at 277).  It was contended that some indication of the degree of connection required to constitute a sufficient connection in the context of the definition of "mining operations" can be deduced by reference to the other activities described in paras. (d), (e), (f) and (g) of sub-s. 164(7). Essentially those paragraphs relate to the treatment or transportation of minerals and refer to activities closely related to the extraction process. It was argued that, in this context, for "other operations" to be connected with mining they must be operations directly connected or associated with the physical extraction or treatment of the mineral and carried out in or at a place adjacent to the area in which the mining occurs.  The generation of electricity for the domestic use of the town is not, so it was argued, an operation so connected with mining for minerals albeit that the town exists solely to service the mine.  It was said to be too remote to fall within para. (c).

For the Collector's argument to succeed it is necessary to construe para. (c) as requiring a more direct connection between the "other operations" and the extraction or treatment of the minerals than is apparent from the facts of this case.  We can see no sound reason for so construing the paragraph .  The relevant provisions of the Excise Act reflect a legislative policy of encouragement of mining operations and should not be given a narrow application.

The meaning of the word "connection" is both wide and imprecise.  One of its common meanings is "relation between things one of which is bound up with, or involved, in another". Shorter Oxford English Dictionary.  We were referred to a number of cases where, in other contexts, the meaning of the word "connection" has been discussed, but we do not think that any assistance is to be derived from them.  Given that the generation of electricity in the present case was carried out at a place adjacent to the area in which the mining occurred, the question of law which arises is whether, on the facts of this case, it was open to the Tribunal to hold that the generation of electricity for the township was an operation connected with the mining for minerals.  In our opinion it was.

The construction of the town of Pannawonica, and the supply of electricity to it, was an essential part of the scheme to establish the mine. It was a condition of the agreement made between the State of Western Australia and Basic Materials Pty. Limited pursuant to which the mine was established - vide Iron Ore (Cleveland-Cliffs) Agreement Act 1964 (WA).  The township forms part of the infrastructure of the mine, its sole function being to provide a place of residence for the mine workers, there being none other available.  The township was constructed and is operated by the respondent solely for the purpose of enabling it to mine the minerals on the adjacent land.  The township has no alternative source of electricity, and without electricity it could not provide a place of residence for the mine workers and the mine could not operate. Having regard to these facts, it was well open to the Tribunal to conclude that the generation of electricity for the township was so bound up with and involved in the mining for minerals that it was an operation connected with the mining for minerals.

It is unnecessary to consider an alternative argument advanced on behalf of the respondent that, in any event, the generation of the electricity was itself part of the mining operations because such operations included work done in preparation for or ancillary to the actual mining of the mineral.  It is also unnecessary to consider a further argument that, in the absence of any express provision in the Act for apportionment, and since diesel fuel was used substantially for mining, it qualified for a rebate in full notwithstanding that the electricity was also used for domestic purposes in the town.

Counsel for the respondent did not contend before us that the question raised in the appeal was not one of law although, as we have already observed, the Court has jurisdiction to decide only points of law on an appeal from a decision of the Tribunal.  There is much authority to the effect that where all the material facts are established, the question whether they fall within a statutory description is a question of fact.  See Mattinson v Multiplo Incubators Pty. Limited (1977) 1 N.S.W.L.R. 368 at 372 and the cases there cited.  In such a case no question of law arises unless it is contended that the situation disclosed by the evidence is necessarily inside or outside the statutory description.  The case for the Collector was argued upon the basis that the evidence necessarily showed that the generation of electricity for the township fell outside the definition of mining operations.  Thus a question of law was raised and the Court has jurisdiction to determine it.

The appeal should be dismissed with costs.