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Cite as: [2002] IESC 67, [2002] 3 IR 438
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Tara Mines Limited v. O' Connell (Inspector of Taxes) [2002] IESC 67 (10th October, 2002)
THE SUPREME COURT
Denham J
Murphy J
Murray J
Record No 0056/R
Appeal No 147/01
Between:
Tara Mines Limited
Appellant
AND
Patrick O' Connell (Inspector of Taxes)
Respondent
Judgment of Mr Justice Francis D Murphy delivered the 10th day of October, 2002 [Nem Diss.]
1. This is an appeal by Tara Mines Limited (Tara) from the judgment and order of the High Court (Mr Justice R Murphy) on the 4th day of April, 2001, whereby, for the reasons set out in that judgment, the learned judge allowed the appeal brought by the Inspector of Taxes (the Inspector) from the determination by the Appeal Commissioners certain assessments to corporation tax for the years ended 31st December 1978 to 31st December 1988.
2. The issue in these proceedings can be stated simply as follows:-
"Did any part of the monies received by Tara during the relevant years aforesaid constitute 'income from any mining operations' within the meaning of subsection 9 of section 58 of the Corporation Tax Act 1976?"
3. The facts and the legal framework within which that question arises are complex: they are set out fully in the case stated by the Appeal Commissioners dated the 16th day of February, 2000, but may be summarised as follows: Tara extracts lead and zinc ores from the earth at its property situate near Navan, County Meath. These ores are then processed to produce a finished products of zinc and lead concentrates. The major constituent (approximately 90%) of the concentrates are sphalerite and galena. Sphalerite is a naturally occurring substance containing zinc in the form of zinc sulphide. Galena is a naturally occurring substance containing lead in the form of lead sulphite. The company's ore body is set between 50 and 600 metres below the surface. It dips gently towards the south west at 15 degrees and varies in thickness from 10 to 80 metres. The current known area extent of the ore body is 1,300 metres in length and 900 metres in width. On average the ore contains 8% zinc and 2.5% lead.
4. The commercial activities of Tara are carried out in two divisions which are known as the mining division and the processing division respectively. The managers of these divisions, Mr Pitkanen and Mr Pocock gave evidence before the Appeal Commissioners. They explained that the work of the mining division. It includes a geology department which determine the location of the ore body: a research department which investigates new mining methods and a mine operations department which carries out the underground operations and a mobile equipment department which has charge of the maintenance of all mobile equipment both under and over ground. The process by which ores are extracted from the mine body were summarised in the findings of the Appeal Commissioners in the following terms:-
"(i) Mining commences with prospecting for valuable materials. Diamond drilling is carried out above ground to establish the commercial viability of the ore body or an area of the ore body. Underground diamond drilling is also carried out and the results of this drilling are provided to the Mining Engineering Department to enable them to plan the mining operation.
(ii) Once the extent of the ore body has been determined, plans are drawn up setting out how access will be gained to each pocket of ore in the ore body. Underground access tunnels are then blasted with explosives in order to reach the pockets of ore.
(iii) Following exploration and location of the ore body, the mine is laid out in blocks for planning purposes. The blocks are divided into stopes and pillars. Stopes are areas from which ore is excavated leaving pillars.
(iv) Ore is dislodged from the earth's crust by blasting. Blasting produces "broken ore" which consists of large boulders as well as finer material. The boulders can be as large as 2 metres across.
(v) The broken ore resulting from the blasting is transferred to the underground crushing station where it is subjected to primary crushing. After the ore is extracted, the cavities formed are filled by piping in back-fill. This allows the adjoining pillars to be worked.
(vi) Following this primary crushing, the crushed ore is transferred by conveyor belt to the coarse ore bin situated 320 metres below the surface.
(vii) The ore from the underground coarse ore bin is transported to the surface by way of skips operated by a hoist. Each skip transports up to 16 tonnes of ore to the surface by conveyor belt. At the surface the ore is again transported by conveyor belt to the surface storage bin or tepee. At this point the responsibility of the mining division ends."
5. The Appeal Commissioners in their case stated then go on to deal with the work carried out by the processing division in the following terms:-
"(i) The coarse ore is then subjected to a highly sophisticated process which is carried out at the Company's site milling plant. The object of this process is to produce precisely calibrated lead and zinc concentrates suitable for sale to smelters in other European countries.
(ii) The operations beyond the tepee can be divided into sections; comminution, processing, back-fill preparation and product disposal. Comminution and processing essentially involve the extraction of galena and sphalerite in concentrate form from the crushed ore. The comminution and processing are carried out in the mill which had a capital cost on construction of approximately US$75m.
(iii) Comminution more particularly involves further dry crushing and wet grinding. The ore is transported by conveyor to the first over ground crusher which reduces the size of the ore from 200mm to 16mm. From there it is conveyed to the grinding circuit which reduces it from 16mm rock to a fine size (0.1mm) rock. Water is added in the grinding process producing a slurry. The whole process is very energy intensive and is controlled by computers to ensure maximum efficiency.
(iv) At this size as slurry and water it is suitable for the flotation process which separates out galena (for lead) and sphalerite (for zinc). For reasons of commercial and technical efficiency and efficacy, galena is floated before sphalerite. As the name implies, the flotation process involves "floating off" of the lead and zinc bearing materials in the ore.
(v) The basis of the flotation process is the modification of the mineral surfaces using organic and inorganic chemicals. Firstly a small precisely measured amount of organic and inorganic chemicals is introduced to the slurry. These chemicals react with and change the surface characteristics of the lead mineral (galena) and it becomes hydrophobic (water repellent). Air is then passed through the slurry. As an air bubble progresses upwards through the slurry the water repellent particles become attached to it and the bubble becomes coated with galena particles. A floating agent is added so that when the bubbles reach the surface a stable froth is produced at the surface. The accumulated bubbles with their minerals flow off the surface onto a concentrate launder.
(vi) After the process described above is carried out the rougher concentrate is pumped to the cleaning circuit where the flotation process is repeated three further times to increase the lead content of the final lead concentrate to a level acceptable for smelting.
(vii) The tailings from the lead rougher circuit now contain very little lead mineral but most of the original zinc minerals and waste rock. This slurry is then conditioned with further organic and inorganic chemicals to make the zinc minerals hydrophobic. After conditioning, the zinc mineral (sphalerite) is floated as described for galena to produce rough zinc concentrate which is reground into a small ball mill prior to three stages of cleaning to produce a zinc flotation concentrate.
(viii) The zinc concentrate is further processed by acid leaching to reduce the magnesium oxide content of the zinc concentrate to a level acceptable to the smelters. The concentrate is leached in four rubber lined vessels with sulphuric acid. Magnesium goes into a solution as magnesium sulphate and calcium carbonate is dissolved and re-precipitates as calcium sulphate. After leaching the concentrate is processed in a reflotation plant which removes the calcium sulphate precipitates and upgrades the zinc concentrate to its final value typically containing 56% zinc.
(ix) Both concentrates are now in the form of dilute slurry and must be de-watered sufficiently to facilitate handling and transport. The flotation concentrate is pumped to a thickener, the clear water overflow of which returns to the grinding circuit. The thickened under-flow is pumped to a surge tank and then to a ceramic filter which reduces the moisture content to an acceptable level. Dried lead concentrate which contains approximately 6% moisture is conveyed to a 7,000 DMT capacity storage building on site from where it is transferred to rail wagons for transport to Dublin Port.
(x) Leached zinc concentrate is de-watered in similar but larger equipment. The thickened under-flow flows by gravity to a surge tank, to which filter aid is added and from there it is pumped to two or three disc filters. Again the filter cake drops onto a conveyor that transports it to a concurrent, oil fired rotary drum drier. Dried zinc concentrate containing approximately 8% moisture is conveyed to a 20,000 DMT capacity storage building on site from where it is transferred to rail wagons for transport to Dublin Port.
(xi) Throughout the flotation process a high degree of control and monitoring is exercised to ensure maximum efficiency in the production of lead and zinc concentrates, maximising the recovery of the appropriate minerals from the ore while using the minimum quantity of chemical reagents. The principal control mechanism is a Courier 200 on-stream analyser which is an on-line X-ray fluorescent spectrometer which analyses a sample of each of eighteen processed streams for percentage zinc, percentage lead, percentage iron and percentage solids once every fifteen minutes on a continuous basis. This data together with grinding feed tonnage rates are processed by a computer which controls reagent dosage rates and other control variables.
(xii) Most of the material taken from the ground remains as waste material following the extraction of galena and sphalerite. Much of this waste material is returned underground by the Processing Division either as sand back-fill or cemented back-fill. The cemented back-fill is prepared by mixing the waste with water and cement. Although the back-fill is produced by the Processing Division, the back-filling operation is carried out by the Mining Division."
6. The Appeal Commissioners found that the distinction or specialisation between the Mining Division and the Processing division exists throughout the industry internationally and was also recognised in the organisation of university departments. The Appeal Commissioners expressly found that:-
"The concentrates produced as the end product of the company are quite distinct from the ore. A chemical change occurs in the processing stage in that the chemical compound on the surface of the mineral changes during the flotation processing and in the leaching process carbonates are converted into sulphates which are subsequently removed."
7. The Appeal Commissioners, having heard the evidence and having inspected the site, concluded that the mining division or the process carried out by it were on a similar scale to the activity carried out by the processing division but neither one was subsidiary or ancillary to the other.
8. It was explained by Tara and accepted by the Commissioners that the cost of transporting the ore from the tepee for further processing off site would make further processing uneconomic. The ore when processed as aforesaid was transported to Dublin Port and all of the concentrates produced by Tara during the relevant accounting periods were exported out of the State. None of the lead or zinc ore was sold as such.
9. Having regard to the desperate need for industrialisation which might create wealth and give employment on the one hand and the highly speculative nature of exploring for and finding commercial quantities of metallic ores in this country it is not surprising that legislation was enacted granting valuable tax concessions to those who did succeed in engaging successfully in the trade of working a mine. The Finance (Profits of Certain Mines) (Temporary Relief from Taxation) Act, 1956, provided that profits derived from the working of a qualifying mine (as therein defined) in relation to a trade which commenced after the 6th April, 1956, should be exempt from tax for each of its first four years of trading and liable to tax on one half of its profits for the following four years. Those provisions were effectively re-enacted in the consolidating Income Tax Act of 1967 and significantly extended by the Finance Act, 1967, section 9 which effectively provided for a twenty year tax exemption on the profits of the trade of operating a qualifying mine. Similar exemptions were granted in respect of corporation profits tax.
10. Lengthening the exemption period was clearly attractive to the tax payer. It had the advantage, in addition, of ensuring that any mine discovered would be developed in an orderly fashion and fully exploited. A restricted exemption period might gave resulted in high grade ores being extracted in the first instance to take advantage of the exemption and leaving ores of a lower grade which it might not be economic to extract under a less favourable tax regime.
11. Relief in the form of exemption from income tax and corporation profits tax was discontinued as from the year 1974/75 by the Finance (Taxation of Profits of Certain Mines) Act, 1974. That Act provided in place of that relief a generous system of allowances in respect of development, exploration and mine development expenditure.
12. At the same time as the mining industry was being encouraged by the tax reliefs aforesaid valuable concessions were made by the Finance (Miscellaneous Provisions) Act, 1956, to encourage the export of goods by corporate tax payers who manufactured them. The general scheme of the legislation was to deem the profits of the company to be such sum as bore to the amount of the company's actual profits as the sums received from exports during a prescribed standard year bore to the sums received from such exports in the basis year.
13. After corporation profits tax and income tax on companies was replaced as and from the financial year 1974 by corporation tax, the exports sales relief was governed by part IV of the Corporation Tax Act, 1976, and in particular s.58 thereof. It may be helpful to set out in some detail the provisions of that section as follows:-
"58 (1)Where a company claims and proves as respects a relevant accounting period:-
(a) that, during the standard period in relation to the trade, goods were, in the course of the trade, exported out of the State,(b) that, during the relevant accounting period, goods were, in the course of the trade, exported out of the State, and(c) that the total amount receivable from the sale of the last-mentioned goods was in excess of the total amount (in this section referred to as the standardamount) receivable from the sale of the goods exported during the standard period, corporation tax payable by the company for the relevant accounting period, so far as it is referable to the income attributable to the said excess, shall be reduced to nil; and the corporation tax referable to the income attributable to the said excess shall be such an amount as bears to the relevant corporation tax, as defined in subsection (10), the same proportion as the income attributable to the said excess bears to the total income brought intocharge to corporation tax.
(2) For the purposes of subsection (1) 'the income attributable to the said excess' shall be taken to be such sum as bears to the amount of the company's income for the relevant accounting period, which is attributable to the sale of goods (whether exported or not), the same proportion as the amount of the said excess bears to the total amount receivable by the company from such sale in the relevant accounting period.
(3) Where a company claims and proves as respects a relevant accounting period:-
(a) that, during the standard period in relation to the trade, no goods were, in the course of the trade, exported out of the State or that the standard period is not applicable, and(b) that, during the relevant accounting period, goods were, in the course of thetrade, exported out of the State, corporation tax payable by the company for the relevant accounting period, so far as it is referable to the income from the sale of the goods so exported, shall be reduced to nil; and the corporation tax referable to the income from the sale of goods so exported shall be such an amount as bears to the relevant corporation tax the same proportion as the income from the sale of goods so exported bears to the total income brought into charge to corporation tax.
(4) For the purposes of subsection (3) 'the income from the sale of the goods so exported' shall be taken to be such sum as bears to the amount of the company's income for the relevant accounting period, which is attributable to the sale of goods (whether exported or not), the same proportion as the amount receivable in the relevant accounting period from the sale of goods exported bears to the total amount receivable by the company from the sale of goods (whether exported or not) in the relevant accounting period.
(5) In a case in which the preceding provisions of this section apply, and the export out of the State in the relevant accounting period consisted of or included goods with respect to which section 54(3) provides for the inclusion thereof in the definition of 'goods' this Part shall have effect subject to the insertion, in subsections (2) and (4), of 'and of merchandise (whether exported or not) other than such goods' after 'goods (whether exported or not)' wherever the latter words occur.
(6) Not relevant
(7) Not relevant
(8) Not relevant
(9) A reduction shall not be made under this section in respect of corporation tax payable on income from any mining operation."
14. A crucial feature of Part IV of the 1976 Act is the definition of "goods" which are defined by s.54 (1) as meaning goods manufactured within the State as meaning:-
"Goods manufactured within the State by the person who exports them or some of them and who in relation to the relevant accounting period is the company claiming relief under this part."
15. Section 54 goes on to deem certain products to be goods manufactured in the State which would not in their ordinary meaning be understood to be goods subjected to any manufacturing process.
16. It was under Part IV of the 1976 Act that Tara sought export sales relief in respect of the years relevant to these proceedings by reference to the income received by it in respect of the concentrates exported by it during those years. In those circumstances a question to be considered was whether the concentrates had been "manufactured" by Tara so as to constitute goods within the meaning of the 1976 Act, s.53 aforesaid. Having regard to the decisions in McCausland .v. The Minister for Commerce [1956] NI 367; Cronin .v. Strand Dairies Ltd [1985] 3 ITR 441; McCann .v. O'Culachain [1986] IR 196 and Irish Agricultural Machinery Ltd .v. O'Culachain [1990] 1 IR 535 and the nature of the process to which the ores were subjected to produce the concentrates there could be no doubt but that the product constituted "goods" within the meaning of the section and this, in fact, was rightly conceded by the Inspector. The issue on which the parties disagreed - and disagreed vigorously - was whether the processing (or manufacturing) stage constituted a "mining operation". Certainly it was a stage which produced an income for Tara and accordingly if it could be described correctly as a mining operation subsection 9 of s.58 aforesaid would have applied so as to disentitle Tara to the relief.
17. The Finance (Profits of Certain Mines) (Temporary Relief from Taxation) Act, 1956, had defined "mining operations" in a limited sense as meaning:-
"Mining operations (by underground or open cast excavation) within the State, whether before or after the passing of this Act, but only insofar as scheduled minerals have been or are obtained thereby."
18. That basic definition enabled the Legislature to provide a definition of "new mining operations" and limited the application of the Act and the exemptions thereby granted to the working of a "qualifying mine" which is defined as, or limited to, a mine insofar only as new mining operations were carried on therein. That definition was maintained in the Finance (Taxation of Profits of Certain Mines) Act, 1974. Tara have contended that the statutory definition and the ordinary meaning of the words "mining operations" as used in the 1976 Act mean - in relation to lead and zinc mining at any rate - the process which culminates with the extraction and raising of the ores to the surface. That is to say the process which in the present case concludes with the delivery of the ores to the storage bins or tepee. Tara argue that the very facts which require or permit the subsequent process to be described as a manufacturing process exclude the possibility of describing that process as a mining operation. Counsel for Tara argued that the manufacturing process might equally well be carried on as an entirely separate trade by an independent company, and perhaps in a different location, when, it was submitted, nobody would suggest that the manufacturing aspect carried on by the independent company was a mining operation. The Inspector contended that all of the activities carried on by Tara up to and including the production of the concentrates constituted mining operations. The purpose, it was said, of the activity was the production of the concentrates. The ore itself was not marketable and could not be transported off site for treatment as the transport costs would be uneconomic. In addition the Inspector argued that the structure of the legislation granting exemptions in respect of the trade of working a qualifying mine; the various allowances provided in respect of tax when payable and the provisions of the 1976 Act dealing with export sales relief, required that "the manufacturing process" should be treated or recognised as being a mining operation.
19. The Commissioners recognised, correctly, that the net issue before them was whether Tara had "income from any mining operations". They had regard to evidence given by distinguished experts as to what constitutes mining operations. They considered a number of cases, particularly those decided in Australia, as to the meaning of the term "mining operations" in not dissimilar legislation and they reached the conclusion following:-
"We decided that the Company operates amine and that it also carries out a separate activity subsequent to its mining activity; namely, the processing of ore, the result of its mining operations, to manufacture concentrates of lead and zinc. We also decided that he mining activity and the manufacturing activity were of a similar scale and that neither was subsidiary or incidental to the other. In our opinion the manufacturing activity was, in the words of the judges in the Broken Hill case on page 4030, "...distinct from although connected with the taxpayer's mining operations..." and clearly did not come within the meaning of the phrase "mining operations....
"While we did not have any difficulty in so deciding, we found support for our conclusion in the evidence of the expert witnesses that different branches of science are involved in the mining activity and the manufacturing process, each branch of which requires separate training and education of its specialists.
"We concluded that the company does not sell its mining output. Its subjects that output to a separate manufacturing process to produce concentrates of lead and zinc which it sells in the course of its trade. Therefore the company's income is derived from the sale of the said concentrates. It follows that the company cannot be said to have "...income from any mining operations..." within the meaning of section 58(9) of the Corporation Tax Act 1976 and that it is consequently entitled to export sales relief in respect of its trading income for the periods with which this appeal is concerned."
20. It was from that decision that the Inspector appealed to the High Court.
21. Mr Justice Roderick Murphy allowed the appeal. In essence the learned Judge concluded that there was no basis for the finding by the Appeal Commissioners that the manufacturing process was not a "mining operation" when they had held that this expression could encompass all of the activities carried out by the company. At page 29 of the transcript he said:-
"The conclusion that not all of the company's activities could be said to come within the meaning of "mining operations" can, however, have no basis given the finding that the term "mining" depending on the context on which it and cognate terms are used, could encompass the type of activities carried out by the company. The conclusion is not a finding of paragraph (V) as the Commissioners did not deem it necessary to make a finding of fact specifically in regard whether the term "mining operations" as used within the mining industry could include all of the activities carried on by the company or just the underground activities."
22. At the conclusion of his judgment (at page 33 of the transcript) Murphy J said:-
"The finding that the manager of the mining divisions responsibilities end at that point and that the manager of the processing division is responsible for all activities after the ore arrives in the tepee including the manufacture of lead and zinc concentrates does not, in my view, determine the beginning and end of mining operations, as experts would appear to be uncertain as to the extent of "mining operations" and such term could encompass all the activities of the company.
"The decisions of the Commissioners do not accordingly sit firmly on the findings. It may be that, within the decision, there are further latent findings. These further findings seem in turn to be somewhat at variance with the extensive findings found by the Commissioners as such."
23. It would seem to me that in essence that the learned Judge concluded that the Commissioners, having decided that all of the activities of the company could constitute "mining operations", did not reach any conclusion or make any finding which would justify excluding any of those activities from the ambit of that classification. Certainly the Appeal Commissioners had been unable to find any definition of the term "mining operations" or to provide any description of the activities which those words embraced. In the absence of any such definition or description it is, I believe, impossible to make a conclusive finding of fact as to what does or does not fall within that description. The proposition that a finding of primary fact by the Appeal Commissioners should not be set aside by the Court unless there was no evidence whatever to support it is well established. (See Mara .v. Hummingbird [1982] ILRM 421 and Brosnan .v. Mutual Enterprises Ltd [1997] 3 IR 257). However, "mining operations" are a mixed question of law and fact. Depending upon the proper definition of that term a finding of fact may establish whether such activities are involved but a finding of fact without a definition could not be conclusive of any legal proposition. In the present case the very clear exposition by the Appeal Commissioners as to the nature, extent and purpose of the activities carried on by the company over ground is clear and, as a matter of fact, conclusive. But without guidance as to what "mining operations" entail these findings do not advance the matter significantly.
24. Frequently findings of fact relate to the basic proposition as to the credibility of witnesses. In taxation matters findings often concern issues which can be clearly distinguished in principle but may require a delicate judgment in practice. For example the question whether a person who sells property at a profit is trading or achieves a windfall capital gain is essentially a fact or conclusion which a court of first instance is entitled to draw as was held in Mara .v. Hummingbird (above). Again, the weighing of factors which determine whether a loss is of a revenue or a capital nature is a conclusion of fact on which the decision of the Appeal Commissioners is conclusive (see Brosnan .v. Mutual Enterprises Ltd above). However, these cases clearly illustrate the fact that the tribunal determining an issue must know the factors to be taken into account and assessed so as to reach a conclusion which involves issues of law as well as fact.
25. In the present case the Appeal Commissioners were unable to provide any definition or description of the term "mining operations". Let it be said this is a task which has eluded courts in several jurisdictions. It was argued in the present case that any operations or activities which occurred after the ore had been brought to the surface was incapable of falling within the description of "mining operations". That argument was supported by the decision of the Exchequer Court of Canada in Marbridge Mines Ltd .v. The Minister for National Revenue [1971] DTC 5231 in which Gibson J stated (at page 5233) "That mining ends with the bringing of the mineral ore to the ground surface". Clearly the Appeal Commissioners did not accept that proposition. If they had done so their conclusions would have been expressed differently and briefly. It would have been wholly unnecessary to consider the value, nature or purpose of the works carried out after that primary objective had been achieved.
26. I am satisfied that the Appeal Commissioners did not make any finding of fact or draw any conclusion which precluded the learned High Court Judge from determining whether the processing activity constituted a "mining operation" or absolve him from the duty of so doing.
27. It is inconceivable that any definition of "mining operations" could be given which would not include the underground mining activities in which Tara have engaged. As those activities form a substantial part of the business of the tax payer the first question which arises is whether Tara derives any income from those operations. At first sight it may seem surprising that this would not be so. Ordinarily one would expect a substantial expenditure by a tax payer to result in an income to him. However, as Tara argued in the present case, it is the final link in an integrated business, and not the original or intermediate steps, which provide the income. To suggest that any earlier activity produces an income would in fact involve some concept of apportionment being deemed to have taken place. This proposition is well illustrated by s.50 of the Finance Act 1980, which is later in date but in pari materia with the legislation under consideration here. Subsection 2 of s.50 aforesaid provides as follows:-
"Where a company carries on a trade which consists of or includes the manufacture of goods and, in the course of the trade, carries on any mining operations within the meaning of subsection (1)(a) for which it obtains any scheduled mineral, mineral compound or mineral substance of the kind referred to in that subsection. Any such mineral compound or substance is not sold by the company in the course of trade but forms the whole or part of the materials used in the manufacture of such goods or is to any extent incorporated in the goods in the course of their manufacture, then, part of the income which, apart from this subsection, would be income from the sale of goods for the purposes of section 41 shall be deemed, for the purposes of subsection (1), to be income from such mining operations and that part shall, for the purposes of that subsection, be such amount as appears to the Inspector or, on appeal to the Appeal Commissioners to be just and reasonable."
28. In my opinion no part of the income of Tara is, on the findings of the Appeal Commissioners, derived from the mining operations of Tara insofar as those operations consist of the underground activities.
29. How does one determine whether the over ground activities constitute mining operations?
30. Attention was drawn to the decision of the Exchequer Court of Canada in Marbridge Mines Ltd .v. MNR Ltd (above). The Judgment of Gibson J contains a passage on which Tara understandably place some reliance, namely:-
"As I understand it, mining ends with the bringing of the mineral ore to the ground surface and that before that terminal point, three stages of physical operation have been gone through, namely:
(1) Exploration, (2) development, and (3) (extraction) mining
Then following the bringing of the minerals to the surface the physical operations that takes place is "treatment" of the ore. And again treatment consists of three stages of physical operation, namely:
(1) Milling which includes the rough primary grinding; (2) smelting; and (3) refining."
31. Superficially this extract would appear to be helpful. However it was made in the context that the appellant tax payer was contending that he had discovered an ore body on a claim adjacent to one on which he was already operating a mine so that the working of the new claim was a separate, independent mine in respect of which he was entitled to tax exemption. The issue was whether there was a "mine" not whether there were "mining operations". What the Court decided was that the treatment of the ore after it had been brought to the surface was irrelevant in determining whether or not the operation of the claim constituted a mine. Neither the Appeal Commissioners nor the learned High Court Judge accepted or concluded that mining operations necessarily terminated when the mineral ore was brought to the surface. In my view they would have been incorrect to have reached any other conclusion.
32. The words "mining operations" - and that in the context of relief from taxation - were considered in a number of decisions of the Federal Court of Australia to which the Court was referred and which included, the Commissioner of Taxation of the Commonwealth of Australia .v. North West Iron Coal Ltd (unreported decision of the Federal Court of Australia delivered on the 27th day of March, 1986); and Reynolds Australia Alumini Ltd & Ors .v. The Commissioner of Taxation for the Common Wealth of Australia (unreported decision of the Federal Court of Australia delivered on the 31st day of March, 1987). The facts of these cases are technical and complicated. The law was, as Lockhart J said in the North West Iron case, "labyrinthine". Moreover there are dangers in every case in extracting authorities from jurisdictions without a comprehensive knowledge of the legal system and jurisprudence from which they are derived. It is understandable that the Appeal Commissioners were reluctant to place great reliance on those authorities. On the other hand it would be unwise to ignore them.
33. Under the Australian Income Tax Assessment Act, 1936, section 122:-
"Where a person, in connection with the carrying on by him of mining operation upon a mining property in Australia ....has incurred expenditure of a capital nature on necessary plant, .....and the amount ascertained in accordance with this section shall be an allowable deduction in respect of that expenditure."
34. A mining venture known as Savage River Mines extracted crude ore from a site on the Savage river in north western Tasmania near the town of Waratah. On site they crushed and ground the ore: separated the magnetic iron particles from undesirable matter by wet processes and then transported the ensuing concentrate in slurry solution by pipeline to Port Latta in northern Tasmania - some 85 kilometres away - where the concentrates were treated and converted into pellets. The issue in the case was whether the transportation of the slurry by pipeline from Waratah to Port Latta was a "mining operation" within the meaning of s.122 aforesaid so as to enable the cost of the construction of the pipeline to be claimed as an allowable deduction. It was held that it was. Alterations and amendments of the Act of 1936 expressly restricted deductions in respect of transportation facilities to those operating "wholly within the site of prescribed mining operations". Notwithstanding the wide area involved in the operation and the different processes carried on from the extraction to the pelletisation it was held that the pipeline operated within such a site.
35. The slurry which was piped from the Savage river mine to Port Latta was de-watered there and transferred to the pelletising plant. The pelletisation, as described in the judgment, was clearly a complex manufacturing process which resulted in a product which could be transported by conveyor from the plant along a jetty for nearly 1.6 kilometres to ore carriers which were moored adjacent to the jetty. How did the court conclude that this pelletisation was a mining operation particularly having regard to the fact that in the Federal Commission of Taxation .v. BHP [1969] 120 CLR 240 it had been held that pelletisation was not a mining operation? The answer as provided in the judgment of Lockhart J - at paragraph 39 - is that:-
"What is plain from the cases is that it is a question of fact in each case whether the particular operations or processes are "mining operations" for the purposes of section 122."
36. What is more important are the factors which the learned Judge considered material in reaching his decision on that question of fact.
37. The learned Judge accepted that the Savage river crude ore was a low grade iron ore and would not have been a saleable commodity in its crude ore form but required to be of a suitable sizing so it could be capable of being used for direct feed into blast furnaces. He concluded that the Savage river concentrates were only suitable for being used as "pellet feed" that is to say that the finely ground iron ore had to be bound with an agent and rolled into marble sized balls (the pellets) which are then suitable for direct feed into blast furnaces.
38. In paragraph 41 of his judgment he said:-
".... The slurry is not a saleable commodity and it is not de-watered until it reaches Port Latta as part of the pelletisation process. The only sale of a commodity available from the Savage river development as a modern blast furnace feed was, as it is today, pellets. Until pelletisation takes place the concentrates are of no use to anybody and the slurry in which they are contained in similarly of no use. Only the pellets are useful....."
39. In paragraph 43 he said:-
"....... The object of the tax payers' activities is the production of pellets after treatment of the ore, essentially by work processes and the eventual removal of the water content from the slurry. It is not the object of the tax payers operations to produce "fines" ...... The process of pelletisation is integral to the whole operations of the mining venture and essential to the development of the potential of the low grade ore of the Savage river site by means of tax payers technology. The pipeline is essential to the end product. It is not different in essence from a necessary conveyor line conveying material from one section to another within the mining complex. The end product of the tax payers mining activities is the production of pellets."
40. In paragraph 44 he expresses his conclusion in the following terms:-
"... Practical and business like considerations clearly lead to the conclusion that the whole of the relevant operations of the tax payer to the final stage where the pellets emerge are part of its mining operation. Although at first sight it may seem somewhat incongruous that a pipeline, extending for some 85 kilometres from the Savage river to Port Latta, is part of the tax payers mining operations, the apparent incongruity disappears when the role of pipeline is considered in the context of the tax payers activities as a whole."
41. If that analysis is transposed to the facts of the present case you would again see an integrated operation commencing with the extraction of mineral ore from the ground and the application of processes to the ores so extracted to produce a product which could be sold and which the mining company intended to sell, that is to say, the concentrated product from the iron ores. The contention that the over ground processes carried on by Tara are mining operations is much stronger than the case made by the Savage River Mines. The ultimate product though - by definition - is different from the basic ore in that it is concentrated and not different in substance and, more particularly, the process is carried out in an area which is part of a mining site.
42. The production of the concentrates was, as the Inspector accepted, a manufacturing process (just as I am sure that the pelletisation of iron ore fines would also constitute manufacturing if they were carried on in this jurisdiction) it is, nonetheless and at the same time a mining operation. The two concepts are not mutually exclusive.
43. In my opinion the learned High Court Judge was correct in his conclusion that the findings made by the Appeal Commissioners did not justify the decision which they reached. Quite the reverse. This undefined term which, as the Australian authorities point out is a "wide expression" must in the circumstances of the present case encompass the over ground activities on processes carried on by Tara as part of their mining venture.
44. This conclusion is strongly supported by the provisions of the Corporation Tax Act, 1976, s.58 (9) quoted above which provides:-
"A reduction [in taxable income] shall not be made under this section in respect of corporation tax payable on income from any mining operation."
45. As the reduction is in general related to income derived from the export of goods by the person who manufactures them within the state the restriction or exception must, it was contended, relate to an activity which would, but for the exception, constitute income from an activity which constituted both a mining operation and a manufacturing activity. If it was exclusively a mining operation then the exception would be unnecessary if it was exclusively a manufacturing process the exception would be inapplicable. It is this logic which would suggest that the exception was an implicit recognition that processes of a manufacturing nature subsequent to the extraction of underground minerals constitute a "mining operation" for the purposes of the relevant legislation in this jurisdiction and it was appropriate to exclude income derived from that activity to avoid a tax payer enjoying both export tax relief and capital allowances on his mining investment.
46. In my opinion the learned High Court Judge was correct in rejecting the conclusions of the Appeal Commissioners even though I would not necessarily agree in full with the reasoning by which he reached that conclusion. Accordingly, I would dismiss the appeal and affirm the order of the learned High Court Judge.