Robe River Mining Co. Pty. Ltd. v. Federal Commissioner of Taxation

Members:
Lee J

Tribunal:
Federal Court

Decision date: Judgment handed down 15 November 1990.

Lee J.

These matters are two appeals by Robe River Mining Co. Pty. Ltd. (``Robe'') under the Sales Tax Assessment Act (No. 1) 1930 (``the Act'').

The first appeal is against a decision of the Commissioner of Taxation (``the Commissioner'') to disallow, in part, robe's objection to an assessment of sales tax in respect of the period 1 March 1983 to 31 August 1986. The second appeal is in respect of a decision of the Commissioner to disallow Robe's objection to the Commissioner's decision to refuse to refund a claimed overpayment of sales tax paid for the period 1 July 1984 to 30 June 1987. Both appeals raise the same question of liability to sales tax and were heard together.

The first appeal also involved an issue related to the assessment of additional tax but, by agreement between the parties, consideration of that issue was deferred pending determination of the question of liability to sales tax.

The issues in the appeals arise out of the conduct of a joint venture project for the mining and shipment of iron ore from the Pilbara region of Western Australia. Robe manages the project on behalf of the joint venturers. The joint venturers are known as Robe River Iron Associates (formerly Cliffs Robe River Iron Associates) and at the time of the formation of the joint venture, Robe was known as Cliffs Western Australia Mining Co. Pty. Ltd. (``CWAM'').

Robe contended that various parts of the machinery purchased by it as manager of the

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joint venture project for use in the railway facility were exempt from sales tax.

The parties were of the opinion that the Court would derive assistance from an inspection of the joint venture activities and after the completion of an opening address by senior counsel for Robe the Court and counsel travelled to the Pilbara to view all aspects of the joint venture operations from the blasting of ore at the Robe River mine site to the loading of sinter fines on a vessel at the Cape Lambert wharf. The anticipations of counsel were well founded. The view provided a proper context in which the evidence adduced in affidavits or by direct testimony could be received and appreciated.

The parties agreed that save for changes in the parties participating in the joint venture, the summary of the history of the joint venture recorded in the judgment of Kennedy J. in
Cliffs International Inc. v. F.C. of T. 85 ATC 4374 is pertinent to these appeals and relevant passages from that judgment are repeated below.

``The joint venturers mine a substantial iron ore deposit at Pannawonica in the Robe River valley in the West Pilbara area of Western Australia. After treatment at Cape Lambert, the ore is shipped to overseas buyers who are located almost exclusively in Japan and in Europe.

By reason of the importance to the marketing of iron ore of its chemical composition and physical properties, it is necessary to refer briefly to the nature of Robe River ore. The ore which is mined is limonitic iron ore, a form of iron with a chemically combined water content which makes the ore of lower grade than the hematites available from other areas in the Pilbara. It comprises approximately 57% iron, as compared with 62% in the average hematite. The water content may be driven off in a sintering process, but it is an undesirable characteristic in ore, because the presence of water adds to the cost of shipping, and its use in the sintering process requires the addition of more coke than would otherwise be necessary. The Robe River iron ore does, however, have certain physical advantages in that, when crushed, it produces a relatively coarse natural fine and comparatively few ultrafines. It is beneficial, particularly in the sintering process, to blend this ore with the finer ores which are generally produced by processes of concentration.

The blending of Robe River ore also has advantages insofar as its alumina content is concerned. Most Atlantic basin ores are low in alumina, and the blending of those ores with Western Australian ores, with their higher alumina content, can produce an optimum level of alumina for the particular purpose of the mill. One advantage which Robe River ore possesses, as against its competitors from the Pilbara, is that it contains approximately half the phosphorus content of the other Pilbara ores, phosphorus being regarded as an undesirable element in iron ore.

The post war expansion of the world's steel industry saw two particular developments in ore processing, namely, sintering and pelletizing. Making sinter first involves mixing iron ore fines which cannot be charged directly into a blast furnace because their size would allow them to be blown out. The fines, when mixed, are burnt into a clinker with coke, whilst, at the same time, other additives which it is desired to put into the furnace are wrapped into the clinker.

With pelletizing, the iron is ground very finely, primarily to remove undesirable constituents, such as silicone and alumina. Water is added, and it is rolled into balls in a drum. The temperature is then raised to the level at which the balls are converted into artificial stone or pellets. Pelletizing was largely developed in response to a technical requirement in the iron ore reserves remaining in the United States after World War II. It was being pioneered in Europe when the European steel mills were in the middle of their expansion into sintering.

The Robe River project had its genesis in 1962, with the creation of a temporary reserve covering the area of the iron ore deposit. Occupancy rights in relation to the reserve were conferred upon Basic Materials Pty. Ltd. (`Basic'), a company incorporated in this State and whose shares were then owned by Howe Sound (later Howmet Corporation), a company incorporated in the United States of America, and by Garrick Agnew, Pty. Ltd., a company incorporated

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in this State. The ore at that time was regarded as being virtually non-commercial, and in order to secure an evaluation of the deposit and, it would seem, its participation in any development which might eventuate, Howe Sound sought assistance from Cleveland-Cliffs, Cleveland-Cliffs having an internationally acknowledged expertise in the upgrading of low grade ore.

As a result of this approach, Mr W.E. Dohnal, one of the principal witnesses for the appellant, was sent to Western Australia by Cleveland-Cliffs in June 1962 to consider the involvement of that company in the development of the deposit. Thereafter, until his retirement at the end of 1979, Mr Dohnal was the chief executive in Australia for the Cleveland group. During the relevant financial years, he was to be the president and managing director of each of Cliffs and of C.W.A.M.

Samples of the Robe River ore were sent to the United States for thorough testing, there not being at that time adequate facilities in Australia for conducting the tests which were necessary to determine the viability of the development. The evaluation by Cleveland-Cliffs commenced with bench scale tests and progressed to testing the ore in a pilot plant in order to assess its suitability for pelletizing. All of this involved making use of the company's very extensive research laboratory and its staff of specialist metallurgists.

The earliest assessment was that a roasting process could be employed to dry off the excess chemical water in the ore, so as to leave a lump and a fine product. But it was then realised that heating the ore to a sufficient temperature to dry off the excess water caused it to disintergrate, leaving no lumps. At this time, the sintering process had not developed to the extent to which it later did, and the conclusion reached was that, if the project were to go ahead, it would require that the ore be pelletized, a process in which Cleveland-Cliffs had already built up a considerable expertise, but which was then still a relatively new process, involving a new approach to steel making technology.

At the end of 1962, Cleveland-Cliffs took an option to acquire all the shares in Basic. The option was exercised early in 1964, with the purchase being taken in the name of Cliffs, which was the vehicle through which Cleveland-Cliffs operated in Australia. Under the agreement so constituted, Cliffs became obliged to pay to Howe Sound and to Garrick Agnew Pty. Ltd. what were therein described as deferred payments, but which were, in reality, royalties, on all iron ore mined and transported from the reserve.

On 18 November 1964, the Western Australian Government entered into an agreement with Basic, which was approved by the Iron Ore (Cleveland-Cliffs) Agreement Act 1964, for the development of the deposits and, inter alia, the pelletizing of the ore. The agreement expressly recognised the low quality of the Robe River ore and the substantial costs which would be involved in its upgrading in order to make it saleable. The Act identified two stages of development, at the end of the first of which Basic was to be entitled to a mining lease of the area in which the ore deposits were situated.

Shortly thereafter, Basic went into voluntary liquidation, and its assets were distributed in specie, its interest in the agreement with the State, with the approval of the State Government, being assigned to Cliffs accordingly.

By this time, sales contracts had been secured with Japanese interests for the sale of both pellets and fines. In January 1966, C.W.A.M., which had become by then the manager for the project, appointed Mitsui & Co. Ltd. (`Mitsui & Co.'), one of the major Japanese trading houses, its agent for the sale of iron ore products to Japanese consumers. When Cliffs, notwithstanding all its efforts, was unable to find other participants willing to take an interest in the project, and in this way to raise the considerable finance needed for the development, these contracts lapsed.

There was at this time some concern as to the capacity of the Robe River deposit to support the proposed venture. Cliffs therefore sought additional reserves and eventually, by an agreement with Dampier Mining Company Limited, dated 30 September 1969, Cliffs secured from that

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company, in effect, a sub-lease of additional iron ore deposits at nearby Deepdale, in return for options to purchase iron ore and to acquire certain interests in the railway and port proposed to be constructed by the participants in the Robe River development. This arrangement was important for the viability of the project, because it resulted in the securing of access to approximately 160,000,000 additional tonnes of ore, and so enabled economies of scale to be achieved by the mining of larger quantities of ore.

The Japanese contracts were revived in April 1969, when C.W.A.M. entered into iron ore pellet and sintering fines sales agreements with a number of Japanese steel mills. In February 1970, it entered into a similar agreement with Mitsui & Co.

By the early months of 1970, Cliffs had secured Japanese and, importantly, Australian participation in the venture, and it was in a position to complete arrangements for a joint venture to develop the deposit. A number of agreements were then entered into, each dated 25 May 1970. They included, in particular, the Joint Venture Agreement, the Cliffs International, Inc. Agreement, the Management Agreement, the Advisory Services Agreement, the Japan Agency Agreement, the Japanese Sales Representation Agreement and the World Sales Representation Agreements.

The Joint Venture Agreement was made between C.W.A.M., Mitsui Iron Ore Development Pty. Ltd., Robe River Limited and Mt. Enid Iron Co. Pty. Ltd. and provided for the development, construction, maintenance and operation of the Robe River project for the purpose of the mining, overland transportation, processing, pelletizing and loading for shipment of iron ore and the delivery of it to the participants to enable them to fulfil the contracts and obligations for the sale of iron ore to which they were, or proposed to become, parties, and to provide additional iron ore for them.

By the Cliffs International, Inc. Agreement, Cliffs agreed to assign to the participants, in effect, the mining rights which it had acquired in the Pilbara, whilst retaining its mineral lease. In return, each participant agreed, inter alia, to pay to Cliffs a royalty on iron ore produced by or for it and sold or shipped for sale for commercial use from the mineral lease area and on iron ore purchased by it from Dampier Mining Company Limited under the agreement with that company.

By the Management Agreement, the participants engaged C.W.A.M. as manager of operations for the joint venture.''

In addition to the above, other relevant facts are as follows.

Between 1970 and 1972 the joint venturers established an iron ore mine on the mining lease in the Robe River valley and constructed the railway and necessary facilities for transporting, processing, pelletizing and shipping the ore. The length of the railway between the mining areas and the port at Cape Lambert is approximately 190km.

The joint venturers commenced exporting sinter fines and pellets in late 1972. In 1980 the pelletizing plant was decommissioned and, thereafter, the exported ore has been in the form of sinter fines only.

The ore occurs as secondary alluvial deposits in the valley of the Robe River. The original sites of precipitation now appear as mesas in an eroded river valley. The deposits are scattered over a wide area. The mined ore zones vary from 5m to 50m in thickness and contain iron values of 56%-59%.

As described by Kennedy J., the limonitic iron ore mined at Robe River has a lower iron content than the hematitic deposits mined further inland. If the ore is not pelletized it must be marketed as sinter fines and is unsaleable as a directly shipped lump ore.

As the exploitation of the mineral deposit has proceeded, the railway line has been extended and new ore loading stations have been constructed at the site of new mining areas.

The mined ore is not treated by crushing at the mine site or at the ore loading station. Some ore is placed in a stockpile at the loading station, but other ore is loaded directly on to rail wagons. All ore is taken as mined by rail to Cape Lambert where it is put through a primary crusher and stockpiled.

In the planning of the project it was the commercial judgement of the joint venturers

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that it would not be economic to construct a central crushing facility in the Robe River valley to serve the dispersed ore deposits. Such a method would have involved long journeys by dump trucks from the mine facers to crushers and return and would have required major expense to remove and relocate the crushing facility to serve new mining areas. It was concluded that if operated in such a manner the mining venture would not be viable and the only option was to serve the mining areas with heavy duty railway wagons and take the loaded ore to a permanent and single crushing facility at Cape Lambert.

An ore train takes approximately four hours to load at the mine site and four hours to travel to Cape Lambert. It takes two-and-a-half to three hours to unload the ore into the primary crusher and approximately three hours to return the train to the mine site. At present the mine operates 24 hours a day for five days a week. In normal operations six trains per day travel to and from the mine five days a week with extra trains on the sixth day as required.

By data acquired from exploratory drilling and drilling preparatory to blasting, Robe has access to profiles of the chemical make-up of areas being mined. The data may be used to avoid mining areas which contain lower quality ore and higher levels of impurities or to concentrate on mine faces with better grades of ore to improve the grade of ore being delivered to the crushers and stockpiles.

After the ore has been put through the primary crusher at Cape Lambert and deposited on a coarse ore stockpile, it is recovered from that stockpile and fed through secondary and tertiary crushers and distributed by stackers into stockpiles for shipping. The primary crusher produces ore to the largest dimension of 200mm. Secondary and tertiary crushing operations reduce the ore to less than 10mm. Regular samples are taken of the ore as it leaves the tertiary crushers and chemical analysis of those samples provides a broad outline of the grade of ore stacked in designated areas of the stockpiles. In constructing the stockpiles the broad aim is to divide the stockpiles into zones of approximately 200,000 tonnes of uniform grade. The stockpiles are deposited in layers and the ore is recovered by vertical cuts of a bucket-wheel reclaimer to provide greater consistency in the shipped product. At the time of loading, ore may be taken from various zones to provide a shipment that meets contractual specifications in its average grade.

The sale contracts for the Robe River ore negotiated on behalf of the joint venturers specify limits for the size of the ore and for content of impurities such as silica, alumina and phosphorous.

In addition to the percentile limits specified in respect of silica and alumina, it is also specified that there be a ratio of not less than 1.5:1 between the silica and alumina - a requirement to ensure the better performance of the ore in the blast furnace.

The process of loading rail trucks with ore at the ore loading facilities may involve some blending of the ore in that the loaded ore may be obtained from several different mine faces. The crushing of the ore and distribution of it to the coarse ore stockpile provides further blending. No analysis is made of the quality of the ore received on the ore trains or deposited on the coarse ore stockpile. The first assays are those carried out on the samples obtained as the ore is conveyed from the tertiary crushers for distribution to the fines stockpiles.

Robe has been able to produce and maintain consistent levels of chemical and structural characteristics in its shipped product of sinter fines by monitoring the quality of the ore to be mined, by monitoring the quality of the crushed ore being deposited in the shipping stockpiles and by controlling the manner of deposit and reclamation of the crushed ore upon and from those stockpiles.

The joint venture operation cannot rely upon the mixing on the mined ore as loaded on to the railway wagons to be a sufficient act of blending to present ore of consistent quality within contractual specifications. Robe has to control the construction of the stockpiles of crushed ore and the manner of reclamation of that ore for loading to ensure that the loaded ore conforms to the specifications of the contracts pursuant to which the ore is supplied to purchasers.

A substantial delay may occur between the time samples are taken of the crushed ore being conveyed to the shipping stockpiles and the time at which chemical analyses of those samples have been completed. Approximately one day's production may be deposited upon the shipping stockpiles before the mine has

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responded to a request to vary the mined product and the first deliveries of such ore have arrived at Cape Lambert. For that reason, it is obviously an essential part of the preparation of the product for export that it be first deposited in stockpiles of known quality and that vessels be loaded from these controlled areas rather than directly from the crushing plants.

Pursuant to the several agreements between the joint ventures and the State, ratified by legislation of the State Parliament, the joint venturers have been granted leases for the mining of iron ore, for the construction and use of a railway, for the construction and use of a port, and the use of an industrial area. The leased areas are contiguous and provide the joint venturers with leasehold possession of land from, and including, the mine site to, and including, the port at Cape Lambert.

In addition to the lease granted for the use of a railway, the joint venturers have been granted a further lease to construct a road adjacent to the railway throughout its length. Permission to travel on the roadway may be granted to members of the public upon application. The railway is not fenced and from time to time grazing cattle wander on to the line and are struck by ore trains. The leased areas on which the railway and road are constructed have been excised from pastoral leases on which there is little, if any, enclosure of livestock.

I now turn to the issues in the appeal.

The particular grounds relied upon were as follows. First, the constituent parts of the railway were machinery implements and apparatus for use in the mining industry:

within the meaning of item 14(1) of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935.

Second, Robe contended that such constituent parts were machinery implements and apparatus for use exclusively, or primarily, and principally for the purpose of the business of the joint venture:

and were exempt from sales tax pursuant to item 113C of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935.

Item 14(1)

Item 14(1) provides exemption from sales tax for -

``machinery, implements and apparatus... for use in the mining industry in carrying out mining operations or in the treatment of the products of those operations.''

The Commissioner accepted that the joint venturers were engaged in the mining industry and in carrying out mining operations. It must follow that the goods concerned were for use in the mining industry. (See
F.C. of T. v. Hamersley Iron Pty. Ltd. 81 ATC 4582 at pp. 4589-4590; (1981) 59 F.L.R. 415 at pp. 424-425.)

The sole issues were whether the goods were for use:

In carrying out mining operations

The Commissioner contended that mining operations ceased, at the very latest, upon the delivery of the mined ore to the railway trucks at the ore loading station situated on the mineral leases, it being submitted that the ore was then in manageable proportions.

Evidence adduced by the appellant that the ore was not in manageable size as mined was not directly contested. Robe's experienced executive director, Madden, deposed that there were no facilities in the world for loading or unloading ships with the large ore lumps included in the ore loaded at the ore loading stations. That evidence should be accepted as demonstrating that only part of the mined ore was in manageable size. It is obvious that the

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viability of the project turns upon the use of all loaded ore.

However, it was further submitted on behalf of the Commissioner that the conveyance of the ore by railway from the mine site to Cape Lambert could only be characterised as an exercise in transportation and that because of the length and nature of that transport the function could not be associated with, and included within, an activity described as ``a mining operation''.

That is, it was argued that even if it may be said that the ore is not in a manageable state until undergoing an initial crushing, that primary crushing phase could not be regarded as part of the mining operation unless the crushing facility were situated at, or near, the mine site and the ore were crushed before it was transported from the mining area.

It is the interpolation of transportation of the ore over such a distance by the use of a railway that is relied upon by the Commissioner to support the argument that the primary crushing undertaken at Cape Lambert no longer bears any of the characteristics of a part of a mining operation. It is argued that the crushing of the ore is then part of a new operation, namely treatment of the ore preparatory to loading for shipment.

The Commissioner sought to distinguish the decision of the Full Court of this Court in
F.C. of T. v. Reynolds Australia Alumina Ltd. & Ors 87 ATC 5018; (1987) 18 F.C.R. 29 on its facts and, in particular, by contrasting the conveyor system considered in that case with the railway used by the joint venturers, the latter being traditionally known as a form of transport.

Although in Reynolds Australia the use of a conveyor system to carry bauxite over a relatively short distance may be distinguished from the use of a substantial railway facility to transport heavy loads of iron ore, the principle of that decision remains relevant namely that the extraction of ore and the conveyance and blending of it away from the mine site may still be part of one relevant activity being carried on properly characterised as a mining operation rather than as a set of independent activities of which the transportation of ore is one such activity (per Beaumont J. at ATC p. 5026; F.C.R. p. 40; per Burchett J. at ATC p. 49). (See also
F.C. of T. v. Northwest Iron Co. Ltd. 86 ATC 4202; (1986) 9 F.C.R. 463 per Bowen C.J., Toohey J. at ATC p. 4203; F.C.R. p. 465 and Lockhart J. at ATC pp. 4210-4211; F.C.R. pp. 474-475.)

The Commissioner relied upon the comments of Barwick C.J., McTiernan and Menzies JJ. in
F.C. of T. v. Broken Hill Proprietary Co. Ltd. 69 ATC 4028 at p. 4031; (1967-1969) 120 C.L.R. 240 at pp. 272-274 in which their Honours qualified the view taken by Kitto J. at first instance as to what fell within the description of ``mining operations'' as used in the Income Tax Assessment Act 1936:

``We agree entirely with his Honour's view that `mining operations' covers `work done on a mineral-bearing property in preparation for, or as ancillary to, the actual winning of the mineral', but, with regard to the statement, that `it extends to any work done on the property subsequently to the winning of the mineral (e.g. transporting, crushing, sluicing and screening) for the purpose of completing the recovery of the desired end product of the whole activity', we have a reservation. We do not doubt that to separate what it is sought to obtain by mining from that which is mined with it, e.g. the separation of gold from quartz by crushing etc., or the separation of tin from dirt by sluicing, is part of a `mining operation' but we would not extend the conception to what is merely the treatment of the mineral recovered for the purpose of the better utilisation of that mineral. Thus to crush bluestone in a stone crushing plant so that it can be used for road making, or to fashion sandstone so that it becomes suitable for building a wall or a town hall is not, as we see it, a mining operation. Nor would the cutting of diamonds or opals which have been recovered by mining operations fall within the description of mining operations.

In
F.C. of T. v. Henderson (1943) 68 C.L.R. 29 it was decided that to obtain gold from gold-bearing material, i.e. slime dumps, by sluicing, screening, filtering and chemical treatment was a mining operation and this, of course, we accept. The reason for so deciding, however, has no application to a process that does no more than either reduce in size lumps of iron stone of manageable size taken from the earth, or, to increase the size of small fragments of ore taken from the earth in order that the ore which has

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been mined can be conveniently carried away from the mine and utilised in steel making. In Henderson's case the object of the taxpayer's mining operations was to obtain gold and those operations comprehended all the steps in the recovery of gold from the slime dumps; here the object of the taxpayer's mining operations is to obtain iron ore - the end product - and those operations comprehend all the steps taken to do so, but once the iron ore is obtained in manageable lumps then its further treatment, either to reduce or increase its size so that it can be conveniently transported from the mine and better utilised in industry, forms no part of the mining operation. In the same way we would not regard the converting of brown coal into briquettes as part of a mining operation; nor would we regard the treatment in a refinery of naturally occurring hydrocarbons in a free state as part of the operation of mining for petroleum. The mining operation in the last-mentioned instance would finish with what is referred to in sec. 122AA as the `obtaining' of petroleum as defined. Accordingly, we would not treat `the whole activity' referred to in the passage from his Honour's judgment just quoted as extending to the disposal of the product mined, and because we think `the end product' of the mining activity in this case is iron ore to be taken away from the mining property, we consider that `mining operations' ends when the iron ore is in a state suitable for this. The taking away from the mining property of ore which has been mined, whether that be done by the mining company or by someone else, is a step subsequent to the conclusion of the mining operations.''

But the examples referred to by their Honours in the above passage relate to the further treatment of an ``end product'' that has been won by mining.

The further treatment referred to relates to utilisation of an ``end product'' rather than the production of it.

Their Honours acknowledged that mining operation may include the crushing of mined rock to separate gold from quartz and the sluicing of soil to recover tin, but their Honours should not be taken to be limiting the extended activities of a mining operation to an end product produced by processes of separation. There is nothing in their Honours' reasons to deny that the crushing of low-grade iron ore to produce the marketable commodity of iron ore fines may be the winning of an end product and part of a mining operation.

The Commissioner sought to distinguish cases such as
Northwest Iron and F.C. of T. v. I.C.I. Australia Ltd. 71 ATC 4253; 72 ATC 4213; (1972) 127 C.L.R. 529 on the basis that in each of those cases there was no ``available product'' until further treatment processes were undertaken and, therefore, such treatment processes had to be included within the mining operation before it could be said that product had been mined.

I.C.I. turns on its own particular facts and is not of great assistance in resolving the issues to be considered in this case.

Similarly, it may be said that Northwest Iron could be restricted to its own facts in that the property on which all activities took place was specifically designated as a single mining lease. However, it was the necessary integration of activities in the latter case to produce a marketable product that dictated the conclusion that the transportation of the ore slurry through the pipeline was part and parcel of the mining operation. There was an ``available product'' when the ore was mined, but the ore was not of a sufficient grade to be marketable. To provide a marketable product it was necessary to crush the ore and transport it in a slurry to a pellitizing plant. In other words, there would have been no extraction of the ore from the ground unless the entire process was undertaken. In that regard, the circumstances may be contrasted against those considered in
F.C. of T. v. Utah Development Co. 76 ATC 4119; (1976) 50 A.L.J.R. 678 where the run-of-mine coal was already a marketable commodity and the construction of a treatment plant on the mining property to produce coke was merely the establishment on the mining site of a facility for the utilisation of the run-of-mine product. (See also
Re Drake-Brockman; Ex parte National Oil Pty. Ltd. (1943) 68 C.L.R. 51.)

The present case can only be judged on its individual facts. Cases decided on other facts to which other legislative provisions apply are unlikely to provide the principles determinative

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of the problems that arise in the present case. Cases such as
R. v. Hickman; Ex parte Fox & Clinton (1945) 70 C.L.R. 598;
R. v. Central Reference Board; Ex parte Thiess (Repairs) Pty. Ltd. (1948) 77 C.L.R. 123; R. v. Drake-Brockman which were concerned with the definition of an industry related to mining are examples of the limited assistance able to be provided by such authorities.

Circumstances may be conceived where an activity that would normally be part of a mining operation ceases to be so (see F.C. of T. v. Henderson (1943) 68 C.L.R. 29 per Latham C.J. at p. 45, per Starke J. at p. 50) but in the present case, the integrated activities of extracting the iron ore, reducing its size to fines and blending the product for some degree of chemical consistency are fundamental to the presentation of a marketable product. That is the mining operation. There could be no mining without the undertaking of the interlocking steps and the consent to mine granted by the State of Western Australia to the joint venturers, is plainly predicated upon that premise. The recitals and clauses of the formative agreement between the State and Basic (``the Basic Agreement''), approved by and scheduled to the Iron Ore (Cleveland-Cliffs) Agreement Act 1964 which became the foundation of the joint venture operation, speak very clearly to that fact.

In determining what is the mining operation conducted by the joint venturers as that term is understood in item 14(1), it is to be noted that the sales tax legislation is dealing with commercial activities and the terms used in the legislation are likely to bear broad common-sense meanings consistent with the ordinary meaning of the words used unless the context of the Act dictates that some other meaning is intended.

Mining as a commercial activity is more than the excavation or removal of minerals. The nature of mining will vary with the nature of the substance being mined but above all it will be the winning of a product for a market.

In the present case the entire history of the joint venture operation showed that the blasting of ore reserves and loading of the mined ore on railway wagons for transport would not provide a product for which there was a market.

It is of great importance that the whole venture was conceived as an integrated project. The joint venturers only obtained permission to extract this type of iron ore in the Robe River valley upon undertaking to provide an entire activity in which the State could be confident that a marketable commodity would be produced capable of providing a financial return to the State and of achieving the best and most efficient use of the State's resources. The efficient mining of the Robe River ore deposits depended upon the ore being either pelletized or reduced to fines and a process of blending undertaken so that run-of-mine ore which otherwise may have had an unacceptably high level of contaminants could be distributed amongst other ore and the blended ore meet market specifications.

Because the project was undertaken as an integrated activity, the joint venturers received the grant of contiguous leasehold interests to provide premises for the entire operation. Although it was an operation spread over many kilometres, it was understood by all that to conduct that operation the joint venturers would require the exclusive possession of the relevant areas provided by freehold or leasehold estates. (See the Basic Agreement cl. 8(b).)

When those circumstances are appreciated, it becomes less difficult to accept that the transportation of the ore from Pannawonica to Cape Lambert for crushing remained part of the mining operation, notwithstanding that incidentally it also may have been part of the means of transporting the ore for shipment.

It is not difficult to regard the crushing activity as being sufficiently proximate to the excavation of the ore to be part of the mining operation having regard to the vastness of scale of operations and distances involved in that part of the State. Notwithstanding the distance involved, the unbroken rights or possession between mine site and wharf allow Robe to conduct the railway facility as an integrated part of a continuum. The fact that in circumstances of exigency ore may be stockpiled at the mine or loading operations continued at Cape Lambert if the railway is temporarily inoperative, does not alter the essential nature of activities. There is complete and integrated control exercised between the loading operations at the mine site at Pannawonica and unloading of the ore at the crusher at Cape Lambert. Although responsibility for use of the railway within the

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environs of the mine and Cape Lambert is in the hands of respective yard foremen at either end of the railway, there is a supervening co-ordination of those activities and control of the continuity of railway operations carried out by a railway controller to ensure that the railway functions as part of an integrated exercise.

It should be concluded that the machinery, implements and apparatus which constitute the railway are for use in the mining industry and in carrying out mining operations. The dedicated and integrated nature of the railway operation used to convey the extracted ore to a crushing facility is part and parcel of the mining operation conducted by the joint venturers and is within the meaning of the terms of the exemption provided by item 14(1).

In the treatment of the products of mining operations

The Commissioner argued that no blending occurs by the use of the railway system and, therefore, that the railway was not used in the treatment of the products of the mining operation and that the mining operation and treatment of the products of the operation were divorced by an activity of transportation to which item 14(1) had no application.

There is some force in this argument. Whereas acts of transportation of ore may be readily included within the expression ``in carrying out mining operations'' it would not be so apparent that transportation of products in mining operations to a place of treatment could be said to be machinery used ``in the treatment'' of those products (emphasis added). If this limb of item 14 were considered in isolation, there may be some difficulty in concluding that the machinery involved in the railway is used in the treatment of the products of mining operations.

However, if it may be said that the treatment of the ore is involved in the combined activities of crushing and blending, it may follow that the treatment commences at the point of loading of the ore at the mine site where some blending of the ore naturally occurs and that the transportation of the ore thereafter does not stand apart from the treatment but is an integral part of it.

That was the view adopted and expressed by the majority in Reynolds Australia in that regard (Beaumont J. at ATC p. 5026; F.C.R. pp. 40-41; Burchett J. at ATC p. 5033; F.C.R. p. 49) and, therefore, the additional limb of item 14(1) would apply to the circumstances of this case for the reasons expressed therein by their Honours.

The cases upon which the Commissioner relied to support the contrary argument have been concerned with provisions arising out of different legislation, namely the Income Tax Assessment Act 1936. Decisions such as F.C. of T. v. Broken Hill Proprietary Co. Ltd. owed much to the terms of the section of the Income Tax Assessment Act there under consideration, namely sec. 122. Qualification for deductibility of expenditure under that section depended upon expenditure being in connection with the carrying on of mining operations upon a mining property. For that reason the Court (ATC p. 4032; C.L.R. p. 275) could not accept that the taxpayers' railway and port facilities, although constructed on leased areas, were situated on a mining property. In Northwest Iron the mining lease granted by the Tasmanian Government incorporated the whole of the land upon which the ore was mined, the land over which the pipeline extended and the land on which the port facilities were constructed. For that reason the Court was content to hold that the integrated activity on that single lease involved the carrying on of a mining operation on a mining property.

But item 14 of the Sales Tax (Exemptions and Classifications) Act 1935 is broader and more embracing in its terms. It extends to machinery, implements and apparatus used in the mining industry in carrying out mining operations and in the treatment of products of mining operations. It is not limited to a location. It is looking at machinery used in the mining industry for the completion of mining operations and the treatment of the products of that work. In that context there should be little difficulty in including within the item, machinery which assists in the carrying out of the totality of a mining operation where it remains an integrated activity notwithstanding that there may be a separate location away from the mine site for carrying out a part of that activity. The fact that the item combines the carrying out of mining operations and the treatment of the products of the operations indicates that it does not contemplate excluding machinery that performs fundamental functions

ATC 5040

in an integrated operation of mining and treatment.

Item 113C

Item 113C provides exemption from sales tax for -

``Goods... applied by a registered person to his own use as aids to manufacture.''

For the purpose of that item, ``aids to manufacture'' means aids to manufacture as defined in subreg. 4(1) of the Sales Tax Regulations.

Subregulation 4(1) reads as follows:

``... `aids to manufacture' means goods for use by a registered person in the course of carrying on a business (where that use is exclusively, or primarily and principally, for the purposes of that business), being -

  • (a) machinery, implements and apparatus for use exclusively, or primarily and principally -
    • (i) in the actual processing or treatment of goods to be used in, wrought into or attached to goods to be manufactured;
    • ...
    • (viii) in the transportation, within premises in which any activity is carried out by him as specified in this paragraph (not being an activity carried out by the use of machinery, implements or apparatus expressly excluded from this definition) of goods in relation to which that activity has been, is, or is to be, carried out by him;...''

The question, therefore, is whether the goods are applied exclusively or primarily and principally:

According to the facts already described, it is apparent that the ore is treated by the joint venturers before being delivered to the purchaser for use in a manufacturing process.

It would follow, therefore, that for the reasons set out in Reynolds Australia as to why the second limb of item 14(1) applied to the facts of that case that the facts of this case are sufficient to satisfy the first limb of item 113C as it is read by incorporating reg. 4.

If the blending and crushing activities constitute treatment of the iron ore as must be accepted, the use of the railway machinery and apparatus performs an integral role in that treatment and it is machinery and apparatus that is used primarily or principally for that purpose.

Although the issue was not addressed in Reynolds Australia, the reasoning which led to the finding in respect of the second limb of item 14(1) would require a similar conclusion in relation to the first limb of item 113C.

However, as in Reynolds Australia, the principal arguments in respect of item 113C were directed to whether it could be said that the transportation of iron ore from the mine site to Cape Lambert constituted transport within premises in which treatment activity was carried out.

Although the premises on which the treatment activity takes place are a combination of leasehold estates, the joint venturers have exclusive possession to a contiguous area granted for the purpose of mining and treating the ore.

In one form or another, the joint venturers have an estate in the entire land as leaseholders and are not mere licensees or the beneficiaries of some incorporeal right as in
Moreton Central Sugar Mill Co. Ltd. v. F.C. of T. (1967) 116 C.L.R. 151.

Moreton Central Sugar was decided on facts which showed that the transportation of sugar was carried out pursuant to an incorporeal right and not as an incident of ownership or possession of the property over which it passed. Therefore, it could not be said that the transportation was ``within premises''. In the present case, the facts are quite different and more analogous to those considered in Reynolds Australia where each member of the Full Court readily concluded that parcels of contiguous land could be regarded as ``premises'' within

ATC 5041

the meaning of the item when an integrated business activity was conducted thereon.

The Commissioner, however, points to the extended length of the railway as a distinguishing factor to show that no more than transportation was involved due to the lack of proximity of function.

I cannot accept that argument. Irrespective of the distance traversed by the railway, the two important features are the entire integration and co-ordination of the activities at the mine site, on the railway, and at the crushing and blending site at Cape Lambert, and the exclusive possession of the entire property granted to the joint venturers for the sole purpose of carrying out that integrated operation.

It is impossible to distinguish the principles applied in Reynolds Australia and, if anything, the facts in this case are more amenable to the application of those principles.

The Commissioner also submitted that an amendment to item 119B in a Schedule of the Sales Tax (Exemptions and Classifications) Act 1935 which removed exemption from sales tax for privately operated railways which did not operate a service primarily and principally for the use of the public, exhibited an understanding on the part of the legislature that railways such as those operated by the joint venturers were not otherwise exempted from sales tax under the relevant Act.

That argument cannot be correct. The amendment to item 119B means no more and no less than the operator of a private railway who relied upon that item for exemption from sales tax prior to the amendment could not do so subsequent to the amendment unless the railway was operated primarily and principally for use by the public. The amendment has no bearing upon the construction of item 113C.

For the foregoing reasons, Robe's objection to the assessment of sales tax in matter No. WAG21 of 1989 and objection to the decision to refuse a refund of sales tax paid in matter No. WAG22 of 1989 should each be allowed. Robe is entitled to the costs of each appeal. I will direct the applicant to bring in a short minute of orders to give effect to these reasons.

THE COURT ORDERS THAT:

In Matter No. WAG 21 of 1989:

1. The applicant's appeal against the decision of the respondent made 29 December 1988 disallowing, in part, the applicant's objection dated 4 December 1987 to an assessment of sales tax in the sum of $1,818,292 and additional tax in the sum of $765,117 dated 21 October 1987 issued by the respondent in respect of the period 1 March 1983 to 31 August 1986 be allowed, the decision of the respondent on the said objection be set aside and the said objection be upheld.

2. The respondent pay the applicant's costs of this appeal.

In Matter No. WAG 22 of 1989:

1. The applicant's appeal against the decision of the respondent made 29 December 1988 disallowing the applicant's objection dated 20 September 1988 to the respondent's decision dated 29 August 1988 to refuse to refund to applicant the sums of $599,814 and $335,791 paid in respect of sales tax be allowed, and the decision of the respondent on the said objection be set aside and the said objection upheld.

2. The respondent pay the applicant's costs of this appeal.

 

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