Issue
Is diesel fuel recovered from waste oils by means of fractional distillation classified to paragraph 11(C)(3) of the Schedule to the Excise Tariff Act 1921 (the Schedule)?
Decision
No. Diesel fuel recovered from waste oils by means of fractional distillation is not classified to paragraph 11(C)(3) of the Schedule.
Facts
A waste oil recycler collects waste oils from various sources.
After being subjected to preliminary evaporation processes, the waste oil is heated and passed through a fractionation column which recovers diesel fuel present in the waste oils. The fractionation column uses a distillation process to separate the waste oil into its constituent parts: diesel, light base oils, heavy base oils, heavy fuel oil and residue fractions.
Reasons for Decision
Goods which are produced or manufactured in Australia, and on which excise duties are imposed, are excisable goods. Section 5 of the Excise Tariff Act 1921 (the Tariff Act) imposes excise duty on goods described in the Schedule.
Paragraph 11(C)(3) of the Schedule imposes a free rate of duty on certain diesel fuel recovered in the process of recycling waste oil. Paragraph 11(C)(3) provides three conditions that need to be met before diesel can be classified to this Tariff Item: (a) the diesel is a recycled product - this differentiates petroleum products recovered from used and waste oils from those products recovered from virgin crude oil (b) Customs or Excise duty was paid on the diesel when it was entered for home consumption, and (c) the process of recovery was not a process of refining.
On the facts, the first condition is met - the diesel fuel is a recycled product, having been produced from waste oil.
To establish that the second condition has been met requires empirical evidence showing that the diesel fuel that was present in the waste oil and has been recovered was originally diesel fuel on which duty was paid. For present purposes, this is not in dispute.
Lastly, it must be established that the fractional distillation process by which the diesel was recovered is not a process of refining.
The term 'refine', or any of its derivatives, is not defined in the legislation. It therefore should take its ordinary meaning.
Paragraph 11(a) of the Schedule describes the first class of product falling under item 11 of the Schedule in the following way: (a) Refined or semi-refined liquid petroleum or shale oil products (including diesel fuel produced or manufactured by the process of refining waste oils and gasoline or diesel fuel recovered by a recycling process other than refining) but not including liquefied petroleum gas, lubricating oils (including lubricant base oils), hydraulic oils, transformer oils, bitumen or recycled products other than those recycled products specified above
It is clear from paragraph 11(a) of the Schedule that the term 'refined' is applied to products derived either from crude oil feedstock or from waste oil. Moreover, there is nothing to distinguish the term 'refining' when used in relation to waste oils from its meaning in relation to petroleum products produced from crude oil in an oil refinery. It must be concluded that Parliament intended the term to have the same meaning wherever it is used in the Tariff Act.
Dictionary definitions of 'refine', such as those found in the Australian Oxford Dictionary ,1999, Oxford University Press, Melbourne and the Macquarie Dictionary , 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW, include: freeing from impurities or defects, purifying, clarifying, or bringing to a fine or pure state. It would appear that all of the processes used in recycling waste oil would fall within such definitions. These definitions are too general to be useful in this context, as item 11 of the Schedule contemplates that some recycling processes are not processes of refining.
The appropriate approach in determining the ordinary meaning of the term 'refining' in the context of oil refining is the informed general usage approach of Menzies J in North Australian Cement Ltd v. Commissioner of Taxation (1969) 119 CLR 353; 69 ATC 4077; (1969) 1 ATR 225. Under this approach, the ordinary meaning of a common term used in a specific industrial context is determined by taking account of facts and practices that pertain to that industry.
It is our view that, on an informed usage approach, the ordinary meaning of 'refining' as used in item 11 encompasses the processes typically used in an oil refinery for refining crude oil and its intermediate products. The use of heat to separate petroleum products into its various fractions is a one of the primary processes used in petroleum refining. Fractional distillation or any similar process is therefore 'a process of refining'.
The process used by the entity in recovering diesel from heavier components is essentially the same process as fractional distillation used in an oil refinery. It is based on the same principles and uses similar plant. Therefore, diesel fuel that is recovered from waste oils through the entity's fractional distillation column is recovered by a process of refining. Hence, the diesel fuel cannot be classified to paragraph 11(C)(3) of the Schedule.