Issue
Is a manufacturer of stockfeed entitled to a rebate under paragraph 78A(1)(aa) of the Excise Act 1901 for diesel fuel used in drying grain?
Decision
No. A manufacturer of stockfeed is not entitled to a rebate under paragraph 78A(1)(aa) of the Excise Act for diesel fuel used in drying grain.
Facts
The client operates a manufacturing plant for bulk and bagged stockfeed.
After the primary producer harvests the grain directly into trucks, it is delivered to the client's premises, in town, for manufacture.
During the manufacture process, the client processes the grain through a drier, which is operated on diesel fuel.
The grain is dried on the client's premises and stored in silos. The drying is necessary to prevent deterioration when the moisture content is too high.
The manufacturing plant is not located on an agricultural property.
Reasons for Decision
Paragraph 78A(1)(aa) of the Excise Act provides that a rebate is payable for diesel fuel used in primary production. Primary production is defined in subsection 164(7) of the Customs Act 1901 as meaning agriculture. 'Agriculture' is further defined as including the prevention of deterioration of the produce of a core agricultural activity where three conditions are met, namely: • the prevention of deterioration of the produce is carried out on an agricultural property where a core agricultural activity is carried on, • there is no physical change to the produce, and • the prevention of deterioration of the produce does not constitute a processing of the produce.
The term 'core agricultural activity' is defined in subsection 164(7) of the Customs Act as: a) the cultivation of soil, b) the cultivation or gathering in of crops, c) the rearing of livestock, or d) viticulture, horticulture, pasturage or apiculture.
where such activity is carried out for the purposes of, or for purposes that will directly benefit, a business undertaken to obtain produce for sale.
The phrase 'where a core agricultural activity is carried on' was discussed by the Administrative Appeals Tribunal (the AAT) in a similar case. In LM & TMR Quinlivan and Chief Executive Officer of Customs (1997) 25 AAR 142, the AAT determined that a core agricultural activity is restricted to an activity referred to in paragraphs (a), (b), (c) or (d) of the definition of agriculture. The activity carried out at the commercial drier in the town of Esperance was not part of the 'gathering in of crops', specified in paragraph (b) of the definition of a core agricultural activity. The AAT held that the artificial drying occurred in the town of Esperance after the crop had been gathered in, and therefore the drying did not take place on a property 'where a core agricultural activity is carried on'.
The client dries grain in order to prevent deterioration when the moisture content is too high. The drying is carried out on their premises, in town, which is not located on an agricultural property.
As the drying of the produce is not carried out on an agricultural property where a core agricultural activity is carried on, the client is not entitled to a rebate for diesel fuel used in drying grain under paragraph 78A(1)(aa) of the Excise Act.