FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Ergon Energy Corporation Ltd [2005] FCA 1918

CUSTOMS AND EXCISE – diesel fuel rebate – fuel used at residential premises – at hospitals, nursing homes and aged persons homes – electricity provider – public utility – provision of electricity supplies to island communities in the Torres Strait – provision of electricity to residents – whether fuel purchase was for purpose of use by electricity provider at residential and other premises – whether error of law – evaluative nature of application of statutory test to undisputed facts – Tribunal decision set aside – application to Tribunal dismissed

Excise Act 1901 (Cth) s 78A(1)

Customs Act 1901 (Cth) 164(1)

Collector of Customs, Tasmania v Flinders Island Community Association (1985) 7 FCR 205 cited

Collector of Customs v Rottnest Island Authority (1994) 48 FCR 177 cited

Warmun Community (Turkey Creek) Inc v Chief Executive Officer of Customs (2000) 58 ALD 797 cited

Collector of Customs v Perkins Shipping Pty Ltd  (1989) 24 FCR 520 cited

Mabo v Queensland (No 2) (1992) 175 CLR 1 cited

Cowell Electric Supply Co Ltd v Collector of Customs (1995) 54 FCR 1 cited

TNT Skypak International (Aust) Pty Ltd v Commissioner of Taxation [1988] FCA 198 cited

Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 cited

Commissioner of Taxation v Roberts (1992) 37 FCR 246 cited

Commissioner of Taxation v Cooper  (1991) 29 FCR 177 cited

Collector of Customs v Agfa-Gevaert Limited (1996) 186 CLR 389 cited

Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 cited

Birdseye v Australian Securities and Investments Commission (2003) 76 ALD 321 cited

Australian Securities and Investments Commission v Saxby Bridge Financial Planning Pty Ltd (2003) 133 FCR 290 cited

Barghouthi v ING Custodians Pty Ltd [2003] FCA 1272 cited

Nizich v Federal Commissioner of Taxation (1991) 91 ATC 4,747 cited

Re Queensland Electricity Commission v Collector of Customs (1990) 13 AAR 119 cited

Coober Pedy v Collector of Customs (1993) 42 FCR 127 cited

COMMISSIONER OF TAXATION v ERGON ENERGY CORPORATION LTD

Q 195 OF 2003

FRENCH J

23 DECEMBER 2005

PERTH (HEARD IN BRISBANE)

On appeal from the Taxation Appeals Division of the

Administrative Appeals Tribunal

THE COURT ORDERS THAT:

1.         Each of the decisions made by the Tribunal on 18 November 2003 is set aside.

2.         In lieu thereof it is ordered that the application to the Tribunal for review of the decision of the Commissioner of Taxation is dismissed.

3.         The respondent is to pay the applicant’s costs of the appeal.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

On appeal from the Taxation Appeals Division of the

Administrative Appeals Tribunal

REASONS FOR JUDGMENT

Introduction

1                     On 19 November 1999 and 27 April 2001 Ergon Energy Corporation Ltd (EECL) made applications to the Commissioner of Taxation (the Commissioner) for rebates of excise duty on diesel fuel used in operating generators to provide electricity to communities on islands in the Torres Strait.  In claiming the rebates EECL argued that the diesel fuel which it had purchased was intended for use by it at residential premises on the islands to generate electricity for domestic purposes and at hospitals, nursing homes and aged persons homes. 

2                     The rebate claims were refused by the Commissioner and EECL lodged applications with the Administrative Appeals Tribunal (the Tribunal) seeking review of the Commissioner’s decision.  Applications were lodged in respect of some 17 island communities. 

3                     The Tribunal heard the reviews relating to four of those islands, namely Gununa (Mornington Island), Mabuiag Island, Mer (Murray Island) and Thursday Island.  It upheld the applications, set aside the Commissioner’s decisions and remitted the matter for determination of the claims in light of its reasons. 

4                     The Commissioner has now appealed against the Tribunal’s decision.  For the reasons which follow, I am satisfied that the Tribunal erred in law and that EECL as a supplier of electricity to communities in North Queensland, did not fall within the rebate provisions of the Excise Act 1901 (Cth).  On that basis the appeal will be allowed, the decisions of the Tribunal set aside and in lieu thereof orders made dismissing the applications for review of the Commissioner’s decisions. 

Factual and Procedural Background

5                     There are some 33 small communities in Queensland including 24 in the Gulf of Carpentaria and the Torres Strait Islands which depend for their electricity supplies upon diesel-powered generators.  Generators were installed at a number of Torres Strait Island communities in 1993 by the Queensland Electricity Commission (QEC).  Those islands were Bardu, Boigu, Coconut, Darnley, Duan, Hammond, Moa, Mabuiag, Saibai, Stephen, Warraber, Yam and Yorke.  Another Queensland government instrumentality known as the Far North Queensland Electricity Board (FNQEB), established under the Electricity Act 1977 (Qld), erected poles and power lines to reticulate the electricity where generators were installed.

6                     Following the installation of the generators at the Torres Strait Island communities, FNQEB assumed ownership and control of the generators and responsibility for their operations and for the supply of electricity to the residents and other uses at the island communities.  This arrangement continued until 31 December 1994.

7                     On 1 January 1995 FNQEB was ‘privatised’ and became Far North Queensland Corporation (FNQEC), a subsidiary of Queensland Transmission Supply Corporation (QTSC) which was owned by the State of Queensland.  This occurred under the Government Owned Corporations (QTCS Corporatisation) Regulation 1994.

8                     On 1 July 1997 a further restructuring occurred under the Government Owned Corporations (QTCS Restructure Stage 2) Regulation 1997.  FNQEC became Far North Queensland Electricity Corporation Limited (FNQEC Limited), a corporation registered under the Corporations Law.  It retained ownership of the generators and purchased diesel fuel for use in their operation.  North Electricity Retail Corporation Pty Ltd (NERC) took on responsibility for the supply of electricity to residents and other users at remote communities.  NERC was owned by FNQEC Limited and two other corporations which were in turn owned by the State of Queensland. 

9                     From April 1998 the Central Electricity Retail Corporation Pty Ltd, which is now known as Ergon Energy Pty Ltd (EEPL) took over the function of NERC in supplying electricity to remote communities.  FNQEC continued to own and operate the generators and to purchase diesel fuel for use in their operation.  This structure continued until 30 June 1999. 

10                  On 30 June 1999, pursuant to a scheme of arrangement approved by the Supreme Court of Queensland, FNQEC Limited was deregistered, EECL assumed the assets and undertakings of FNQEC Limited and the five other corporations.  EEPL became wholly owned by EECL, which in turn was from that time owned by Queensland Government Ministers on behalf  of the State of Queensland.  EECL assumed responsibility for the operation of the generators and purchased diesel fuel for use in their operation.  It continued to be responsible for the supply of electricity to the residents and other users.  That structure has continued since 30 June 1999. 

11                  In addition to the Torres Strait Island communities already mentioned, EECL is also responsible for the generation of electricity supplied to residents and other users at Thursday Island in the Torres Strait.  It generates the electricity using diesel fuel generators located at Thursday Island and purchases the diesel fuel for their use.  The generators on Thursday Island are located on land which is registered in the name of FNQEB.  The electricity they generate is supplied to residential premises and other users on the island including the hospital and aged care facility.   

12                  EEPL charges residents and other users for electricity supplied to them at Thursday Island and other remote communities.  The amount of the charges is determined by the Minister pursuant to s 90 of the Act.  There is an intra-group charge from EECL to EEPL for the electricity supplied to the communities. 

13                  On 19 November 1999 EECL lodged an application with the Australian Taxation Office claiming a rebate of excise duty on diesel fuel used in operating generators at Gununa on Mornington Island to provide electricity for residential premises and hospital and aged care premises.  Applications were lodged on 13 July 2000 seeking similar rebates in respect of Mabuiag, Murray and Thursday Islands and others in the Torres Strait.  The periods covered by the claimed rebates were between 20 November 1996 and 9 April 2000.   

14                  The application for a rebate in respect of Gununa on Mornington Island was refused by the Commissioner on 8 December 2000.  The remaining applications  for 16 island communities were refused on 27 April 2001. The reasons for the refusals in respect of those communities were the same as those given for refusing the Gununa rebate. 

15                  On 8 January 2001 EECL lodged an application with the Tribunal seeking review of the decision given on 8 December 2000 refusing a rebate in respect of diesel fuel purchased for the Gununa community power station.  On 16 May 2001 a further application was lodged with the Tribunal seeking review of the decisions given on 27 April 2001 in respect of other islands in the Torres Strait.

16                  In the event the Tribunal’s review related to diesel fuel rebates claimed in respect of the communities at Gununa (Mornington Island), Mabuiag Island, Murray Island and Thursday Island.  The diesel fuel was purchased for the generation of electricity at Gununa during the period 20 November 1996 to 30 June 1999 and at Mabuiag, Murray and Thursday Islands from 10 June 1997 to 7 April 2000. It seems that these islands were taken as representative samples of the kinds of island communities involved in EECL’s applications to the Tribunal.

17                  The applications in respect of the four communities were heard together on 7 and 8 April 2003 and a decision given on 18 November 2003.  The Tribunal upheld EECL’s application.  It expressed its formal decisions thus:

‘The Tribunal decides:

(a)       to set aside the decision under review;

(b)       the matter is remitted to the respondent to determine the claims in the light of the Tribunal’s reasons for decision;

(c)        these proceedings have terminated in a manner favour (sic) to the applicant; and

(d)       liberty to apply is reserved to both parties.’

There were four decisions so expressed, one in respect of each of the matters before the Tribunal. 

18                  On 13 February 2004 the Commissioner lodged an appeal in the original jurisdiction of this Court against the Tribunal’s decisions.  The appeal was heard by Cooper J on 11 October 2004.  Sadly his Honour died before delivering judgment.  The appeal has therefore come on for rehearing before me. 

Statutory Framework

19                  Section 78A(1) of the Excise Act  and s 164(1) of the Customs Act 1901 (Cth) both provided, at the material times, for a rebate payable to a person who purchases diesel fuel for use by the person.  Section 78A(1) of the Excise Act provides:

‘(b)      at residential premises to generate electricity for use in:

            (i)         providing food and drink for;

            (ii)        providing lighting, heating, air conditioning, hot water or similar amenities for; or

            (iii)       meeting other domestic requirements of,

            residents of the premises;

(c)       at a hospital or nursing home or at any other institution providing medical or nursing care; or

(d)       at a home for aged persons.’

20                  The term ‘use’ is defined in s 164(7) of the Customs Act as not including the sale or other disposal of diesel fuel by the person to another person or the loss of the diesel fuel by the person.  Section 164(7) also defines residential premises as follows:

‘residential premises means:

(a)       premises used as a house; or

(b)       other premises at which at least one person resides;

but does not include:

(c)        premises used in the business of a hotel, motel or boarding house or a similar business;

(d)       premises used as a hospital or nursing home or as any other institution providing medical or nursing care;

(e)        premises used as a home for aged persons; or

(f)        premises used as a boarding school.’

The Tribunal’s Reasons for Decision

21                  The Tribunal referred to the history of electricity supply arrangements for island communities in Northern Queensland.  There was no dispute that EECL and its predecessors purchased diesel fuel to power generators located on each of the islands and that an unascertained portion of the fuel purchased was used to generate and supply electricity to residential premises located on each of them.  Nor was there any dispute that electricity was generated and supplied for use by hospitals and/or medical facilities on Mornington Island, Mabuiag and Thursday Island and for aged care facilities on Mornington Island and Thursday Island.  The Tribunal found that EECL was obliged to sell electricity to each of the customers on the islands pursuant to s 49 of the Electricity Act 1994  (Qld) (the Act) at the same rates charged throughout Queensland.  Those are rates determined by the Queensland Government.  Electricity use is charged to residents on a pre-paid encoded card system. 

22                  The Tribunal then made findings of fact in respect of the supply of electricity on each of the islands the subject of the applications.  These findings may be summarised as follows:

1.         Gununa (Mornington Island)

23                  There are about 1,300 people living on the island.  Three diesel generators are installed and operated by EECL for use in generating electricity supply on the island. During the relevant period EECL purchased 2,228,772 litres of diesel for the three generators.  About 4,943,000 kwh of electricity was generated during that period for use by 165 residential premises, one community hospital and one aged care facility all situated on the island. 

24                  Electricity sold to consumers on the island could be apportioned between categories as follows:

            (a)        41.25% supplied to residential premises

            (b)        12.98% to the community hospital

            (c)        6.8% to the aged care facility.

25                  The power house on the island is located near the centre of the town opposite the supermarket.  Residential housing is located on three sides.  The hospital and aged care facility are located within the residential area of the town but some distance from the power house.  The nearest residence is 30 metres from the generators and the most distant residence is 1.26 kilometres away.  The hospital is 210 metres from the generators and the aged care facility is about 750 metres from them.  The latter facility was contiguous to the hospital and 195 metres from the generators until relocated in early 1998.  A comparison of isolated generation of electricity at residential and other premises with the cost of its generation by EECL’s generators was evidently accepted by the Tribunal and showed:

                                                            EECL’s Supply                       Isolated Supply

            Residential                                34 c/kwh                                  $1.16 kwh

            Hospital                                    34 c/kwh                                  81 c/kwh

            Aged care facility                      34 c/kwh                                  96 c/kwh

2.         Murray Islands (Mer)

26                  The Tribunal found that the population of the Murray Islands is approximately 400  made up almost exclusively of Meriam people.  They regard themselves as the owners of the land and everything on it with no recognition of ownership by non-Meriam people.  Land boundaries are jealously guarded and access granted only under certain conditions.  Obtaining consent to use land for public infrastructure is difficult and requires delicate negotiations between the community council and the owners. 

27                  EECL operates three generators located at a power station on a site which was negotiated by its predecessors with the Meriam people.  During the relevant period the company purchased 659,313 litres of diesel fuel for use in operating these generators.  Of the total fuel purchased approximately 501,275 litres was used in generating electricity at 93 residential premises on the island.  That represented 1,954,000 kwh of electricity.

28                  As appeared from a map in evidence before the Tribunal the power house on Mer is located contiguously with one of the residential areas.  The nearest residence is 10 metres from the generators.  The furtherest is 1.6 kilometres away. 

29                  The cost of generation of electricity by EECL’s generators is 43 cents/kwh. Isolated generation at residences would cost $1.16 kwh.  Of the 108 installations on Murray Island, 93 are to residential premises.

3.         Thursday Island

30                  The population of Thursday Island is approximately 3,500.  The Tribunal found it to be a much larger community than the other communities also being considered.  There are five diesel generators belonging to EECL located on the island on land which is now owned by EECL.  EECL supplies electricity to residential premises, the community hospital and the aged care facility together with other electricity consumers.  There are 340 residential premises, as well as a community hospital and aged care facility on Thursday Island.

31                  14,425,540 litres of diesel fuel was purchased during the period 10 June 1997 to 7 April 2000.  Quantities purchased for relevant uses were as follows:

Residential premises                  36.5%              5,266,765 litres

Community hospital                  9.8%                1,413,703 litres

Aged care facility                      1.7%                245,234 litres

32                  According to an electricity reticulation map for Thursday Island, which was in evidence before the Tribunal, the power station is located in an area described by the Tribunal as ‘light industrial, well away from the residential areas on Thursday Island but in the vicinity of the cemetery’.  The hospital is almost literally at the other end of the town, about 1.6 kilometres from the power station, while the aged care facility is 1.2 kilometres from the power station.  There are significant areas for retailing services, light industrial, industrial infrastructure and administration on the island also connected to the reticulation system.

33                  The comparison between the actual cost to consumers and the calculated cost of isolated electricity supply were summarised as follows:

EECL’s Supply                       Isolated Supply

Residential                                29 c/kwh                                  $1.16 kwh

Hospital                                    29 c/kwh                                  41 c/kwh

Aged care facility                      29 c/kwh                                  85 c/kwh

4.         Mabuiag Island

34                  Mabuiag has approximately 210 people, living in 51 residences located 20 metres to 660 metres from the power house.  EECL uses three diesel fuel generators for electricity on the island.  During the relevant period it purchased 454,542 litres of diesel fuel, of which 421,560 litres were used in generating electricity for residential premises and about 7,904 litres in generating electricity for use at the community medical and nursing facility. 

35                  The medical and nursing care centre is located about 80 metres to 100 metres from the power house.  The power house is located on land held by the Mabuiag Council under a Deed of Grant in Trust for the benefit of the residents of the island.  EECL leases the land from the Council.  Prior to 1 January 2000 the tenure was uncertain.  The power station is contiguous to the main residential area. 

36                  The cost of isolated supply as against the cost of supply from the applicant is as follows:

EECL’s supply                       Isolated Supply

Residential                                62 c/kwh                                  $1.16 kwh

Medical and nursing care

Centre                                      62 c/kwh                                  $1.19 kwh

37                  The Tribunal found that the electricity reticulation system from the power house to consumers is maintained by EECL and that it is reasonable to infer that it belongs to EECL as do the generators so long as the reticulation system is operational.  The Tribunal acknowledged that at least some residents of the island claim to own the system.  The Tribunal was unable to come to that conclusion on the material before it.

38                  The reticulation system is connected to residences and other buildings by attachment of the mains to the structure and connecting to sheet cabling which runs to the EECL meter and from the meter to electrical outlets in the building.

39                  On each of the islands electricity is charged for by the sale of electricity cards by EECL.  They are sold in community stores and are in the nature of pre-paid cards for insertion in a meter.  There is a limited supply of electricity available after the credit on a card is exhausted.  The charge for excess use is recovered from the next pre-paid card inserted in the meter.  The residents of each of the islands use the electricity for lighting, refrigeration and other household purposes.  Other uses which create a heavy demand for electricity, such as air conditioning, are not permitted in residential premises. 

40                  The Tribunal noted that it was not in dispute that EECL is required by law to supply electricity to the respective islands for the use and benefit of residents and others on those islands. 

41                  EECL submitted to the Tribunal that it could take into account in assessing the availability of the rebate the facts that:

(a)        concepts of commercial, clan or tribal ownership are recognised in native title ownership of land ;

(b)        EECL has service obligations;

(c)        each location is a unique geographically isolated community being discrete, physically compressed and cohesive;

(d)        each power generation system has been specifically designed for the needs of the particular community;

(e)        the present system of power generation for each community is the most efficient, safe and cost effective system.

It was further submitted that each of the islands could itself be correctly characterised as residential premises.  On the other hand, having regard to common law native title, residential premises on the islands were not to be assimilated with notions of homes with discrete curtilages.  Importantly, it was submitted that the places of residence on the subject islands are ‘… so physically compressed that the generators are “at” residential premises, the hospital and medical facilities and the aged care facilities …’. 

42                  The Commissioner submitted that the test for the application of s 164 is cumulatively locational and purposive.  He cited Collector of Customs Tasmania v Flinders Island Community Association (1985) 7 FCR 205 and Collector of Customs v Rottnest Island Authority (1994) 48 FCR 177.  He contended that it was not open to the Tribunal to find  common ownership of the premises as in the Flinders Island case.  Proximity to the power house on each island would be relative to the size of the island.  The residential premises, hospital/medical facilities and aged care facilities are comparatively close to the generators because of the relevant size of the islands. 

43                  He argued that the electricity users on the subject islands are in the same contractual relationship with EECL as other electricity consumers in Queensland. 

44                  The Commissioner submitted that the rebate is payable in respect of diesel fuel which has been purchased for use to generate electricity at the prescribed premises.  The actual use to which the electricity was put can be evidence of the purpose for which it was generated.  In the present case the fuel was purchased for the purpose of generating electricity for supply to ‘all and sundry’ consumers on the respective islands.  Actual use by consumers was not relevant in the circumstances of the present cases.

45                  The Tribunal began its consideration of the contending submissions by referring to an earlier Tribunal decision in Warmun Community (Turkey Creek) Inc v Chief Executive Officer of Customs (2000) 58 ALD 797.  In that case the relevant community had an average population of about 400 people and 60 residential premises.  They ranged from 200 metres to 700 metres in distance from the power house.  The power house also supplied other facilities in the community and the township of Turkey Creek on the Great Northern Highway some distance from the community.  The Tribunal then found that the residential premises in the community satisfied what it called ‘the location test’ so that the generator was ‘at’ the residential premises but not the more distant roadhouse.  The Tribunal in the present case said that if there were a ratio for the Turkey Creek Tribunal’s decision, it was that fuel purchased by a community to generate electricity used in its residential premises from a generator approximate to those premises satisfied both the ‘location’ and ‘purposive’ tests.  In the present case the fuel was purchased by EECL for use in generating electricity to be supplied to residential and other relevant premises in the respective island communities. The facts in  Warmun Community were so significantly different that the Tribunal was not assisted by it. 

46                  The Tribunal referred to the Full Court decision in Flinders Island.  The community in that case, small by comparison with the Torres Strait Island communities, purchased diesel fuel through an association to supply electricity to eight residences on land owned by the association.  The generator was a facility for the group of homes on the estate and that it served no other purpose.  It was located in a building separate from the residences but within the community.  The Tribunal observed that the Full Court decided that the meaning of ‘at’ in s 164(1)(b) was to be gleaned from context and subject matter.  It required a close connection between the use and the residential premises but did not require use within residential premises.  The Tribunal also referred to Collector of Customs v Perkins Shipping Pty Ltd (1989) 24 FCR 520.  However, as counsel for the Commissioner pointed out, that case concerned the definition of ‘residential premises’ and whether it extended to crew quarters on a ship. 

47                  The Tribunal discussed the decision of the High Court in Mabo v Queensland (No 2) (1992) 175 CLR 1 in which Brennan J had set out findings of fact made by Moynihan J of the Supreme Court of Queensland in respect of the Murray Island.  These were findings particularly relating to the nature of communal life on Mer and the distribution of its residences.  The Tribunal said (at [73]):

‘While there may be some doubt as to whether those findings would also apply, making the necessary changes, to Thursday Island, I am satisfied they can be applied, as to general concepts, to Mabuiag and Mornington Islands.  I hesitate in relation to Thursday Island because the exhibited material suggests a less village-style environment.’

48                  The Tribunal then discussed the decisions of the Federal Court in Cowell Electric Supply Co Ltd v Collector of Customs (1995) 54 FCR 1 and Rottnest Island Authority.  The Tribunal noted that in the Rottnest Island Authority case the Court accepted that the mere fact that part of the electricity generated is supplied in non-rebateable circumstances is not a bar to apportionment for rebateable purposes.  The Commissioner does not dispute that proposition.  But in the Rottnest Island Authority case, as the Tribunal acknowledged, the Court had decided against apportionment because the provision of power to residences was merely incidental to the overall purpose of providing power for all the requirements of the island. 

49                  The Tribunal identified what it called ‘the basic distinction’ between the Rottnest Island  Authority case and the present cases as (at [79]):

‘… in these cases [EECL] undertakes generation of electricity for specific purposes which include purposes of supply to residential, hospital and aged care facilities in communal situations that are discrete, physically compressed, cohesive and geographically isolated.’

The Tribunal described these purposes as the ‘dominant purposes’ for each of the islands except Thursday Island.  The Tribunal went on (at [79]):

‘That there are specific purposes and not just a purpose of supply of electricity to anybody is exemplified by the heavily subsidised charges for supply.  I accept that [EECL’s] obligation is to supply at standard charges and those charges are met by consumers when they insert their prepaid cards into [EECL’s] meter at each point of supply.  It is my understanding that [EECL] is subsidised by the Queensland Government in circumstances where it supplies electricity at standard charges to island communities.’

50                  The Tribunal was satisfied on the basis of the authorities that both the purposive and location tests were satisfied in these cases.  As to Thursday Island, it said simply (at [81]):

‘In relation to Thursday Island, I have hesitated in coming to the same conclusion but am satisfied that case cannot be distinguished from the circumstances of the other islands.’

The Tribunal did not have before it evidence to make proper findings as to quantum.  On that basis the matters were remitted to the Commissioner with a direction to determine the claims in light of the Tribunal’s reasons for decision.

The Grounds of Appeal

51                  In his notice of appeal against the Tribunal’s decision the Commissioner identified the following as the questions of law raised on the appeal:

‘(a)      The application of the purposive and location tests set out in s 78A(1) of the Excise Act 1901 and s 164(1) of the Customs Act 1901 on the basis of the authorities;

(b)       The extent to which the Tribunal is obliged to demonstrate by the reasons the application of the relevant principles to the facts as found;

(c)        Whether it was permissible for the Tribunal to treat findings of fact made in Mabo v Queensland (No 2) (1992) 175 CLR 1 at 17 as being evidence having present day application with respect to Mer, Mabuiag and Mornington Islands.’

52                  The grounds of the appeal were as follows:

‘(a)      The Tribunal erred in law in deciding that the purposive and location tests set out in s 78A(1) of the Excise Act 1901 and s 164(1) of the Customs Act 1901 were, on the basis of the authorities and the findings of fact, satisfied.

(b)       The Tribunal erred in law in distinguishing the decision of the Full Court of the Federal Court in Collector of Customs v Rottnest Island Authority (1994) 48 FCR 177 on the basis that the respondent undertakes generation of electricity for specific purposes which include purposes of supply to residential, hospital and aged care facilities in communal situations that are discrete, physically compressed, cohesive and geographically isolated.

(c)        The Tribunal erred in law in taking into consideration the subsidisation of electricity charges in deciding whether the purposive test was met.

(d)       The Tribunal erred in law in deciding that the claim relating to Thursday Island could not be distinguished from the claims relating to the other islands.

(e)        The Tribunal having made findings of fact and having set out the relevant principles, did not, by its reasons, demonstrate the process of reasoning by which it determined in paragraph 81 that the purposive and location tests were satisfied.

(f)        The Tribunal was wrong to regard findings of fact made in Mabo v Queensland (No 2) (1992) 175 CLR 1 at 17 as having present day application with respect to Mabuiag and Mornington Islands.’

Whether the Appeal is Brought on Questions of Law

53                  An appeal to the original jurisdiction of this Court from a decision of the Tribunal is required by s 44 of the Administrative Appeals Tribunal Act 1975  (Cth) (the AAT Act), as it stood at the relevant time, to be an appeal ‘on a question of law’.  It is not sufficient that such an appeal ‘involve a question of law’.  As Gummow J said in TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation [1988] FCA 198 (at 6):

‘The existence of a question of law is … not merely a qualifying condition to ground the appeal, but also the subject matter of the appeal itself.’

54                  An appeal may raise the correct construction of a statute and thus a question of law.  It may raise the application of the statute to a particular set of facts.  The characterisation of the question then becomes more difficult.  In Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280, the Full Court extracted five propositions from the case law in connection with statutory construction and application and associated questions of law (at 287):

‘1.        The question whether a word or phrase in a statute is to be given its ordinary meaning or some technical or other meaning is a question of law:….

2.         The ordinary meaning of a word or its non-legal technical meaning is a question of fact:…

3.         The meaning of a technical legal term is a question of law:…

4.         The effect of construction of a term whose meaning or interpretation is established is a question of law:…

5.         The question whether facts fully found fall within the provision of a statutory enactment properly construed is generally a question of law:…’

The Court qualified the last proposition by stating that when a statute uses words according to their ordinary meaning and it is reasonably open to hold that the facts of the case fall within those words, the question whether they do or do not is one of fact. 

55                  The fifth proposition in Pozzolanic was reiterated by the Full Court in Cowell Electric Supply.  As Hill J put it (at 10):

‘… a question of law will arise in any case where, the facts not being in dispute, the only question is whether the case necessarily falls within or outside the statute.’

See also Commissioner of Taxation v Roberts (1992) 37 FCR 246 at 252 and Commissioner of Taxation v Cooper (1991) 29 FCR 177 at 193-194. 

56                  In Pozzolanic the question was whether diesel fuel had been purchased for use in ‘operations connected with’ the rearing of livestock.  The Court observed that the words ‘connected with’ can describe a spectrum of relationships ranging from the direct and immediate to the tenuous and remote.  What the Court said in that case about the process of applying those words to a set of facts applies by analogy to the process of applying the words ‘at residential premises’ which are in contention in this case.  The Court said (at 288-289):

‘Although the words of the statute are construed according to their ordinary English meaning, that does not mean that their application to a set of facts is simply described as the matching of that set of facts with a factual description.  There is necessarily a selection process involved.  The range of relationships to which the words apply for the purpose of the Act depends upon a judgment about that purpose. …  In the end this is not a process of fact finding.  The facts are found.  What is left is a value judgment about the range of the Act and that is a question of law.’

57                  The High Court in Collector of Customs v Agfa-Gevaert Limited (1996) 186 CLR 389 at 396 accepted that such general expositions of the law as were set out in five points in Pozzolanic are helpful but may lose a degree of utility when the phrase or term in issue is complex or the inquiry that the primary decision-maker embarked upon is not clear.  The Court discussed the distinction made by the second and fourth propositions which reflected that made by Isaacs J in Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 78.  That is the distinction which treats meaning as a question of fact and construction as a question of law.  The Court said (at 396-397):

‘With respect this distinction seems artificial, if not illusory.  The meaning attributed to individual words in a phrase ultimately dictates the effect or construction that one gives to the phrase when taken as a whole and the approach that one adopts in determining the meaning of the individual words of that phrase is bound up in the syntactical construction of the phrase in question.’

And further (at 397):

‘If the notions of meaning and construction are interdependent, as we think they are, then it is difficult to see how meaning is a question of fact while construction is a question of law without insisting on some qualification concerning construction that is currently absent from the law.’

That complexity does not arise in this case.

58                  The only question raised in the notice of appeal as a question of law relevant to the construction and/or application of s 78A(1) of the Excise Act and s 164(1) of the Customs Act is the first question.  As framed it is open to the criticism that it raises a legal topic as much as a question of law.  Nevertheless, in my opinion, it can be read as raising a question of law of the kind identified in the fifth Pozzolanic proposition.  It is of course necessary to bear in mind the requirements of a notice of appeal under the AAT Act as prescribed in O 53 r 3(2) of the Federal Court Rules.  In Birdseye v Australian Securities and Investments Commission (2003) 76 ALD 321 at [18] Branson and Stone JJ, with whom Marshall J generally agreed, said:

‘In our view, O 53 r 3(2) discloses an intention that a question of law to be raised on an appeal from the tribunal should be stated with precision as a pure question of law.  It is in the specification of the grounds relied upon in support of the orders sought that, in our view, one should expect to find the links between the question of law, the circumstances of the particular case and the orders sought on the appeal.’

See also Australian Securities and Investments Commission v Saxby Bridge Financial Planning Pty Ltd (2003) 133 FCR 290. 

59                  The nature of an appeal under s 44(1) is an appeal ‘on a question of law’.  The jurisdiction conferred on the Court by s 44(3) is to hear and determine appeals instituted in that Court in accordance with subss (1) and (2).  The characterisation of an appeal as an appeal on a question of law might be thought therefore to go to jurisdiction.  This does not mean that a failure to adequately formulate the question in a notice of appeal will go to jurisdiction if the matter in which the Court’s jurisdiction is invoked is able to be identified as a question of law upon a proper reading of the notice as a whole.  In this connection I refer to the point made by Allsop J in Barghouthi v ING Custodians Pty Ltd [2003] FCA 1272 where his Honour said at ([25]):

‘I do not understand anything in Birdseye or Saxby Bridge to support any proposition that the requirements of s 44 of the AAT Act … or the procedural regime in O 53 (even if the latter, as a rule of Court, could) go to the existence of the jurisdiction of the Court, as opposed to the exercise of jurisdiction…’.

60                   The application of the rules should not overlook the difficulty of characterisation in this area. The enunciation of a ‘pure’ question of law may be easier to require in principle than it is to provide in practice.  In Nizich v Federal Commissioner of Taxation (1991) 91 ATC 4,747 at 4,752 I suggested that the categories of fact and law could well be included in the class of ‘categories of meaningless reference’ described by Professor Stone in Legal System and Lawyers’ Reasoning Maitland (1964) at 340.  Hill J expressed similar sentiments in Roberts at 352 and in Cowell Electric Supply at 10.  To like effect see Barghouthi at [26] and [27].  In light of the difficulties in characterisation it is best to consider the first question raised in the notice of appeal by reference to the grounds of appeal to which it relates.  These are grounds (a) to (d) inclusive.  Ground (e) seems to relate to question (b) concerning the obligation of the Tribunal to give reasons for its decision.  Ground (f) goes to the question whether it was open to the Tribunal to take account of findings of fact made in Mabo (No 2) relevant to Murray Islands in 1992 for the purpose of deciding the case before it in relation to Mer, Mabuiag and Mornington Islands.

61                  The first question raised by the notice of appeal properly understood is, in my opinion, a question of law about the application of the rebate provisions to facts which were undisputed in this case.  In light of  my conclusions about the first question, the second and third questions, while raising issues of law, assume lesser significance.

The Constructional Question

62                  The entitlement to the diesel fuel rebate conferred by s 78A(1) of the Excise Act and s 164(1) of the Customs Act requires the following to be established in relation to:

1.         The purchase of diesel fuel by a person.

2.         The fuel is purchased for use by the purchaser.

3.         The use for which the fuel is purchased is at residential premises.

4.         The use for which the fuel is purchased is to generate electricity.

5.         The electricity is to be generated for use in providing food and drink for residents of the premises, providing lighting, heating, air conditioning, hot water or similar amenities for them or for meeting their other domestic requirements.

These factors are not to be treated in isolation from each other for they reflect a collocation of interdependent elements of the exemption.  In the case of hospitals, nursing homes and like institutions, there is no requirement that the fuel be purchased to generate electricity or for the domestic purposes specified in respect of residential premises.  

63                  A clear case of entitlement to the rebate in connection with residential premises arises when diesel fuel is purchased by their occupier for use by that occupier in running a generator physically located adjacent to the premises or on their curtilage to generate electricity for domestic uses in the premises.  A similar case arises when the occupier or operator of a hospital or aged persons home purchases diesel for fuelling a generator physically located at that institution.  

64                  A situation one remove from the core application exists when there is a group of residences served by a generator which uses diesel fuel purchased by the owners collectively to generate electricity for use for domestic purposes in those residences.  When the generator is owned and operated by a non-occupier entity and provides electricity which is reticulated to residences for the domestic purposes mentioned, or to a hospital or medical facility or aged persons home, the circumstances move still further from the core case of entitlement mentioned above. 

65                  The rebate provision has been applied to circumstances beyond those falling within its core meaning.  An extended interpretation of ‘use by the person’ who has purchased the fuel encompasses a range of relationships between purchaser and end users.  The interpretation of ‘at residential premises’ encompasses a range of spatial relationships between the point at which the fuel is used, ie the location of the generator, and that of the residences where the electricity generated is used.  A similar extended concept of ‘at’ applies to the relationship between the location of a generator at a hospital, nursing institution or an aged persons home.  The application of rebate provisions to a particular fact situation involves a purposive judgment.  It is a value judgment about the range of the Act as was pointed out in the passage cited earlier from Pozzolanic. 

66                  One evaluative question to be considered in this case is whether the relevant purchases of diesel fuel by EECL were purchases for ‘use by’ EECL at the residential premises and other places. 

67                  Flinders Island involved an incorporated community association on Flinders Island which purchased diesel fuel to power a generator with which it provided electricity for domestic use to eight homes located nearby on land owned by the Association.  The Full Court held that the rebate applied.  It did so on the basis of its construction of the term ‘at residential premises’ as encompassing the relationship between the generator and the homes.  There must have been an implicit acceptance that the community association which purchased the fuel did so for ‘use’ by itself at the relevant premises.  This may be reflected indirectly in the Court’s inclusion of the fact of common ownership of the premises by the Association as a matter relevant to whether the electricity was generated ‘at the residential premises’.  Where fuel is purchased by the owners or occupiers of the relevant residences or by an association which they control, it is consistent with the purpose of the legislation that the purchase is treated as a purchase for ‘use by’ the owners or occupiers collectively or by the association at the premises.

68                  In Re Queensland Electricity Commission v Collector of Customs (1990) 13 AAR 119, the Tribunal said that a beneficial interpretation of s 164(1) of the Customs Act did not mean that the words ‘for use by him’ should have anything other than their plain and common sense meaning.  In that case the purchasers were Boards who provided electricity under an arms length arrangement to residences inter alia. 

69                  In Coober Pedy v Collector of Customs  (1993) 42 FCR 127, aspects of the reasoning in Queensland Electricity Commission were doubted by Hill J.  But his Honour said (at 142):

‘… in my view it is clear that the purposive use must be a use by the purchaser of the diesel fuel.  It is not sufficient that someone else actually provide the matters referred to in ss 164(1)(b)(i) and (ii) or meet the domestic requirements as referred to in s 164(1)(b)(iii) of the Act.  In other words, the rebate is not available merely because electricity is supplied to some person at residential premises where the person so supplied provides food and drink to others.’

70                  The Full Court in the Rottnest Island Authority case considered the Queensland Electricity Commission decision and the observations made by Hill J in Coober Pedy.  Their Honours said (at 191):

‘In our opinion, there is nothing in the section which precludes an electricity generating authority, private or governmental, from having in mind that a proportion of the fuel purchased by it will be used in the generation of electricity to be supplied to domestic residences for the provision of the amenities contemplated in s 78(1)(b)(i), (ii) and (iii).  In such circumstances there would be no impediment to a finding that the authority purchased that amount of fuel to be used by it for those purposes.  We agree, with respect, with Hill J that the authority as purchaser must also engage in “the purposive use”.  However, the use of the fuel in providing electricity to the relevant residences so that it is then available as a source of power to the residents for the provision of the amenities contemplated by the section constitutes, in our view, a sufficient “purposive use” of the diesel fuel purchased for the generation of that electricity.  It may well be, however, that where a generating authority provides electrical power to “all and sundry” in circumstances where it sells it at a commercial rate to a variety of consumers including those who buy it at such a rate for purely domestic purposes, that authority would be found to be purchasing fuel merely for the purpose of producing electricity for commercial sale.  In those circumstances the relevant purposive use would not be established…’

71                  It follows that where fuel is purchased by some entity for purposes which include supply at residential premises, the fuel so purchased is capable of being characterised as ‘for use’ by that entity.  If the purchaser is a retailer selling electricity to a variety of end users, the purchase will not answer the description of purchase by ‘use’ by it.

72                  The Tribunal in the present case did not address this issue expressly and may be taken to have proceeded on the basis that the question before it was whether the use of the fuel was use by EECL ‘at’ the residential premises and other places concerned.  The application of the term ‘at the residential premises’ can now be considered in the context of the present case.  It would be wrong, however, to isolate it from the identification of the purpose for which the purchaser, in this case EECL, purchased the fuel.

73                  The Full Court in Flinders Island also considered the construction of the word ‘at’ as part of the construction of the collocation ‘at residential premises’.  It accepted that a close connection was required between the use of the fuel and the residential premises. The question whether a sufficiently close connection was shown would depend on the circumstances of the particular case (213).  This construction was consistent with the policy of the legislation which the Court expressed thus (at 213):

‘… it appears that the Parliament intended to give a rebate in respect of use of diesel fuel for what might be called home generation of electricity for domestic purposes; as contrasted, for example, with the generation of electricity by a commercial or local government supplier.  It is consistent with that policy, and the use of the word “at”, that the generation takes place in physical proximity to the supplied houses and that the resultant electricity be used only at premises falling within the definition of “residential premises”.’

74                  The multi dimensional nature of the exercise involved in the application of the rebate provision was apparent from the Court’s acceptance of six factors as relevant to the question whether the subject generator was situated ‘at’ each of the eight residential premises.  Those factors were:

1.         Common ownership of each of the ‘premises’ by the association.

2.         The proximity of each house to the generator.

3.         The existence of relationships, other than the merely contractual, between the association on one hand and each of the residents on the other and between the residents themselves.

4.         The supply to each resident of electricity at cost rather than as a commercial transaction.

5.         The communality of operation of the generator involving each resident taking his or her share of responsibility for the supply of electricity to them all.

6.         The fact that the generator was appropriate in size and designed genuinely to fulfil the purpose of supplying the domestic needs of the eight houses.

75                  The circumstances in the Rottnest Island Authority case were held to fall outside the range of connections to residential and other relevant premises that would qualify for the diesel fuel rebate.  There the supplier of electrical power was the Rottnest Island Authority.  It provided electricity to its employees, persons carrying on business on the island, public officials living on the island and temporary residents visiting for tourist purposes.  The Tribunal had purported to apply the Flinders Island decision to find eligibility for the diesel fuel rebate. 

76                  The Court held, as a threshold principle, that the fact that diesel fuel is purchased for a number of purposes including the supply of electricity to residential premises, does not prevent apportionment of its cost to rebate-attracting uses for the purposes of rebate entitlement.  However where a generating authority provides electrical power to ‘all and sundry’ and sells it at a commercial rate to a variety of consumers including those who purchase electricity for purely domestic purposes, the authority would be treated as purchasing fuel merely for the purpose of producing electricity for commercial sale.  In those circumstances the relevant purposive use would not be established.

77                  In accepting that an apportionment of expenditure on diesel fuel purchased for a variety of purposes is permissible for rebate entitlement, the Court referred to the contrast made in Flinders Island between the mere domestic generator and the local government supplier.  The Court in Rottnest Island Authority observed that the distinction was not made to indicate that the local government supplier could never be eligible for the rebate (at 191):

‘It was to underline the essentially domestic nature of the generation and supply situation in the Flinders Island community.  Conversely, it must also be recognised that the Flinders Island case is not authority for a proposition that a person or entity who uses diesel fuel purchased by him or it for the purpose of generating electricity and supplies portion of the electricity so generated to the residents of residential premises is, ipso facto, as a matter of law, using the fuel for the purpose of meeting the domestic requirements of the residents falling within the categories specified in s 78A(1)(b).’

As the Court pointed out, that matter was conceded in Flinders Island the only matter for decision being whether the fuel had been used by the claimant ‘at’ the relevant residential premises.

78                  The Court in Rottnest Island Authority accepted that the type of community operation of a generator exemplified in the Flinders Island case can fit comfortably within the words of the section.  It need not necessarily be a disqualifying factor that the generator associated with such a community provides power for non-rebatable purposes.  The Court said (at 193):

‘What is essential, however, is that it be possible properly to describe the use of the fuel by the purchaser as occurring “at” the premises.  The section, clearly, does not require that the purchaser be one of the residents of the premises but it does require that he or it use the fuel to provide the prescribed amenities in a position which can properly be so described.  We do not seek to differ from what was said about this matter in the Flinders Island case.  We consider that the section requires that, because the existence of some appropriate heating or generating plant is clearly contemplated, the location of such a plant be in sufficient proximity to the premises as to enable it reasonably to be identified with the premises.  It must be appurtenant to the premises and coherent with them.  It must be able to be said of the plant using the fuel that it belongs to the premises even though it be not a part of them.  As already indicated it is not necessarily destructive of this relationship that the plant should also use fuel in providing power for other purposes, although questions of degree of use might well come into consideration if such other purposes tended to predominate.’

In relation to the Rottnest Island Authority the Court held that there was nothing on the facts of the case to indicate that the generating plant even when using diesel fuel to generate electricity to be supplied to employees’ residences, could properly be described as operating ‘at’ those residences.

79                  After reviewing the authorities the Tribunal in the present case drew what it called a ‘basic distinction’ between the Rottnest Island Authority case and that before it.  It said that EECL undertook the generation of electricity for specific purposes which included ‘supply to residential, hospital and aged care facilities in communal situations that are discrete, physically compressed, cohesive and geographically isolated’.  It referred to these as ‘specific purposes and not just the supply of electricity to anybody’ and said this was exemplified by the heavily subsidised charges.  The Tribunal accepted that EECL’s obligation was to supply its standard charges met by consumers when they insert their pre-paid cards into their meters at each point of supply.  The Tribunal then said:

‘80.      Section 164 is beneficial legislation.  However, because the island communities pay standard charges well below actual cost, the grant of a rebate in respect of electricity supplied to those communities in rebateable circumstances will not benefit those communities as it apparently did in the Flinders Island case or the Warmun Community case.

81.       However, I am satisfied, on the basis of the authorities, that both the purposive and location tests are satisfied in these cases.  In relation to Thursday Island I have hesitated in coming to the same conclusion but am satisfied that case cannot be distinguished from the circumstances of the other islands.’

The application of the rebate provision was not further explained.  The Tribunal evidently placed great weight on the so-called ‘specific purposes’ of the purchases, the geographical proximity of the residences and other buildings to the generators on the islands (other than Thursday Island) and the subsidy provided by the Queensland Government.

80                  In my opinion however, despite the reference to ‘specific purposes’ the facts earlier found by the Tribunal are, as the Commissioner submitted, consistent only with EECL having purchased the fuel for the purpose of supplying electricity to ‘all and sundry’ pursuant to its statutory obligations.

81                  EECL was a public owned electricity retailer, carrying out a public function in North Queensland.  It is an accident of the geography and demographic features of the island communities it served that there is a high proportion of residences to other buildings, that they were geographically compressed and that they were not far from the generators.  The nature of the service provided by EECL is essentially the same whether to an isolated community living within on a small island, such a community on the mainland or some less confined community such as that on Thursday Island.  The purpose of its purchases is not to be assessed for the purposes of the rebate by reference to whether the supply of electricity to consumers in particular communities is subsidised or otherwise.  The question of communal ownership which was relied upon by the Tribunal, does not seem to have any relevance in this case.  It may have relevance as in the Flinders Island case where the purchaser of fuel is part of or controlled by the particular community which it serves.  That is not this case.

82                  The present case bears no resemblance to Flinders Island.  The Rottnest Island Authority case involved an authority specifically created to serve the island community.  In a sense it was a stronger case for the rebate than the present.  In my opinion, having regard to the nature of EECL as effectively a public utility operating in a particular region of Queensland and its supply obligations, the rebate did not apply to its purchases of fuel for its generators on the subject islands.  That is to say it did not purchase fuel for use by it at residential premises to generate electricity for use in them or for use by it at hospitals or other like establishments.  The identity that the Tribunal drew between Thursday Island and the other islands rather highlights the error in its approach in this case. 

83                  This was a case involving the application of the provisions of the statute to undisputed facts.  That application involved an evaluation about the range of relationships caught by the collocation ‘use by the person … at residential premises’ and the like collocation of which pars (c) and (d) formed a part.  The Tribunal, in my opinion, made a wrong evaluation stretching the rebate provisions beyond the limits of their legislative purpose and existing authority and in so doing erred in law.

84                  Having regard to that finding, it is unnecessary to come to any conclusion in relation to par (e) which attacks the adequacy of the Tribunal’s disclosure of its reasons for decision.  The reasons for decision were sparse at the critical point.  However, in my opinion, they were sufficient to enable identification of the error of law upon which its decision has been overturned.

85                  So far as its reliance upon the findings of fact made in Mabo (No 2) is concerned, there does not appear to be any error of law involved in that aspect of its reasoning.  Whether or not one would agree with the factual inferences it drew, its use of the findings of fact made by the trial judge in Mabo (No 2) was open.  It is to be remembered that the Tribunal is an administrative body, a part of the continuum of administrative decision making, and is not bound by rules of evidence. 

Conclusion

86                  For the preceding reasons the decisions of the Tribunal will be set aside and in lieu thereof an order made that the applications to the Tribunal be dismissed. 

Associate:

Dated:              23 December 2005