Excise - Collections - Petroleum - Liability to Pay Excise on Synthetic Hydraulic Fluid.

Pursuant to section 5 of the Excise Tariff Act 1921 (the Act), what rate of excise duty is payable on hydraulic fluid which is not petroleum-based?

For the purposes of section 5 of the Act, hydraulic fluid, which is (a) formed through the reaction of an organic acid and an alcohol; and (b) is not a petroleum-based product;

falls within the description of a synthetic equivalent in sub-item 15A of the Schedule to the Act (the Schedule). The rate imposed by that sub-item is the same as for petroleum-based hydraulic fluid.

The taxpayer manufactures a synthetic hydraulic fluid that is not a petroleum-based product.

The product is formed by a manufacturing process that involves the reaction of an organic acid and an alcohol.

Goods which are produced or manufactured in Australia, and on which excise duties are imposed are called 'excisable goods.' Section 5 of the Act imposes the duties of excise on the goods, which are described in the Schedule.

All products subject to excise duty are listed in the Schedule. Particular products otherwise covered by the general listing are specifically mentioned where they are non-excisable.

Items 11 to 17 of the Schedule primarily (but not exclusively) describe petroleum products. Item 15 was included in the Schedule from 1 January 2001 as part of the Product Stewardship (Oil) arrangements, which are concerned, with the environmental and economically sustainable reuse of waste oils through a levy/benefit arrangement.

Item 15 of the Schedule specifies the excise duty rates for, among other things, hydraulic fluids under the heading 'Goods as follows, other than for goods for use as a fuel'. Specifically, sub-item 15A refers to: 'Petroleum based oils (including lubricant base oils; prepared lubricant additives containing carrier oils; lubricants for engines, gear sets, pumps and bearings; hydraulic fluids; brake fluids; transmission oils; and transformer and heat transfer oils) and their synthetic equivalents but not including greases.'

Where a hydraulic fluid is formed by a manufacturing process that involves the reaction of an organic acid and an alcohol, it is not produced from petroleum oil. Excise liability therefore rests upon whether the product is considered a synthetic equivalent product for the purposes of the Schedule.

The Act does not specifically define what is meant by synthetic equivalent products.

The description of manufacture is consistent with the definition of 'synthetic' as described in The Macquarie Dictionary, 2nd Revised Edition, as meaning 'denoting or pertaining to chemical compounds, resins rubbers, etc., formed by chemical reaction in a laboratory or chemical plant, as opposed to those of natural origin.'

As the hydraulic fluid under consideration is a substitute for petroleum-based hydraulic fluid, and as it fulfils the dictionary definition of a 'synthetic', it falls within the description in sub-item 15A of the Schedule and is subject to the same rate of excise as is imposed on petroleum-based hydraulic fluid.