Issue
Does an entity purchase diesel fuel for the purposes of subsection 53(1) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA) where the fuel is purchased and used by an equipment manufacturer in the trialling of equipment prior to the sale of the equipment to the entity and the contract between the parties states that the equipment manufacturer can charge the entity for the fuel used in the trials?
Decision
No. An entity does not purchase diesel fuel for the purposes of subsection 53(1) of the EGCSA where the fuel is purchased and used by an equipment manufacturer in the trialling of equipment prior to the sale of the equipment to the entity and the contract between the parties states that the equipment manufacturer can charge the entity for the fuel used in the trials.
Facts
The entity uses a particular type of equipment in its enterprise.
The entity has entered into a contract to purchase replacement equipment from a manufacturer.
The contract specifies that the manufacturer must conduct trials of the equipment prior to delivering it to the entity.
Under the contract, ownership of the equipment does not pass to the entity until the equipment has satisfactorily completed the trials.
The contract also specifies that the manufacturer may charge the entity for diesel fuel used in the trials.
Reasons for Decision
Subsection 56(1) of the EGCSA states that if an entity is entitled to an on-road credit or an off-road credit, it is entitled to an energy grant. Subsection 53(1) of the EGCSA provides that an entity is entitled, subject to certain prescribed conditions, to an off-road credit if they purchase diesel fuel for a use by them that qualifies.
The Administrative Appeals Tribunal (AAT) considered the issues of 'use' and to a lesser extent 'sale or disposal' in Re Riviera Nautic Pty Limited v. Federal Commissioner of Taxation [2002] AATA 657; (2002) 50 ATR 1106 ( Riviera Nautic ) which concerned the hire of a houseboat. The case was decided in relation to the Diesel Fuel Rebate Scheme which was the precursor to the Energy Grants (Credits) Scheme and was administered under the Excise Act 1901 and the Customs Act 1901 . In that case, the AAT considered that in determining whether something has been sold, one should consider whether property in it is intended to pass.
The manufacturer has purchased and used the fuel in conducting the trials of the equipment. The equipment (and the fuel within the equipment) belonged to the manufacturer when the trials were conducted. The fuel was consumed by the time the trials were completed and ownership of the equipment passed to the entity. Given this chain of events, there is nothing to indicate that property in the fuel had passed, or was intended to pass to the entity.
Consequently, following the principle in Riviera Nautic , the manufacturer has not sold the fuel. Therefore, the entity has not purchased the fuel.