Energy Grants (Credits) Scheme: off road - forestry - preservation of timber

In a mill which produces timber decking and pickets, is subjecting the generic milled timber to a preservation treatment, a part of the process of milling timber at a saw mill and therefore 'forestry' as defined in paragraph 35(d) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

No. In a mill which produces timber decking and pickets, subjecting the generic milled timber to a preservation treatment, is not a part of the process of milling timber at a saw mill and therefore is not 'forestry' as defined in paragraph 35(d) of the EGCSA.

An entity operates a saw mill situated outside of a forest from which it is supplied with felled timber.

On arrival at the saw mill, the logs are unloaded and stockpiled by the entity. From the stockpile the logs are taken to be de-barked using rotary action de-barking machines.

Once de-barked the logs are air dried before being placed in kilns to complete the drying process. Once dried the entity saws the logs into standard lengths and sizes (generic timber).

After the generic timber has been milled it is subjected to a preservation treatment. Once the preservation treatment is complete the timber is formed into decking and pickets.

The decking and pickets are then moved to the loading bay ready to be loaded and delivered to the customer.

The term 'forestry' is defined in section 35 of the EGCSA as: The expression forestry means: (a) the planting or tending, in a forest or plantation, of trees intended for felling; or (b) the thinning or felling, in a forest or plantation, of standing timber and 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; or ...

The meaning of the phrase 'milling of timber' has been considered a number of times by the Administrative Appeals Tribunal in the context of the diesel fuel rebate scheme. It was first considered in Re Wesfi Pty Ltd v. Collector of Customs (WA) (1984) 7 ALN N8 ( Wesfi ) where the Tribunal accepted the ordinary meaning of the term 'milling' as follows: The Shorter Oxford English Dictionary (Rev. 3rd edn) gives this relevant meaning of 'milling': the action or process of subjecting something to the operation, as corn etc. b. The treatment of a substance to material in any kind of mill; eg the operation of fulling cloth, rolling metals, crushing minerals etc.

The approach outlined by the Tribunal was subsequently adopted in Re T J Depiazzi and Sons v. Collector of Customs (1993) 17 AAR 557 ( Depiazzi ) and again in Re Brymay Forests Pty Ltd v. Collector of Customs Victoria (1985) 9 ALN N177 ( Brymay ) when it was determined, in part, that the use of a diesel powered front-end grab tractor to take logs from the log stack to the production line where they are milled was also milling of timber. The Tribunal reached this conclusion as: ... the front end grab tractor or tractors are used exclusively in relation to the saw milling operations ... Their use is necessarily incidental to the operations.

In Brymay the Tribunal also determined that, while the debarking and sawing of logs into billets constituted the milling of timber, the chopping of veneer sheets did not, as that process was a secondary treatment and not a process of primary production.

It is clear from Brymay that the milling of timber is not limited to the actual subjection of the timber to the mill, but includes activities necessarily incidental to the process of milling timber. However, it does not extend so far as to include activities more properly regarded as secondary processing.

The Explanatory Memorandum to the Energy Grants (Credits) Scheme Bill 2003 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 decisions in Wesfi , Depiazzi and Brymay are still considered relevant and can be applied to the current situation.

In this instance the unloading, stockpiling, de-barking and drying of timber are necessary activities that must occur to enable the logs to be milled into generic timber. These activities are necessary and incidental to the milling of timber and therefore are part of the milling process.

Once the logs have been milled into generic timber they are ready to be subjected to the secondary treatment that will manufacture them into decking and pickets. In preparation for this process the generic timber is first subjected to a preservation treatment, a necessary stage in the manufacture of these particular products. The preservation of the timber therefore occurs after the milling of the timber has been completed and is the commencement of secondary processing.

Accordingly, subjecting generic milled timber to a preservation treatment is not part of the milling process and therefore not forestry as defined in paragraph 35(d) of the EGCSA.