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Is the removing of timber from windrows, cutting the timber to size, feeding the timber into a mobile chipmill and loading the woodchips into bins, the 'milling of timber' as required by the definition of 'forestry' in section 35 of the Energy Grants (Credits) Scheme Act 2003 (EGCSA) where the activities are necessarily incidental to the milling of timber?

Yes. The removing of timber from windrows, cutting the timber to size, feeding the timber into a mobile chipmill and loading the woodchips into bins, is the 'milling of timber' as required by the definition of 'forestry' in section 35 of the EGCSA where the activities are necessarily incidental to the milling of timber.

After all the standing timber has been felled in an area, the remaining non-merchantable trees, logs, stumps and branches are placed into windrows.

An entity has entered into agreements to access this waste timber and process it into material suitable for use in an industrial process. As part of these arrangements, a fee is payable to the State Forest Authority for the wood product removed from the site.

As part of these activities the entity: (a) removes timber that meets certain specifications from the windrows (b) uses excavators fitted with shears to down size the timber (c) feeds the timber into a mobile chipmill and (d) loads the woodchips into bins via a conveyor belt system.

Under subsection 53(1) of the EGCSA, an entity is entitled, subject to certain prescribed preconditions, to an off-road credit if they purchase diesel fuel for a use by them that qualifies, including 'primary production'.

Primary production is defined in section 21 of the EGCSA as meaning, in part, forestry. The definition of 'forestry' in section 35 of the EGCSA includes: (c) the ... milling ... in a forest or plantation, of timber felled in the forest or plantation; or (d) the milling of timber at a sawmill or chipmill that is not situated in the forest or plantation in which the timber was felled.

Therefore, regardless of whether or not the client's activities occur in the forest where the timber was felled, they will be considered 'forestry' for the purposes of section 35 of the EGCSA if: • the wood product is 'timber', and • the activities constitute the 'milling of timber'.

Each test will be considered in turn.

The meaning of the word 'timber' was considered by the Administrative Appeals Tribunal (AAT) in Re T J Depiazzi and Sons and Collector of Customs NSW No. W92/114 AAT No. 8770 (1993) 17 AAR 557 ( Depiazzi ) when it considered whether the chipping of raw waste materials obtained from sawmills constituted the milling of timber for the purposes of the Diesel Fuel Rebate Scheme (DFRS). The DFRS was the immediate precursor to the Energy Grants (Credits) Scheme and was administered under the Customs Act 1901 and the Excise Act 1901 . The DFRS relied on a definition of 'forestry' identical to that contained in the EGCSA, so those decisions are still considered relevant.

In Depiazzi , the AAT determined that any product that: ... originally was a constituent of a tree that has been felled is capable of fitting the notion of 'timber' ... throughout the course of events when it is subject to a process of further reduction in size and shape up to the point where the basic constituent material, in reduced or separated form, is subjected to a secondary process or treatment.

The AAT concluded that the raw waste materials obtained from sawmills that were to be milled at a chipmill constituted timber.

In this instance, the non-merchantable trees, logs, stumps and branches that are about to be put through a process of further reduction in size and shape are similar to the wood products considered to be 'timber' in Depiazzi . Accordingly, the non-merchantable trees, logs, stumps and branches used by the client in their activities are considered to be 'timber' for the purposes of paragraph 35 of the EGCSA.

The meaning of the phrase 'milling of timber' has been considered a number of times by the AAT in relation to the DFRS. It was first considered in Re Wesfi Pty Ltd v. Collector of Customs (WA) No. 84/46 (1984) 7 ALN N8 ( Wesfi ) where the AAT accepted the ordinary meaning of the term 'milling' as follows: 'The Shorter Oxford English Dictionary gives this relevant meaning of 'milling': the action or process of subjecting something to the operation of a mill, as corn, etc. b. The treatment of a substance or material in any kind of mill; e.g. the operation of fulling cloth, rolling metals, crushing minerals etc.'

In this instance the process of chipping the timber at a mobile chipmill clearly involves the action or process of subjecting something to the operation of a mill, and therefore constitutes the milling of timber as required by paragraph 35 of the EGCSA.

The approach taken in Wesfi was subsequently adopted in Depiazzi and again in Re Brymay Forests Pty Ltd v. Collector of Customs Victoria No. V85/305 AAT No. 2496; (1985) 9 ALN N177 ( Brymay ) when the AAT determined, in part, that the use of a diesel powered front-end grab tractor to take logs from the log stack to the production line where they are milled was also milling of timber. The AAT reached this conclusion in Brymay as: ...the front-end grab tractor or tractors are used exclusively in relation to the saw milling operations... Their use is necessarily incidental to those operations.

Thus, it is clear from Brymay that the milling of timber is not limited to the actual subjection of the timber to the mill, but includes activities necessarily incidental to the process of milling timber. However, 'the milling of timber' does not extend so far as to include activities more properly regarded as secondary processing.

In this instance, the removal of timber from the windrows, the use of shears to downsize the timber and the feeding of the timber into the mobile chip mill are similar to that considered to be part of the milling of timber in Brymay . These activities are necessarily incidental to the entity's milling of timber, and therefore also constitute the 'milling of timber' as required by section 35 of the EGCSA.

The activity of loading the woodchips into bins via a conveyor belt system is similarly necessarily incidental to the entity's milling of timber and therefore constitutes the 'milling of timber' as required by section 35 of the EGCSA.

Therefore, the activities necessarily incidental to the milling of timber at a mobile chipmill to produce woodchip for use in an industrial process are the 'milling of timber' as required by the definition of forestry in section 35 of the EGCSA.