Issue
Where the treatment of timber at a preservation plant involves a substantial amount of chipping, does that treatment constitute 'the milling of timber . . . . at a chipmill' within subsection 35(d) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?
Decision
Yes. Where the treatment of timber at a preservation plant involves a substantial amount of chipping, that treatment is 'the milling of timber ... at a chipmill' within subsection 35(d) of EGCSA.
Facts
An entity operates a timber preservation enterprise outside a timber plantation from which it is supplied with raw logs.
The entity operates a number of machines used to de-bark the raw logs. The machines are mills as they operate by rotary action. The heads of each mill have blades that spin in opposition to the log.
The raw logs are fed into the mills where they have the bark and part of the sapwood removed, tapering the logs to rounds of a specific diameter. The milled rounds are dried and then subjected to a preservation treatment. After preservation the rounds are loaded for delivery to customers.
The bark and sapwood is removed in the form of chips, this represents 30 percent of the output from the mills. The woodchips are stockpiled ready for transport to a buyer.
The wood chips are supplied under contract to the buyer for use in the manufacture of chipboard and laminate.
Reasons for Decision
The term 'forestry' covers a number of activities, the most relevant is contained in subsection 35(d) of the EGCSA which states that forestry includes: The milling of timber at a sawmill or chipmill that is not situated in the forest or plantation in which the timber was felled;
The meaning of 'chipmill' and 'chipping' was considered by the Administrative Appeals Tribunal (Tribunal) in Re T J Depiazzi & Sons v. Collector of Customs (1993) 17 AAR 557; (1979) 27 ALR 367 ( Depiazzi ) under the diesel fuel rebate scheme.
The Explanatory Memorandum to the EGCSA states that the energy grants credits scheme is to provide equivalent entitlements to those of the diesel fuel rebate scheme administered under the Customs Act 1901 and the Excise Act 1901. Accordingly the decision in Depiazzi is still considered relevant and can be applied to the current situation.
In Depiazzi the Tribunal states at paragraph 30: To be a "chip mill", in the opinion of the Tribunal, it need only be a mill at which "chipping" of timber or parts of timber occurs. ...If it is a mill which engages in a process of milling involving a substantial though not necessarily predominant, proportion of chipping, it is a chipmill.
The word 'substantial' requires something that is more than trivial or minimal and does not refer to precise quantities. In the context in which it appears, it carries a notion of relativity and determining whether something is substantial or not, requires an individual assessment of the facts and circumstances ( Tillmanns Butcheries Pty Ltd v. Australasian Meat Industry Employees Union (1979) 27 ALR 367, Bowen CJ paragraph 31).
In this instance, although the mills are predominantly concerned with the production of preserved timber logs, 30 percent of output from the mills is woodchips. In relation to the overall output this is more than a minimal amount and therefore a substantial proportion of the milling is the chipping of timber. Therefore the entity mills timber at a chipmill.
In Depiazzi the Tribunal goes on to consider the meaning of 'chipping' at paragraph 31 defining it as one of: ...the reduction processes through which tree parts and residue are broken down to a state where they become material capable of use in other productive activities...
In this instance the actions of the mills results in the logs being reduced in size and form. Those parts of the logs being removed, the bark and part of the sapwood, are during the process of removal, broken down to a state where they are capable of being used in the manufacture of chipboard and laminate.
Accordingly, the timber received from the plantation is milled at a chipmill, which is an activity defined as forestry in subsection 35 (d) of the EGCSA.