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ADMINISTRATIVE APPEALS TRIBUNAL - TAXATION APPEALS DIVISION

[2004] AATA 1305

Re Day and Deputy Commissioner of Taxation

G A Barton, Member

7 December 2004 - Perth

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G A Barton, Member.    In the period 26 September 2000 to 16 January 2003 (the relevant time), the applicant, Mr John Day, as co-trustee of the Day Family Trust trading as Paperbark Essential Oils (the business), purchased 6592 litres of diesel fuel (the fuel) for use in the business.

  2  In January 2003, he applied to the respondent for a rebate of the duty on the fuel on the basis that he had used it for an eligible activity which he described in his application as:

   

For tractor use on 64 hectare property (being) developed for essential oil production and minor grazing, boiler used in processing harvested material.

  3  The applicant has applied for review of the respondent's reviewable objection decision of 22 July 2003 (T2) that the applicant is ineligible for a rebate of the duty on 2340 litres of the fuel used to fire the boiler.

  4  The tribunal had before it the "T-documents" (T1-T8) lodged by the respondent pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth), the respondent's statement of facts and contentions, statement of issues, written submissions and copies of the authorities cited. The respondent, who was represented by Mr Peter Quinlan of counsel, called 2 expert witnesses, Professor Dr Leonard John Wade and Dr Ross Stephen Kingwell and tendered the following documentary exhibits:

   

R1 - statement of agreed facts.

 

R2-R6 - copies of photographs of standing trees and equipment used in the business conducted by the applicant.

 

R7 - a copy of a news release of the Department of Conservation and Land Management of 10 October 1999 headed "Mallee eucalypts - key to fighting salinity".

 

R8 - a copy of a professional paper: Development of mallee as a large scale-crop for the wheatbelt of Western Australia by J R Bartle, manager farm forestry unit CALM WA and Syd Shea, chairman, Oil Mallee Co WA delivered at Australian Forest Growers Biennial Conference Albany 2002.

 

R9 - a copy (10 pages) of the website of Australian Botanical Products founded by Mr John Fergeus.

 

R10 - Witness statement of Professor Dr Leonard John Wade.

 

R11 - Witness statement of Dr Ross Stephen Kingwell.

  5  The applicant, who represented himself, gave evidence and called 3 expert witnesses, Mr J R Bartle, Mr J Fergeus and Mr W R McGilvray. At the close of the hearing he handed in a written copy of his submissions and he tendered the following documentary exhibits during the hearing:

   

A1 - witness statement of the applicant;

 

A2 - expert witness statement, J Bartle;

 

A3 - expert witness statement, J Fergeus;

 

A4 - expert witness statement, W R McGilvray.

  6  The tribunal had the applicant's statement of facts of 6 February 2004.

  7  The tribunal finds the following facts, as agreed by the parties in R1, in relation to the applicant's activities in which he used the fuel.

  8  The applicant grows over 140,000 trees on a 64 hectare property located approximately 10 kilometres north-west of Harvey, in Western Australia. The majority of the trees grown (approximately 140,000) are tea trees (Melaleuca alternifolia), but there are also approximately 10,000 Fragrant Agonis (Agonis fragrans), 10,000 Honey Myrtle (Melaleuca teretifolia), 5000 Rosalina (Melaleuca ericifolia), 5000 Lemon Tea Tree (Leptospermum petersonii) and a number of Lemon Scented Iron Bark (Eucalyptus staigeriana).

  9  The trees are planted in a close spaced hedge configuration, at a planting density of about 28,000 trees per hectare.

  10  The trees grow to about 1.5-2 metres height after about 12 months.

  11  They are harvested using an 85hp tractor with 3 point linkage mounted forage harvester and trailing bin(s) sitting on trailer.

  12  During harvest the trees are cut at about 200 millimetres above ground, and the forage harvester effectively mulches the wood and leaves to about 20 millimetres size and shoots this mulched biomass into the trailing bin. About 600 kilograms of biomass is harvested into each bin, which represents about 600 trees depending on the biomass of individual trees.

  13  When the bins are full, the trailer is towed by the tractor to the distillation shed. The bins are offloaded using an overhead electric hoist.

  14  The main components of the distillation plant are:

 1.  Diesel fired steam boiler,

 2.  Still bins, including still base and still lid;

 3.  Water cooled condenser; and

 4.  Separator vessel.

  15  The bins into which the biomass has been harvested become the still bins during the distilling operation, that is, they are the same bins.

  16  The 2 still bins are loaded onto the still base, using the electric overhead hoist.

  17  The still lid is locked onto the upper still bin.

  18  A steam hose is connected from the boiler to the still base, and another steam hose is connected from the still lid to the water cooled condenser.

  19  Steam vapour is generated under pressure in the diesel fired steam boiler.

  20  This steam vapour is directed through the biomass via a hose connected between the boiler and the still base.

  21  Initially the steam vapour is totally consumed in heating up the biomass to approximately 100°C and there is no discharge of steam from the top of the still.

  22  Once the biomass has reached approximately 100°C, the oil which is contained in tiny sacks in the leaves, starts to vaporise.

  23  A vapour, which is a combination of vaporised oil and steam, then starts to discharge from the still lid via a hose to the water cooled condenser.

  24  The combined vapour is condensed to 2 liquids again, namely water and oil.

  25  The 2 liquids pass to the separator vessel, where the oil is floated off the water.

  26  The oil is collected for transport off the property, and sale.

  27  At the relevant time s 78A(1) of the Excise Act 1901 (Cth) provided that a rebate of duty is payable to a person who purchases diesel fuel for use in primary production (otherwise than for the purpose of propelling a road vehicle on a public road) (s 78A(1)(aa)). "Primary production", for this purpose, was defined as: "(a) agriculture; (b) fishing operations; or (c) forestry": s 78A(7) of the Excise Act 1901 (Cth) and s 164(7) of the Customs Act 1901 (Cth).

  28  It was common cause between the parties, and the tribunal finds, that the applicant's eligibility for the rebate of duty in respect of the fuel purchased for firing the boiler depends on whether he purchased it for use in primary production that was "agriculture" as defined in s 164(7) of the Customs Act 1901 (Cth) at the relevant time. So the issue to be determined by the tribunal is whether the distillation process conducted by the applicant in the distillation shed at the relevant time was agriculture as defined in the Customs Act 1901 (Cth) at that time.

  29  It was not disputed, and the tribunal finds, that the material facts of the distillation process conducted by the applicant at the relevant time are the same as those agreed to by the parties and set out at [14]-[25] of these reasons.

  30  At the relevant time "agriculture" was defined in s 164(7) of the Customs Act 1901 (Cth) to mean:

   

 (a)  the cultivation of the soil; or

 (b)  the cultivation or gathering in of crops; or

 (c)  the rearing of live-stock; or

 (d)  viticulture, horticulture, pasturage or apiculture;

 …  

 and to include the specific activities set out in subparas (e)-(zba) some of which were given an expanded meaning by subs (8). Paragraph (x) included:

   

 (x)  the packing, or the prevention of deterioration, of the produce of a core agricultural activity if:

 (i)  the packing, or the prevention of deterioration, of the produce is carried out on an agricultural property where a core agricultural activity is carried on; and

 (ii)  there is no physical change to the produce; and

 (iii)  the packing, or the prevention of deterioration, of the produce does not constitute a processing of the produce.

 A core agricultural activity is an activity referred to in paras (a), (b), (c) or para (d) that is carried out for the purposes of a business undertaken to obtain produce for sale, "core agricultural activity": s 164(7) of the Customs Act 1901 (Cth).

  31  The applicant's principal submission is that the process he conducted in the distillation shed at the relevant time (the distillation process) amounted to the gathering in of crops for the purpose of para (b) of the definition of agriculture in s 164(7) of the Customs Act 1901 (Cth).

  32  The legal validity of the applicant's submission turns on whether the ordinary meaning of the phrase "the gathering in of crops", within the context of the definition of "agriculture" in s 164(7) as a whole, includes the distillation process: or whether that phrase has a trade or technical meaning that extends to the distillation process. The applicant's submission will also be correct in circumstances where part of the phrase has a trade meaning that, in conjunction with the ordinary meaning of the rest of the phrase, embraces the distillation process: see the decision of the High Court in Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389; 35 ATR 249; 96 ATC 5240; 43 ALD 193; 141 ALR 59.

  33  Neither the phrase "the gathering in of crops", nor any part of it, was defined in the Customs Act 1901 (Cth) for the purposes of the definition of "agriculture" in s 164(7).

  34  The dictionary meaning of "crop" in the context of agriculture, is "the cultivated produce of the ground, as grain or fruit, while growing or when gathered", 3rd ed of the Macquarie Dictionary; "the annual produce of cultivated plants, esp the cereals, whether in the field or gathered, the yield of any natural product in a particular season or locality; a plant etc which is periodically harvested", the New Shorter Oxford English Dictionary (1993); "a cultivated plant that is grown on a large scale commercially, especially a cereal, fruit or vegetable, an amount of produce harvested at one time", 2nd ed of the Oxford Dictionary of English (2003).

  35  The dictionary meaning of "gather" in the agricultural context is "collect or pick (flowers, fruit) from the place of growth, collect (grain etc) as harvest", the New Shorter Oxford English Dictionary (1993) "to pick (any crop or natural yield) from its place of growth or formation: to gather grain, fruit or flowers", 3rd ed of the Macquarie Dictionary; "harvest grain or other crops", 2nd ed of the Oxford Dictionary of English (2003).

  36  The applicant testified that he had been involved in the essential oil industry for the last 10 years as a researcher, a producer and a consultant and that he had always considered the crop to be the oil and that he could not recall anyone in the industry arguing that the crop was the plants. He testified that within the industry it was common to speak of "harvesting the oil" or "the essential oil harvest" but that it was most unusual to speak of "gathering in the essential oil". He stated that the distillation process did not alter the chemical composition of the oil which was collected in the same form in which it occurred naturally in the plant material. So the harvesting of the primary plant produce, which is the oil, is only completed, in the essential oils industry, after distillation and not when the standing trees are cut and reduced to a mulched biomass. For this reason the distillation process was not to be equated to the milling of grain or the extraction of oil or juice from picked fruits because these processes occur after the primary plant produce (the grain or fruit) has been gathered in.

  37  The applicant's evidence was confirmed in all material respects by the expert witnesses he called (A2, A3, A4).

  38  The respondent called expert evidence that the dictionary definition of "crop", referred to at [34] of these reasons, has application in the field of agriculture and so the word "crop", in the tea tree plant industry, would refer to the plantation of trees growing in the field and, less commonly, to the harvested trees or leaves, but it would not refer to the oil extracted from the leaves of tea trees (R10). The tribunal was told that in the field of agricultural economics, a crop is the vegetative, reproductive or senesced stage of plant development and the harvest of the primary product; any secondary processing or treatment of the harvested material is not viewed as part of crop production but rather as another stage or type of production (R11).

  39  The tribunal finds that neither the phrase, nor any part of the phrase, "the gathering in of crops" had a universally accepted trade or technical meaning, different from its ordinary meaning, when the definition of "agriculture" under consideration was enacted. General legislation is only to be construed according to an appropriate secondary meaning that is "general and definite, and not local or limited to particular traders", Isaacs J in Whitton v Falkiner (1915) 20 CLR 118 at 127. The evidence of the applicant and that of the expert witnesses he called, was confined to the essential oils industry. There was no evidence before the tribunal of a general secondary meaning within the agricultural industry as a whole, to govern the construction of the phrase "gathering in of crops" as it occurred in para (b) of the relevant definition of "agriculture", so the tribunal must construe it according to its ordinary meaning: Whitton v Falkiner (1915) 20 CLR 118 at 133.

  40  The tribunal finds that the phrase "gathering in of crops" as it occurred in para (b) of the definition of "agriculture" in s 164(7) of the Customs Act 1901 (Cth) means the act of severing and collecting plant material from cultivated plants where they stand and does not include any milling, extractive or other process, such as the distillation process, that is applied to the plant material that has been collected. This construction is consistent with the dictionary meanings referred to at [34]-[35] of these reasons and the legislature's use of the phrase in defining a core agricultural activity in para (b) as "the cultivation or gathering in of crops". The use of "gathering in of crops" in conjunction with the "cultivation" of crops excludes, in the view of the tribunal, any argument that the legislature intended to include a process such as the distillation process, in that core activity. This construction is confirmed by the provisions of para (x) of the definition of "agriculture", which extends the agricultural activity described in para (b) to the packing, or the prevention of deterioration, of the produce of that activity provided there is no physical change to the produce and the packing or the prevention of deterioration, of the produce does not constitute a processing of the produce, para (x)(ii) and (iii). The tribunal finds that the fact that the only produce for sale obtained by the applicant is the distilled oil is irrelevant to the meaning of "gathering in of crops" in para (b).

  41  So the tribunal affirms the respondent's reviewable objection decision of 22 July 2003 referred to at [3] of these reasons.