Issue
Has an entity purchased diesel fuel for use by them as required by subsection 53(1) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA) when they are charged the cost of replacing fuel they contaminated while carrying out their contract?
Decision
No. An entity has not purchased diesel fuel for use by them as required by subsection 53(1) of the EGCSA when they are charged the cost of replacing fuel they contaminated while carrying out their contract.
Facts
Entity A is contracted to Entity B to carry out certain maintenance activities.
While carrying out these activities Entity A contaminated diesel fuel which was owned by entity B. Entity B had purchased the diesel fuel for use by it in an activity that was eligible for an energy grant.
Under the terms of the contract between the two entities, Entity A is required to reimburse Entity B for the cost of replacing the contaminated fuel.
The replacement fuel will be purchased and owned by Entity B, placed into tanks belonging to Entity B and will be used by Entity B in carrying out its activities.
Reasons for Decision
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 Ltd v. Federal Commissioner of Taxation [2002] AATA 657; (2002) 50 ATR 1106 ( Riviera Nautic ) which concerned the hire of a leisure craft. The case was decided in relation to the Diesel Fuel Rebate Scheme which was the precursor to the Energy Grants (Credits) Scheme. In Riviera Nautic , the AAT considered that in determining whether something has been sold, one should consider whether property in it is intended to pass.
In this instance, the contractor (Entity A) is merely fulfilling their contractual obligations to reimburse Entity B for the cost of replacing fuel that entity A had contaminated. The replacement fuel will be placed into tanks belonging to Entity B and will be used by Entity B in carrying out its activities. There is nothing to indicate that property in the fuel has passed, or was intended to pass, to Entity A.
Consequently, following the principle in Riviera Nautic , Entity B has not sold the replacement fuel to Entity A. The fuel is purchased by Entity B and remains the property of Entity B at all times. Given this, it follows that Entity A has not purchased the replacement fuel.
The replacement fuel is to be used by Entity B in the course of its enterprise. Therefore the fuel is not being used by Entity A.
Given this, Entity A has not purchased the replacement fuel, and will not use the fuel. Therefore, Entity A has failed on two grounds to satisfy the requirements of subsection 53(1) of the EGCSA. It is clear that entity A has not purchased diesel fuel for use by them where they are charged the cost of replacing fuel that they contaminated while carrying out their contract.