North Australian Cement Limited v. Federal Commissioner of Taxation

Judges:
Spender J

Court:
Federal Court

Judgment date: Judgment handed down 9 August 1989.

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Spender J.

This is an appeal from a disallowance by the Commissioner of claims for deductions. The central question is whether the operations conducted by North Australian Cement Limited (``N.A.C.L.'') during the period 1979-1983 were ``prescribed mining operations'' as defined in sec. 121(1) of the Income Tax Assessment Act 1936 (``the Act'').

The parties have agreed that in the financial years 1979-1983 N.A.C.L. carried on the business of extracting limestone for the production of cement at Calcium, North Queensland. In N.A.C.L.'s income tax returns for that period, it claimed deductions of capital expenditure under Div. 10 of the Act in the following amounts:

                               $
         1979                76,833
         1980                74,639
         1981               149,823
         1982               129,511
         1983               106,841
      

While the amounts of expenditure are not in contention in these proceedings, the evidence shows that a large proportion of the expenditure which the applicant claims relates to the

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financing of roads both for access and haulage from the extraction operation.

The Commissioner of Taxation disallowed these claims for deductions. The Commissioner admits for the purposes of these proceedings the quantum of N.A.C.L.'s claim for deductions and further admits for the purpose of these proceedings that, conditional upon the court finding that ``mining operations'' were being carried out on a mining property, the expenditure claimed was incurred in carrying on such mining operations in Australia for the purpose of gaining or producing assessable income.

While capital expenditure other than on plant or articles is not usually deductible for tax purposes, special deductions are available to taxpayers for capital expenditure incurred in connection with ``prescribed mining operations'' carried on by them. The deductions in respect of prescribed mining operations are dealt with in Div. 10, sec. 122-122T. ``Prescribed mining operations'' are defined in sec. 122(1) as:

``mining operations on a mining property in Australia for the extraction of minerals, other than petroleum, from their natural site, being operations carried on for the purpose of gaining or producing assessable income.''

Historically, a distinction has been drawn between mining operations and quarrying operations to recover, for example, stone or blue metal.

These proceedings are essentially a relitigation of issues that Sir Douglas Menzies considered in
North Australian Cement Limited v. F.C. of T. 69 ATC 4077; (1969) 119 C.L.R. 353. In that case, his Honour at ATC p. 4080; C.L.R. p. 358 expressed the view that:

``The expenditure was... within sec. 122 if the removal of limestone by the taxpayer is a mining operation upon a mining property. Furthermore, the property is a mining property if some of the operations carried on there are mining operations, even if it should appear that some of the operations carried on on the property fall outside the description of mining operations. Is then the recovery of limestone by open cut methods properly to be regarded as a mining operation for the purposes of the section?''

His Honour considered that there were three possibilities to be considered. The first was that the extraction of part of the crust of the earth by open cut methods is mining regardless of the character of what is extracted or the use to be made of it. His Honour was of the view that that solution was not open to him because the decision of the Court in
N.S.W. Associated Blue-Metal Quarries Ltd. v. F.C. of T. (1956) 94 C.L.R. 509 (the ``Blue-Metal case'') that the recovery of road metal by open cut methods is not mining for the purposes of the statutory provisions in question.

The second possibility his Honour considered was that open cut extraction is or is not mining according to the use to be made of what is extracted. His Honour, while not denying some value to this test as propounded by the witnesses before him, said that he could not regard it as decisive. He said at ATC p. 4083; C.L.R. p. 362:

``I have no doubt that workings for diamonds or opals are `mining', although cutting the stones for use involves no change in their constitution or character. Furthermore, if the recovery of limestone for cement making is mining, so, I think, must be the recovery of limestone for grinding for agricultural purposes or crushing for road-making purposes. I think that coal is mined however it may subsequently be used, whether to burn in a stove or for the manufacture of gas or chemicals. I cannot accept the thesis that the use of what is extracted from the earth finally determines whether the extraction from the earth by open cut methods is to be called mining or something else.''

The third possibility his Honour considered was:

``whether an open cut extraction of material is mining or not is something to be determined by an informed general usage which takes into account both the way in which the deposits of the material occur, the character of the material to be recovered and the use to which it may reasonably be put. This is, I think, what is indicated by N.S.W. Associated Blue-Metal Quarries Ltd. v. F.C. of T. (1956) 94 C.L.R. 509. The conclusion is largely one of fact.''

It is important for the resolution of these proceedings to recognise the basis of his

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ATC 4768

Honour's conclusion in the proceedings in 1969, particularly in the light of submissions made on behalf of the Commissioner in these proceedings. In the 1969 proceedings, his Honour, in coming to the conclusion that the taxpayer was not conducting mining operations upon a mining property, said at ATC p. 4083; C.L.R. p. 363:

``Upon the whole, I have come to the conclusion that there is not sufficient here for me to arrive at a different decision from that reached by the Court in N.S.W. Associated Blue-Metal Quarries Ltd. v. F.C. of T. (1956) 94 C.L.R. 509. The fact that I have evidence that limestone is mined underground in some places outside Australia, whereas there was no such evidence in that case relating to bluestone, is not, I think, enough; nor is it enough that the limestone taken by the taxpayer is used in the further process of cement making. The operations of the taxpayer at Calcium are just the same as those described by Kitto J. (1956) 94 C.L.R. at pp. 513 and 514 and at the end I am in just the same position as was Kitto J. when he said:

• `I do not go so far as to say that a view favourable to the appellant in this case could not reasonably be held. But in the end the conclusion must depend on one's own understanding of the sense in which words are currently used, and, although Dr Johnson in his day defined a `quarry' as a `stone mine' (see (1889) 15 App. Cas. 19, at p. 31), it seems to me an unnatural and inapt use of language to apply the term `mining operations' to the getting of stone such as blue-metal by open excavation, and to call the land on which those activities are conducted `a mining property' ((1956) 94 C.L.R. at p. 514)'

This I adopt mutatis mutandis. The judgment of the Full Court affirming Kitto J. does support the application of a pragmatic test, i.e. that in Australia to speak of limestone workings as a mining property, even if technically justifiable, would be outside common usage and would `sound odd and incongruous'.''

The operations that his Honour said were just the same as the operations for the extraction of blue metal are the same as the operations for, inter alia, the extraction of coal by open cut methods.

Mining operations are not defined in the Act. This is to be contrasted with the definition of ``mining operations'' found in sec. 164(7) of the Customs Act for the purpose of that Act. That circumstance, if no other, requires caution to be exercised when considering cases decided under different statutory provisions.

The primary submission on behalf of the Commissioner was:

``There has been no relevant change in the law, the factual situation or common usage of terms since this operation was last before the court in 1969, such as to justify this court in coming to a different conclusion from Menzies J.''

While any judgment of Menzies J. is, of course, to be accorded great respect, there is, it seems to me, an error in this submission. Whether at any particular time operations are mining operations for the purpose of sec. 122 is, as Menzies J. indicated, largely one of fact. There is no question of precedent in relation to findings of fact, and to approach the matter in that way runs the serious risk of entrenching factual conclusions based on evidence before an earlier court as having some binding quality on a later court having different evidence at a different time.

As Viscount Haldane L.C. said in
G. & C. Kreglinger v. New Patagonia Meat and Cold Storage Company, Limited (1914) A.C. 25 at p. 40:

``To follow previous authorities, so far as they lay down principles, is essential if the law is to be preserved from becoming unsettled and vague... But when a previous case has not laid down any new principle but has merely decided that a particular set of facts illustrates an existing rule, there are few more fertile sources of fallacy than to search in it for what is simply resemblance in circumstances, and to erect a previous decision into a governing precedent merely on this account. To look for anything except the principle established or recognized by previous decisions is really to weaken and not to strengthen the importance of precedent. The consideration of cases which turn on particular facts may often be useful for edification, but it can rarely yield authoritative guidance.''

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This is not to suggest that consistency in decision-making on factual questions is not to be desired, but simply to underline that, if a matter is one of fact, it falls to be resolved on the evidence as it appears at the time the factual resolution is to occur. However, that this is the same property, the same Act, the same question, and essentially the same operation as in the earlier decision, are matters that cannot be put to one side.

In the Blue-Metal case, Kitto J. expressed the view that the description of the winning of blue metal by open excavation as mining operations was not a view that could not reasonably be held; but in reaching the opposite conclusion he thought it an unnatural and inapt use of language to apply the term ``mining operations'' to the getting of stone such as blue-metal by open excavation.

In the previous N.A.C.L. case, Menzies J., faced with that factual conclusion, said at ATC p. 4083; C.L.R. p. 363:

``there is not sufficient here for me to arrive at a different decision from that reached by the Court in N.S.W. Associated Blue-Metal Quarries Ltd. v. F.C. of T....''

In adopting the quotation from Kitto J. to which I have earlier referred, Menzies J. said:

``This I adopt mutatis mutandis.''

I take this as a recognition that a view favourable to the appellant in the 1969 case could, not unreasonably, be held. However, in his Honour's opinion, to speak of limestone workings as a mining property would be outside common usage and would sound odd and incongruous.

The applicant's primary submission in this case is that there is nothing incongruous, unusual, inapt or unnatural in describing the operations conducted by the applicant at Calcium, North Queensland, as mining operations: the view which Menzies J. expressed in the earlier case at ATC p. 4083; C.L.R. p. 363, that it would be unnatural and incongruous to describe these operations as mining operations, does not now apply.

What, then, are ``mining operations''?

Lord Macnaghten said in
Lord Provost & Magistrates of Glasgow v. Farie (1888) 13 App. Cas. 657 at p. 687:

``the meaning of the word `mines' is not... open to doubt. In its primary signification it means underground excavations or underground workings.''

This passage was referred to by the High Court in the Blue-Metal case at p. 523. The Court continued:

``But there are certain metals, minerals and substances which have been traditionally recovered by underground workings. They have thus become associated in idea with the concept of a mine and the association of ideas has made it inevitable that whatever the form of the excavation that is made for the purpose of winning them, whether underground or open-cast, it will be called a mine and the operations will be called mining. This may be an extension of the primary meaning of mining, but it must we think be recognized that, where the context or subject matter does not otherwise require, it forms today one of the natural applications of words `mine' and `mining'. In this sense it is part of the prima facie meaning.''

The expression ``mining operations on a mining property'' is used in sec. 122 in its ordinary and natural meaning and not in any technical sense. In
F.C. of T. v. I.C.I. Australia Limited 72 ATC 4213; (1972) 127 C.L.R. 529 (``the I.C.I. case''), Barwick C.J. and McTiernan J. held that both the raising of brine to the surface by pumping and the extraction of salt by evaporation were mining operations. Gibbs J. held that all of the operations up to the crystallisation stage formed part of mining operations.

Gibbs J. at ATC p. 4226; C.L.R. p. 578 said:

``In other statements of a similar view it has been said that the term `mining' has been applied to the winning of minerals `usually won by subterranean working' (
D.F.C. of T. (Q.) v. Stronach (1936) 55 C.L.R. at p. 313) or `generally obtained by underground working' (N.S.W. Associated Blue-Metal Quarries Ltd. v. F.C. of T. per Kitto J. (1956) 94 C.L.R. at p. 513).''

He said at ATC p. 4226; C.L.R. p. 579:

``It is true that the expression `mining operations' is a popular, rather than a technical expression (
F.C. of T. v. Broken

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ATC 4770

Hill South Ltd. (1941) 65 C.L.R. 150 at p. 155) and should, in accordance with established principles of construction, be understood in its ordinary and natural meaning unless the provisions of the Act indicate that some departure from that meaning is intended. However, the expression is one whose ordinary and natural meaning is flexible rather than fixed. In N.S.W. Associated Blue-Metal Quarries Ltd. v. F.C. of T. (1956) 94 C.L.R. at p. 522, the Court said: `The meaning of the words `mine' and `mining' like the word `minerals' is by no means fixed and is readily controlled by context and subject matter'. Later in the judgment in that case reference was made at p. 524 to the statement of Lord Watson in Lord Provost and Magistrates of Glasgow v. Farie (1888) 13 App. Cas. at p. 675, that the words `mines' and `minerals' `are not definite terms: they are susceptible of limitation or expansion, according to the intention with which they are used'. I do not understand that the Court in D.F.C. of T. (Q.) v. Stronach (1936) 55 C.L.R. 305 or N.S.W. Associated Blue-Metal Quarries Ltd. v. F.C. of T. (1956) 94 C.L.R. 509 intended to lay down a rigid and exhaustive definition of the flexible words `mining operations'.''

In
F.C. of T. v. Reynolds Australia Alumina Limited 87 ATC 5018; (1987) 77 A.L.R. 543, the question was whether an overland conveyor facility used to transport mined bauxite from a mine site to a refinery site was exempt under an item of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 on the basis that the conveyor facility was ``machinery implements and apparatus used in the mining industry in mining operations or in the treatment of the products of those operations''.

Beaumont J. said at ATC p. 5018; C.L.R. p. 549:

``It is possible to deduce from the settled course of authority in this area a number of general propositions:

• (i) Because the object of a provision such as Item 14(1) is to encourage the production of minerals in Australia, the exemption should be construed and applied liberally (see F.C. of T. v. I.C.I. (Aust.) Ltd. 71 ATC 4253 and 72 ATC 4213 at pp. 4216, 4227; (1972) 127 C.L.R. 529 at pp. 563, 581; 3 A.T.R. 321 at pp. 323-324, 336).
• (ii) The notion of `mining' is a flexible rather than fixed one so that, conceptually, it is capable of accommodating technological change (see the I.C.I. case at 72 ATC p. 4226; C.L.R. p. 579).
• (iii) `Mining operations' means operations pertaining to mining and `operations' is a very wide expression. For instance, `mining operations' is wider than `the working of a mining property' (see
  Parker v. F.C. of T. (1953) 90 C.L.R. 489 at p. 494; 5 A.I.T.R. 614 at p. 618).
• (iv) The present question is one of fact and degree (see the I.C.I. case, supra,
  F.C. of T. v. Northwest Iron Co. Ltd. 86 ATC 4202 at p. 4209; (1986) 17 A.T.R. 400 at p. 408; 64 A.L.R. 436 at p. 445).
• (v) In determining whether the exemption is applicable, it is appropriate to have regard to practical and businesslike considerations and, for this purpose, to look at the matter in the context of the taxpayer's activities as a whole (see the Northwest Iron case at ATC p. 4210; A.T.R. pp. 409-410; A.L.R. pp. 446-447).''

Burchett J. at ATC p. 5030; C.L.R. p. 559 referred to the I.C.I. case and said:

``The I.C.I. case contains specific statements that the provision by sec. 122 of a deduction in respect of mining operations exemplified a policy which was relevant to questions of construction of the section. Barwick C.J., with whom McTiernan J. agreed, referred at ATC p. 4219; C.L.R. p. 568; A.T.R. p. 327 to `the policy of encouragement of mining which the Act otherwise exemplifies'. Gibbs J., at ATC pp. 4227-4228; C.L.R. p. 581; A.T.R. pp. 336-337, said:

• `In my opinion, the subject matter of sec. 122 and the context in which it is found provide indications that it should be liberally construed. The section is one of the provisions of the Act whose evident purpose is to encourage the production of minerals in Australia and

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  ATC 4771

  in the Territory of Papua and New Guinea; it gives effect to a legislative policy which, as was said in N.S.W. Associated Blue-Metal Quarries Ltd. v. F.C. of T. (1956) 94 C.L.R. 509 at p. 525; 6 A.I.T.R. 239 at p. 247, was `to make special concessions to mining as a means of winning precious metals and valuable minerals from the soil'.

In
F.C. of T. v. B.H.P. Minerals Ltd. 83 ATC 4407; (1983) 14 A.T.R. 389; 51 A.L.R. 166, a Full Court of this Court was concerned with a claimed deduction under the Income Tax Assessment Act in respect of the provision of employee housing `at, or at a place adjacent to', the site of mining operations. At ATC p. 4411; A.T.R. p. 394; A.L.R. p. 171, Toohey and Lockhart JJ. said:

• `It has been the policy of successive Australian Governments to encourage the prospecting for and winning of certain metals and minerals and, accordingly, special concessions have been given in the Assessment Act to persons carrying on mining operations upon mining properties in Australia, by enabling them to deduct from their assessable income capital expenditure which would not otherwise be deductible.'

At ATC p. 4413; A.T.R. p. 396; A.L.R. p. 173 they said:

• `One approaches the task of defining the word `adjacent' with the knowledge that Div. 10 in which it appears gives legislative expression to the Australian Government's policy to encourage the search for and winning of metals and minerals and thus affords special concessions to the mining industry.'

At ATC p. 4414; A.T.R. p. 397; A.L.R. p. 174 they commented that: `The tax incentive... was intended by the legislature to operate realistically', and they adopted what they described as `a broad approach to the question of the definition of the expression under consideration in this case'. See also F.C. of T. v. Northwest Iron Co. Ltd. 86 ATC 4202 at p. 4209; (1986) 9 F.C.R. 463 at p. 473; 17 A.T.R. 400 at p. 408.''

In
Collector of Customs v. Bell Basic Industries Limited (1988) 83 A.L.R. 251, the Full Court of the Federal Court was concerned with whether the respondent, in extracting from the earth's crust by a specialised technique, commercially useful blocks of black granite classified as ``dolerite'', was engaged in mining operations for the purposes of the fuel rebate provided under both sec. 164(1)(a) of the Customs Act 1901 and sec. 78A(1)(a) of the Excise Act 1901. In dismissing the appeal from the Administrative Appeals Tribunal, Jenkinson J. (with whom I agreed) said at p. 256:

``Vernacular usage in the spheres of activity with which the Tribunal was concerned has not been static. The decision of fact which the Tribunal made that the recovery in this country at this time of black granite was in the parlance of those who have the occasion to speak of it `mining for minerals' was one which, in my opinion, the evidence could support, and one which the reasoning in the High Court cases did not as a matter of law contradict.''

In
Waratah Gypsum Pty. Ltd. v. F.C. of T. (1965) 112 C.L.R. 152, the recovery of gypsum by open cut working was held to be a mining operation for the purposes of the Act. Referring to that case, Barwick C.J. in the I.C.I. case noted at ATC p. 4217; C.L.R. p. 564 that there was:

``evidence that gypsum extraction by underground techniques was a common and established practice abroad though not in Australia, and evidence that the mining profession habitually referred to the winning of gypsum as mining. Also, it was held that `in common parlance... it is usual to speak of `gypsum mines'.''

Barwick C.J. later said at ATC p. 4217; C.L.R. p. 564:

``Although attention must be paid to common usage on the nomenclature of an operation in deciding whether an activity is a mining operation for the purposes of the Act, I do not think that the decisions of this Court deny that there is a concept of mining to be considered for that purpose.''

In
The Australian Slate Quarries Ltd. v. F.C. of T. (1923) 33 C.L.R. 416, on a case stated to the High Court, the Court concluded that operations for the purpose of obtaining slate from the land on which it occurs may be mining operations within the meaning of the Act. Knox C.J. said at p. 419 that:

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``When the words `quarry' and `mine' are not used in antithesis I think that which is described as a quarry may in certain circumstances also be described as a mine...''

In that case Isaacs and Rich JJ. in quite broad terms said at p. 420:

``The phrase `mining operations' embraces all operations whether by hand or by machinery and whether confined to excavating the surface, as in alluvial claims or extended to excavations, hundreds or even thousands of feet below the surface, by which any valuable deposit, other than the ordinary soil is extracted or extractable from the earth.''

Higgins J. said at p. 423:

``I do not think that I should be justified in saying that under no circumstances can there be `mining operations' unless there is an underground passage or drive, or that the fact of slate being the object of the quest, or the fact of slate being extracted from any over-burden of decayed slate, prevents the operations from being `mining operations'.''

Starke J. at p. 425 said:

``it was said that the works or operations of the appellant were `quarrying operations' as opposed to `mining operations'. In this connection also, the case is singularly bare of facts: there is nothing to indicate the nature and extent of quarrying operations in Australia, or to point out the distinction, if any, between such operations and mining operations. But, again using common knowledge, we may describe a quarry as an excavation from which useful rock or other material is taken for building, engineering, and other purposes, and generally worked on the open-cut system. The word `quarry', as Lord Watson said in Farie's case (1888) 13 App. Cas., at p. 677, is inapplicable to underground workings, but the word ``mining' may without impropriety be used to denote some quarries'. If the method of working and the substance worked do not necessarily exclude the appellant's operation from the category of mining operations, then the words `quarry' and `quarrying operations' are not used in opposition to the words `mine' and `mining operations', but rather as a particular instance of a larger description. Consequently, calling the appellant's works a `quarry' and describing its operations as `quarrying' operations will not preclude those operations from falling under the phrase `mining operations' contained in the Income Tax Assessment Act.''

Barwick C.J. said of this case in the I.C.I. case at ATC p. 4217; C.L.R. pp. 564-565:

``Whilst the unqualified generality of the view of Isaacs and Rich JJ. in Australian Slate Quarries Ltd. v. F.C. of T. (1923) 33 C.L.R. 416 at p. 420, has not been accepted to the point where the extraction of blue metal or limestone in an open quarry would be designated a mining operation, the views of Knox C.J., Starke and Higgins JJ. in that case are worthy of note. They must now, of course, be read as qualified by the statement that the description by common parlance of an activity as quarrying and not as mining may be definitive.''

As to the extraction of brine by pumping, Barwick C.J. said of the reasons of Walsh J. at ATC p. 4217; C.L.R. p. 565:

``In his Honour's reasons for judgment in this case he refers to the evidence of usage, principally abroad, in the description of activities such as those carried on by the respondent. I have no need to refer to this evidence beyond saying that his Honour did not find any usage of descriptive terms to cause him to depart from what it seems to me is the concept of mining. I agree with his Honour's views in this connexion. My own conclusion is that the activity of the respondent fits the concept of mining and should be described as a mining operation. That description is not denied by any usage of nomenclature.''

The statutory expression relevant in these proceedings, ``mining operations on a mining property'', requires both that there be mining operations and that those operations be on a mining property. In the I.C.I. case, Menzies J., who dissented in the result, said at ATC p. 4221; C.L.R. p. 570:

``The summary of the activity of I.C.I. at Port Alma seems to me to pose the question whether it constitutes, wholly or in part `mining operations upon a mining property'

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to use the language of sec. 122 which, it is to be observed, requires not only that there should be `mining operations' but that those operations should be upon a `mining property'. Indeed, the first critical problem, as it seems to me, is to determine whether I.C.I. has a `mine' at Port Alma for the language of sec. 122(2) demonstrates that the taxpayer entitled to deductions under sec. 122 must have a mine, the life of which can be estimated. If there be no such `mine', sec. 122 can have no application. Mining operations by themselves are not enough, nor do I think are mining operations upon an area which has, under State law, been granted as a `mining lease'. This is but a factor in deciding whether there is a `mine' for the purposes of the Income Tax Assessment Act.''

Later at ATC p. 4221; C.L.R. p. 571 he said:

``In sec. 122, it seems to me clear that a `mining property' is one which is, or has upon it, a mine and the mine is the mass being mined. It is also the place in which miners work. The `mine' must be of such a character that it has a life capable of estimation presumably by calculating how long it would take to remove what is there available for mining. When a mineral deposit is being removed by open cut methods there is a good instance of what is meant by a `mine'. It is a fixed deposit in a place.''

Gibbs J. said at ATC p. 4228; C.L.R. p. 582:

``For the reasons I have given I have reached the conclusion that the activities of I.C.I. on its mineral leases near Port Alma may without incongruity be described as `mining operations', and that that expression in sec. 122 of the Act is wide enough to cover those activities. It seems to me to follow that the land subject to the mineral leases, on which the activities were conducted, could appropriately be described as `a mining property'.''

In the Blue-Metal case, Kitto J. at p. 511 said that the question of whether the operations fill the description `mining operations upon a mining property' within the meaning of sec. 122 is a mixed question of law and fact; see the cases cited by Rich J. in F.C. of T. v. Broken Hill South Ltd. (1941) 65 C.L.R. 150 at p. 154. Williams J. in the Broken Hill South case (1941) 65 C.L.R. said, however, at p. 160:

``The meaning of an ordinary English expression, such as `mining operations', used in an Act, is one of fact, and the question whether the facts proved in evidence come within the expression is also one of fact.''

The Full Court in the Blue-Metal case emphasised that there were two aspects to the statutory expression. Dixon C.J., Williams and Taylor JJ. said at p. 524:

``Now in the present case the material worked, bluestone, is completely outside the scope of the metals minerals or substances the winning of which is associated in thought or tradition with underground workings. Bluestone quarries are familiar sights in many parts of Australia and the expression is equally familiar in speech. No one speaks of a bluestone mine. The phrase would sound odd and incongruous. Even more odd would it be if a bluestone quarry were called a mining property.''

What has to be ascertained is the meaning of the words in Australia at the time of the expenditure. In the I.C.I. case at first instance, Walsh J. said at C.L.R. p. 548:

``If the evidence shows that such operations have been and are described as mining operations, not in some isolated instance but with some frequency, it matters not, in my opinion, that they have been and are described in other ways or even that other descriptions are more common.''

Speaking of the time at which I.C.I. incurred the expenditure, he later said:

``In my opinion it must be legitimate to ask whether in the sense in which the words were then used or understood, they applied to the operations of I.C.I.''

In the Blue-Metal case, Kitto J. at p. 512 referred to the absence of ``any indication that the Parliament intended any other meaning than that which the words ordinarily have in this country and at this time''.

It seems to me that usage earlier or later in time to the relevant period may lend some assistance, as may overseas usage, but it is the

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meaning of the words in Australia at the time of the expenditure that has to be determined.

In approaching that question, the effect of State mining legislation is relevant but not decisive: see the I.C.I. case per Walsh J. at first instance at p. 541, per Gibbs J. at ATC pp. 4227-4228; C.L.R. p. 581 and the earlier N.A.C.L. case per Menzies J. at ATC pp. 4080-4081; C.L.R. p. 359.

The terminology used by experts in the area of learning and in trade and professional publications is relevant but not definitive. In the I.C.I. case, Walsh J. at C.L.R. p. 544 said:

``There has been some debate as to the proper use to be made of the evidence of experts and of conclusions based upon it as to their usage of the words whose meaning I have to determine. I have no doubt that such evidence and conclusions may be taken into account. I think that they may be of much importance, especially in a situation where there has not been in fact any occasion for a widespread adoption or development by the general public of a terminology to describe the particular processes under review. At the same time I think that use may be properly made of such knowledge as is available to the Court concerning more general usage. In F.C. of T. v. Broken Hill South Ltd. (1941) 65 C.L.R. at p. 160, Williams J. referred to `the vernacular of mining men'. In North Australian Cement Ltd. v. F.C. of T. (1969) 119 C.L.R. at p. 362, Menzies J. referred to `an informed general usage'. But those statements do not suggest to me that the Court is restricted to a consideration of the usage adopted by `mining men'. Indeed, it seems plain from his judgment that Menzies J. did not think it was so restricted. In Waratah Gypsum Pty. Ltd. v. F.C. of T. (1965) 112 C.L.R. 152 at p. 160 McTiernan J. referred to literature which showed how the mining profession described the winning of gypsum and then he referred also to `common parlance'. With respect, I am of opinion that his Honour was right in taking both into account.''

Gibbs J., on appeal, at ATC p. 4227; C.L.R. p. 580, having referred to a dictionary definition of `mine' noted that:

``Evidence was called by I.C.I. to show that among men connected with mining the operations on the salt field near Port Alma would be described as `mining operations'. Also, references were made to technical and other literature, American and English in origin in which expressions such as `solution mining', `hydraulic mining' and `mining through bore holes' are applied to a procedure whereby water is pumped down to the mineral sought to be recovered which is then pumped back to the surface in solution.''

I have earlier referred to the approach of Menzies J. in the earlier North Australian Cement Limited case that the question of whether the operations conducted at Calcium are mining operations on a mining property is to be determined by an informed general usage which takes into account the way in which the deposits occur, the character of the material recovered and the use to which it may reasonably be put. I am content to follow that test.

In the light of the above, I turn to the facts in this case.

The applicant manufactures cement. The cement works are at Stuart, which is located approximately 12 kilometres south of Townsville. The limestone which is necessary for the making of the applicant's cement is obtained from land covered by a mining lease at Calcium, situated around half an hour's drive south of Townsville. The main lease, mineral lease No. 75, covers private, Crown and reserved land and has an area of some 910 acres. It was granted on 2 June 1960 for the purpose of ``mining for limestone''. That mining lease expired at the end of October 1980 and was then renewed for a term of 21 years after a protracted hearing in the Mining Wardens Court for compensation by the land owner, a Mr Ryan. The taxpayer applicant also has the benefit of mineral lease No. 116, which covers 117 acres adjacent to mineral lease No. 75, but is not presently being operated. For the mining lease which is not being operated, it is necessary for the taxpayer to apply every six months for exemption from labour conditions pursuant to the Queensland Mining Act.

Relevant to the claims for deduction in the present proceedings is the working of deposits numbered 5 and 7. On 22 August 1984 the general manager, Mr Aylmer, on behalf of the applicant, submitted a proposal for the mining of deposit No. 7, which is located next to

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ATC 4775

deposit No. 5, the deposit then being worked. In that letter he indicated that the reserves of limestone from deposit No. 5 would be exhausted by the middle of 1987 and that, if the limestone from deposit No. 7 were to be mined, some unique problems would have to be overcome in order that limestone of suitable quality and quantity for cement manufacture could be obtained. The deposit was described in these terms:

``Number Seven Deposit is a Middle Devonian deposition which has been progressively covered with banded indurated grey shales and interbedded calc-silicates. Volcanic upheaval has caused the main bed of massive limestones to be intruded with various dolerites, feldsite and thin veins.

Following extensive geological work, complimented (sic) by diamond coring, it is now known that the amount of overburden material, totally unsuitable for cement manufacture, combined with sections of the calc-silicate capping and the intrusive sections, amounts to some 4.21 Mt. of spoil which will have to be removed and dumped. Extractable limestone reserves are estimated to be 8.59 Mt.''

The proposal indicated a plan for the progressive dumping of this spoil over the life of the workings of deposit No. 7, estimated to be between 17 and 19 years. The plan involved the dumping of spoil in the old workings of deposit No. 5 as well as the dumping of spoil over the south-western corner of deposit No. 7. The proposal contained plans for revegetation of the dumped material.

On mineral lease 75, seven deposits of limestone suitable for the manufacture of cement have been identified. According to Mr Aylmer's affidavit, deposit No. 1 was worked from 1954-1970, No. 3 from 1970-1976, No. 2 from 1975-1982, No. 5A from 1977-1979 and No. 5 from 1982 to its estimated end of working in 1990. Deposit No. 7 was first worked in 1986 and is estimated to last until 2006.

The original limestone deposits on mineral lease 75 were first recovered by the Ryan family, who burnt limestone there. The site was known as Ryan's Quarry. After the applicant taxpayer acquired the rights to the various deposits, which then consisted of a number of small leases, the leases were consolidated in 1959 and became one large mining lease, namely mineral lease No. 75.

Since 1970, the operation to recover suitable limestone has become more difficult. Originally, the lenticular deposits, the easiest to mine, were extracted. Though the working of deposit No. 7 is outside the relevant tax years, its development reflects the nature of the workings of the earlier relevant deposits. Surveys reveal that to mine deposit No. 7 a layer of overburden some 13 metres deep had first to be removed, beneath which is a layer of blendable capping of some 13 metres comprising about two million tonnes. This capping will be used in making cement by blending it with limestone in a pure form in a ratio of 1:2. The feasibility of mining the limestone deposits in deposit No. 7 for the purpose of cement manufacture was ascertained after investigations by a geologist, Christopher Jenkins, after the results of exploratory drilling and diamond coring were known. The operation in respect of the winning of limestone suitable for cement manufacture from deposit No. 7 required an open-cut benching process, the depth of the bench being reduced at the requirement of the Mines Department, Queensland, from 20 metres to 15 metres.

The existence of, and need to extract, large volumes of hard intrusion make the winning of limestone suitable for cement manufacture less profitable. Where suitable limestone is available, extraction can be conducted selectively, the uneconomic hard intrusions being left. As a matter of economics and as the history of the exploitation of the limestone deposits at Calcium indicates, the extraction process is conducted in such a way that limestone useful for the manufacture of cement is taken and uneconomic limestone is left. Where uneconomic limestone and other material has to be removed, it is a question of economics whether the cost of that removal, and the value of useful limestone to be obtained subsequent to that removal, justifies the entire process.

The report to the Department of Mines of 22 August 1984 commenced with the statement that:

``This company has, since inception, mined limestone from various outcrops located at Calcium in North Queensland.''

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ATC 4776

It may be noted that the headnote in the Commonwealth Law Reports of the 1969 litigation commenced with the sentence:

``The taxpayer, a cement manufacturer, held a Special Mining Lease granted for the purpose of mining limestone on land situated approximately 30 miles from its cement works.''

The operations presently in question were conducted on mineral lease 75 for the purpose of winning limestone suitable for cement manufacture.

Limestone is a mineral. None of the limestone extracted at Calcium is used as stone, whether for building or agriculturally.

For the purpose of producing cement, it is necessary that the basic ingredients be of a consistent and known quality for the value adding process to result in a product of commercial value. Cement is manufactured by the combination, under heat, of precise proportions of calcareous and argillaceous components to produce cement clinker. This cement clinker is cooled and then interground with a set control agent, such as gypsum, to produce Portland cement. Portland cement is composed mostly of a mixture of tricalcium and dicalcium silicates, the active ingredients, which, when combined with water, produce complex hydrate gels which harden and bind together. If the cement is mixed together with quantities of aggregates, sands and water, the resultant hardened mass is called concrete.

Limestone for cement manufacture requires a certain minimum calcium oxide content as well as the control of impurities such as magnesium oxide and sodium and potassium oxides. Restrictions are also placed on other impurities, including some sulphates and chlorides which affect reinforcement, and fluorides and oxides of manganese which affect the colour of the final cement product. For cement manufacture, limestone needs to be greater than 82% calcium carbonite. The calcium carbonate in limestone is present as the mineral calcite.

Limestone suitable for cement manufacture, including blending with higher quality limestone, is won by open-cut operations on the various deposits using a bench technique. The limestone is then broken up and carried to a crusher close to the site of operations. According to Mr R.E. Grinsell, the production manager of the applicant, each working day two train shipments arrive at the Stuart works of N.A.C.L. from the calcium mine. Each train load has a nominal net capacity of 750 tonnes of limestone with a maximum chord size of 125mm. The limestone is given a secondary crushing. It is then mixed with small quantities of other materials, crushed and then ground to produce a slurry. The raw material is then fed into a kiln and, simplifying the matter very considerably, a cement clinker is produced which, when cooled, is interground with gypsum. The final product is known as Portland cement.

N.A.C.L. produces four different types of cement to meet varying service and duty requirements of the final cement product.

After geological examination, and as the result of physical and chemical evaluation of diamond core samples following initial information from percussion drilling, it is possible to determine the recoverable limestone reserves from any particular deposit. The quantity of calc-silicates that can be blended with the limestone to produce a product suitable for cement manufacture, as well as the amount of material to be spoiled to waste, can then also be determined.

So far as deposits numbered 5A, 5 and 7 at Calcium are concerned, road gradients of up to 20% have to be negotiated for the winning of the suitable limestone from those deposits. Those deposits are characterised by intrusive materials, mostly hard igneous rocks which are some 20 times more abrasive than limestone and which contain little calcium. These intrusions have either to be extracted and dumped, or avoided.

As to the nature of the operation, the literature indicates that the words ``open pit'', ``quarry'' and ``open cast mining'' are used interchangeably. This fluid use is not confined to Australia but is evidenced by widespread overseas references.

Mr Grinsell says that in his experience the production of aggregates is still generally termed ``quarrying'', whilst production of minerals (for example, calcite) is largely termed ``mining'', ``open cast mining'' or ``open pit mining'' even when referring to surface workings. He deposes that limestone is widely extracted in the U.S.A. for building and construction purposes as well as road base and

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ATC 4777

other aggregates, and in some areas calcite is mined underground for cement manufacturing purposes. He cites three locations there where calcite is mined underground for cement production. He also deposes that earlier this century a considerable quantity of limestone was won in Great Britain by underground mining but that there is now no underground mining of limestone in Great Britain, the deposits being able to be worked by open pit methods.
R. v. The Inhabitants of Sedgley (1831) 109 E.R. 1968, 2 B. & Ad. 66 seems to support this aspect of his evidence.

Because of the quality constraints imposed by the specific end use in view, namely the production of cement, the winning of calcite at Calcium for that purpose is a fairly involved process. Preliminary steps include an initial survey and sampling, a geographical mapping and ground survey, as well as exploratory drilling and sampling, the development of a model to show the distribution in the reserve and a chemical evaluation to ensure the requisite grade of purity of the calcite. Only then can a technique of extraction to maximise the grade of calcite suitable for the production of cement be implemented.

In the Queensland Government Mining Journal of September 1983, ``mining'' and ``quarrying'' are not used in any antithetical sense: for instance, at p. 347, this sentence appears:

``Limestone was also mined from Greaves Quarry... for stonedusting, agricultural lime and foundry use, but quarrying was discontinued in 1980.''

[my emphasis]

In the February/March 1985 issue of the same journal, an article entitled ``Limestone and Marble in Queensland'' by N.J. Krosch, of the Geological Survey of Queensland, uses ``mining'' and ``quarrying'' in complementary senses, with, generally speaking, ``quarry'' being used as the noun and ``mined'' as the verb. At p. 66 this sentence appears:

``Large scale mining of limestone for cement making and lime burning is undertaken by Central Queensland Cement Limited at Mount Etna north of Rockhampton...''

[my emphasis]

Later, on the same page, it is said that:

``In the Calcium area, south of Townsville, deposits are quarried by North Australia Cement Limited for cement making and by Calcium Products Pty. Ltd. for agricultural and burnt lime production.''

[my emphasis]

At p. 68, a map showing the Townsville Broken River region indicates Calcium as the site of an ``operating mine''.

I think it right to acknowledge that there have been some changes in the exploitation of the limestone deposits since 1969 which, though not essential in kind, have emphasised the difference between the extraction of product for building material purposes and the extraction of product for cement making. There can be no doubt, in my view, that the operations at Calcium by the applicant are directed at the winning of product for its chemical qualities rather than for its physical attributes as building material or construction stone.

In addition to Mr Grinsell and Mr Aylmer, who were employed by the applicant taxpayer, other persons independent of the taxpayer were called on behalf of the applicant.

Mr Carl Hoffman, a Bachelor of Metallurgical Engineering and a member of the Australasian Institute of Mining and Metallurgy and general manager of the joint operations of M.I.M. Holdings Ltd. in Brisbane, was of the view that:

``Mining is a commercial activity undertaken to yield a mineral product from the crust of the earth. Mining operations can also be undertaken where the objective is the creation of excavations rather than the production of minerals.''

This expansive view of mining was applied to the operations at Calcium on a basis that the principal objective was the production of limestone for processing into cement for sale. His broad view of mining, a view he expressed before Menzies J. in 1969, focused on the means of extraction rather than the end product.

Mr James Rose, a mining engineer with impressive qualifications, highlighted the need to meet tight chemical specifications when extracting limestone for cement manufacture as opposed to other uses such as building materials. He said that, in Australia, limestone for cement manufacture is only produced by open pit mining, unlike places overseas where underground ``room and pillar'' mining is carried out. In his experience, the word

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ATC 4778

``quarry'' is usually applied to the open pit extraction of building materials such as gravel, slate or dimension stone, which materials are not treated in such a manner as would alter their chemical composition. They are extracted for their rock characteristics rather than the characteristics of the individual minerals in the rock. He contrasted this extraction with places where the winning of a mineral takes place. Such a place is referred to as a ``mine'', which may take the form of open pit mining, underground mining, in situ leaching, or alluvial mining. He noted that limestone is included as a mineral for royalty purposes in the Queensland Mining Act 1968, as amended.

Mr Vivian Forbes, a consulting geologist and mineral economist, swore that in conventional usage a quarry is a place from which is generally extracted a rock with certain required physical characteristics. He says that the extraction of limestone such as practised by N.A.C.L. at Calcium is referred to within the mining industry as ``open pit mining'' rather than ``quarrying'' and that the principles of extraction are exactly the same as those operating in open pit mining producing iron ore, coal or copper.

Dr Stewart Gillies, a senior lecturer in mining engineering at the University of Queensland and the senior vice-chairman of the South Queensland Branch of the Australasian Institute of Mining and Metallurgy, was the only witness called on behalf of the Commissioner. He referred to various definitions including dictionary definitions. After that he said:

``From these definitions and in my experience, Australian general usage and mining terminology allows:

• (a) Limestone... is defined as a mineral.
• (b) The term `mine' refers to underground excavations for the extraction of ore, precious stones or coal or surface workings for extensions of these deposits where open pit workings are more economical. In open pit mines... the proportion of overburden to ore... is high.
• (c) The term `quarry' refers to a surface excavation or pit for extracting block or crushed stone... and the proportion of overburden to material sought is low.''

Dr Gillies deposes that the original working on what is now mineral lease 75, was by the Ryan family, over the period 1890-1930, and produce burnt lime for agricultural and sugar refining uses. He says that although the Australian limestone industry may have changed by degree since the 1969 High Court case, the unit operations necessary for quarrying have remained in essence the same. It is to be noted that Dr Gillies, in describing in his affidavit the extraction operation of a limestone deposit, spoke of the transportation of material from the mine site. [my emphasis]

There is, on analysis, little difference in the approach by the expert witnesses called in this case. Such differences as there are are explicable by professional orientation or expertise. In my view, however, the approach by Professor Brown, the Dean of Engineering at the University of Queensland, sensitively and accurately assesses the usage and meanings of terms such as ``mining'', ``quarrying'' and ``open pit mining'' in both the mining industry and common parlance.

Professor Brown sets out a number of dictionary definitions which are valuable for present purposes. He says:

``The book, A Concise History of Mining by C.E. Gregory (Pergamon Press, Oxford, 1980) gives the following definitions which I accept and which I believe are accepted in the industry:

• (a) `Mining - The process of obtaining useful minerals from the Earth's crust for the benefit of mankind. Mining is mineral production. It includes both underground excavations and surface workings.'
• (b)`Quarrying - Is another type of surface mining operation where rock is mined (or quarried) for the production of construction stone or building stone. Similar methods apply to those for open cut work in metalliferous deposits.'

In the classic mining text, Peel's Mining Engineers Handbook, the term quarrying is used in the sense of Gregory's definition.

Three English dictionaries also provide definitions of a quarry which are similar to Gregory's:

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ATC 4779

• (a) Oxford Illustrated - `Excavation made for taking stone for building, etc. from its bed'
• (b) Longman's - `An open excavation for obtaining bulk civil engineering materials (e.g. stone, sand or slate)'
• (c) Penguin - `Open pit from which building stone, sand, gravel, etc. are taken'''

He says in his affidavit:

``It is the case as a matter of usage that, whereas mining refers to the extraction of useful minerals generally, quarrying more specifically refers to the extraction of materials for building or civil engineering purposes.''

In my opinion, this is an accurate description of the use of the terms both in the industry and in common usage.

In my opinion, the limestone at Calcium, not being used as building stone or construction material, is extracted not by what is properly described as ``quarrying'', but by what is properly described as ``mining''. I accept the observation of Professor Brown that:

``An important feature of the mining of limestone for cement production is the fact that the chemical composition of the deposit determines whether or not the limestone is suitable for the production of cement. In the applicant's case, the process of exploring the deposit, determining the spacial distribution of its composition, planning its selective mining and carrying out the mining itself is substantially indistinguishable from the process of the open pit mining of coal, metalliferous ores and industrial minerals.''

I admitted into evidence newspaper reports from a period later than the income tax years presently in question, concerning the operations by the applicant company in Mt Etna in Central Queensland. Those articles relate generally to the recent controversy concerning the operations of the taxpayer company in relation to certain caves which were said to be the breeding grounds of ghost bats.

That controversial litigation, attended by aspects of dubious candour on the part of the applicant company, has no present relevance. What is significant, for present purposes, is that those reports universally refer to the operations of the company at Mt Etna, in winning limestone for the purpose of the manufacture of cement, as mining operations. This later usage is of some relevance to the usage at an earlier time.

On the other hand, the respondent points to quite a number of instances where the applicant company itself refers to operations at the Calcium site as quarrying operations. Senior counsel for the Commissioner points out that no evidence was led on behalf of the applicant in relation to local common usage at the relevant time.

The view I take of the matter is that the extraction of limestone for the manufacture of cement conducted by the applicant at Calcium in North Queensland is properly to be characterised as ``prescribed mining operations'' for the purposes of the Income Tax Assessment Act 1936. In reaching this conclusion, I am conscious of the judgment of Kitto J. in the Blue-Metal case and the conclusion by Menzies J. in the earlier N.A.C.L. case in 1969.

It seems to me that in the relevant tax years the word ``quarry'' is properly to be applied to an excavation or pit for the obtaining of stone or other bulk material such as sand, blue metal or slate for building or roadmaking purposes, and extraction of limestone for the purpose of manufacturing cement would not ordinarily be described as a ``quarrying'' operation. In any event, it is not incongruous or inapt to refer to it in the relevant years as a mining operation. So much, it seems to me, was conceded by Dr Gillies, who was called on behalf of the Commissioner.

To the suggestion that, notwithstanding that the operation of the extraction of limestone for the purpose of manufacturing cement was properly to be called ``a mining operation'', none the less the site was not a mining property, I am of the opinion that the site at Calcium on which the mining operations take place is a mining property. I rely on the observations of the Full Court of the Federal Court, Bowen C.J., Toohey and Lockhart JJ. in F.C. of T. v. Northwest Iron Company Limited 86 ATC 4202 at p. 4211; (1986) 64 A.L.R. 436 at p. 447 and F.C. of T. v. B.H.P. (1969) 120 C.L.R. 240 at pp. 245-246 and 275, as well as the references earlier referred to.

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ATC 4780

For the above reasons, I am of the opinion that the operations of North Australian Cement Limited in extracting limestone at Calcium during the relevant tax years were ``prescribed mining operations'' as defined in sec. 122(1) of the Income Tax Assessment Act 1936 and that they were carried out on a mining property.

• 1. The assessments of the applicant company for the tax years ended 30 June 1979, 30 June 1980, 30 June 1981, 30 June 1982 and 30 June 1983 be remitted to the respondent for adjustment in accordance with these reasons for judgment.
• 2. The respondent pay the applicant's costs of and incidental to this application, to be taxed if not agreed.