TAXATION RULING NO. ST 2432

ST 2432

SALES TAX : MOBILE EXPLOSIVES MANUFACTURING UNITS

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FOI status:

May be released

PREAMBLE

The Commissioner has decided not to proceed with an application for special leave to appeal to the High Court of Australia against a decision of the Full Court of the Supreme Court of Victoria that Mobile Manufacturing Units (M.M.U.s) manufactured by a taxpayer and applied to its own use are exempt from sales tax. The decision is reported as ICI Australia Operations Pty Ltd v Deputy FCT 87 ATC 5110; (1987) 19 ATR 647.

2. An MMU is used to carry the component materials of an explosive to be manufactured from the taxpayer's bases to the mine bench of open cut mines. There, by the use of a manufacturing unit, those component parts are mixed so as to manufacture the chosen explosive in measured quantities and are delivered by means of a pump and hose into blast holes. Occasionally the MMU travels unladen to the mine site and is loaded from a mother tanker with the raw materials required for manufacture.

3. Of the three vehicles considered by the Court, one is used to produce and deliver an explosive called "ANFO" which is suitable only for dry blast holes and the other two are used in production and delivery of "slurry" explosives which can be used in wet blast holes.

4. Each MMU is comprised of a cab chassis component manufactured and supplied by International Harvester Limited and an explosives manufacturing component. At the request of the taxpayer, International Harvester carried out certain modifications to the cab chassis which would not ordinarily have been sought by purchasers of the cab chassis. Such purchasers usually wish to use it solely for the purpose of carriage of goods. Unlike the transit mixers considered in Ready Mixed Concrete (Victoria) Pty Ltd v Commissioner of Taxation (1969)118 CLR 177 and Pioneer Concrete (N.S.W.) Pty Ltd v Federal Commissioner of Taxation 86 ATC 4435; (1986) 17 ATR 733 the manufacturing units were not self contained units.

5. The MMUs are able to, and do in fact, travel on public roads. However, the proportion of their time travelling on public roads is small compared with their time travelling on roads on mine premises and stationary at mine blast holes while manufacturing and delivering explosives.

6. Subitem 14(1) of the First Schedule to the Sales Tax (Exemptions and Classifications) Act exempts from sales tax "Machinery, implements and apparatus (other than road vehicles of the kinds ordinarily used for the transport of persons or the transport or delivery of goods, or parts for those road vehicles), for use in the mining industry in carrying out mining operations or in the treatment of the products of those operations." Paragraph (e) of the definition of "aids to manufacture" contained in subsection 1(1) of the First Schedule also expressly excludes "road vehicles of the kinds ordinarily used for the transport of persons or the transport or delivery of goods."

7. The Full Court (Kaye, Gray and Brooking JJ.) held that MMUs are not "road vehicles of the kinds ordinarily used for ..... the transport or delivery of goods" and consequently are exempt from sales tax under subitem 14(1) and item 113B of the First Schedule. In deciding whether the MMUs fall within the road vehicles exception all three Judges applied essentially the same test viz., one dependent on the vehicle's primary use. The clearest statement of the test was made by Brooking J. (at 87 ATC 5114 and 5116; 19ATR 652 and 654) where his Honour declined to characterise road vehicles as being "of the kinds ordinarily used for the transport of persons or the transport or delivery of goods" where:

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the vehicles are usually or commonly used for the transport of persons or the transport or delivery of goods; but

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the vehicles' transport use is incidental, subordinate or secondary to the putting of the vehicles to another use; and

.

the vehicles' primary use is that other use e.g., the manufacture of goods (in this particular case, the manufacture of explosives)

8. In considering the MMUs as a whole rather than on the basis of a cab chassis component and a manufacturing component the Full Court followed the approach of Murray J. at first instance (87 ATC 4069; 18 ATR 313). Murray J. had concluded that the manufacturing components are integrated with the cab chassis component to such an extent that it is artificial for the purpose of the sales tax legislation to attempt to view the completed unit on the basis of a cab chassis fitted with various components.

RULING

9. The Commissioner accepts the Full Court's decision in respect of the MMUs in question. Being integrated units, the complete units comprising the cab chassis and specialised equipment qualify for exemption.

10. The classification of other specialised vehicles used in the mining industry in carrying out mining operations will be determined in accordance with the principles established in the ICI case and the earlier cases of Ready Mixed Concrete and Pioneer Concrete referred to in paragraph 4 above. Where the specialised vehicle is an integrated one, i.e., the vehicle operates as one unit, the vehicle will be classified as one unit. Where the specialised equipment attached to the cab chassis operates independently, then the cab chassis will be classified separately to the specialised equipment.

11. A road vehicle may be characterised as "road vehicles of the kinds ordinarily used for the transport of persons or the transport or delivery of goods" for the purposes of the sales tax legislation where the road vehicles, as a class of goods, are usually or commonly used for the transport of persons or the transport or delivery of goods.

12. It is accepted, however, that a road vehicle should not be characterised as "road vehicles of the kinds ordinarily used for the transport of persons or the transport or delivery of goods" - even though the road vehicles, as a class of goods, may be usually or commonly used for such transport purposes - where:

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the road vehicles' transport or delivery use is incidental, subordinate or secondary to the putting of the road vehicles, as a class of goods, to another use; and

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the road vehicles'primary use, as a class of goods, is that other use e.g., the manufacture of goods.

COMMISSIONER OF TAXATION
14 July 1988

References

ATO references:
NO 88/815-0

Date of effect:
Immediate

Date original memo issued:
9.3.88

Subject References:
ROAD VEHICLES
MOBILE EXPLOSIVES
MANUFACTURING UNITS
AIDS TO MANUFACTURE
- MOBILE EXPLOSIVES MANUFACTURING UNITS
MINING MACHINERY AND
EQUIPMENT
- MOBILE EXPLOSIVES
MANUFACTURING UNITS

Legislative References:
SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) ACT; SUB-ITEM 14(1),
ITEM 113B, FIRST SCHEDULE

Case References:
- ICI Australia Operations Pty Ltd v Deputy FCT
87 ATC 5110
(1987) 19 ATR 647

- Pioneer Concrete (N.S.W.) Pty Ltd v Federal Commissioner of Taxation
86 ATC 4435
(1986) 17 ATR 733
- Ready Mixed Concrete (Victoria) Pty Ltd v Commissioner of Taxation
(1969)118 CLR 177
(1969) 69 ATC 4038
(1969) 1 ATR 123