Issue
Is an ethylene glycol based heat transfer fluid a synthetic equivalent of a petroleum based heat transfer fluid for the purposes of subitem 15(A) of the Schedule to the Excise Tariff Act 1921 (subitem 15(A) of the Schedule)?
Decision
No. An ethylene glycol based heat transfer fluid is not a synthetic equivalent of a petroleum based heat transfer oil for the purposes of subitem 15(A) of the Schedule.
Facts
The entity manufactures a product of which the primary ingredient is ethylene glycol. The product is not petroleum based.
Reasons for Decision
Subsection 4(1) of the Excise Act 1901 defines 'excisable goods' as 'goods in respect of which excise duty is imposed by the Parliament, and includes goods the subject of an Excise Tariff or Excise Tariff alteration proposed in the Parliament'.
Section 5 of the Excise Tariff Act imposes excise duty on goods specified in the Schedule to that Act (the Schedule). The Schedule describes those goods which are excisable, and sets out the rate of excise duty levied on those goods.
Petroleum products (including certain synthetic products and petroleum substitutes) are classified to items 11, 12, 15 or 17 of the Schedule.
Specifically, subitem 15(A) of the Schedule includes: 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;
The entity's product is sold for use as a heat transfer fluid.
It is clearly not a lubricant base oil, prepared lubricant additive containing carrier oils, lubricant, hydraulic fluid; brake fluid; transmission oil or transformer oil.
Nor is the product a petroleum based oil.
Therefore, the entity's product will be classifiable to subitem 15(A) of the Schedule if it is a synthetic equivalent of a heat transfer oil.
Neither the Excise Act, nor the Excise Tariff Act define what is meant by synthetic equivalent products. Therefore the term takes on its ordinary meaning.
The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW (the Dictionary) defines the term 'synthetic' as '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'.
The heat transfer fluid is based on ethylene glycol.
The Dictionary, under ethylene glycol, refers the reader to the definition of glycol. The Dictionary defines glycol as 'any of a group of alcohols containing two hydroxyl groups'. Alcohol is defined in the Dictionary as a 'class of chemical compounds derived from the hydrocarbon by replacement of a hydrogen atom by the hydroxyl radical'.
Given this, it is reasonable to conclude that an ethylene glycol based solution is brought into existence via a chemical reaction in a laboratory or chemical plant. It does not occur naturally. Therefore the ethylene glycol based heat transfer fluid is synthetic in origin. However, to be classifiable to subitem 15(A) of the Schedule, it remains to be determined whether the entity's product is an equivalent of a heat transfer oil.
Item 15 in the Schedule was included in the Excise Tariff Act under the Excise Tariff Amendment (Product Stewardship for Waste Oil) Act 2000 . Paragraph 5.1 of the explanatory memorandum to the Excise Tariff Amendment (Product Stewardship for Waste Oil) Bill 2000 (EM to the Excise Tariff Amendment Bill) explained that the amendments were consequential to the Product Stewardship (Oil) Bill 2000, and were made as a means for the collection of a levy on relevant domestically produced oils and their synthetic equivalents.
Paragraph 5.4 of the EM to the Excise Tariff Amendment Bill stated that the purpose of the levy was to 'fund payments [made] to eligible companies recycling waste oil in environmentally appropriate ways' and that 'payments will be provided for by the Product Stewardship (Oil) Bill 2000'.
Further, at paragraphs 5.6 and 5.7 of the EM to the Excise Tariff Amendment Bill it is explained that item 15 of the Schedule defines the oils that are subject to the levy, and that most oils would be levied as most oils have the potential to be a danger to the environment if disposed of inappropriately.
Hence, there is a nexus with item 15 of the Schedule and the intent and provisions of the Product Stewardship (Oil) Act 2000 (PSO Act).
The objects of the PSO Act, as explained in paragraph 1.6 of the Product Stewardship (Oil) Bill 2000, are to give: ...effect to the Prime Minister's announcement of 28 May 1999, in which he stated that: "The Commonwealth will fund the development of a comprehensive product stewardship system...to ensure the environmentally sustainable management and re-refining of waste oil and its reuse. It will support economic recycling options and the development of product stewardship arrangements".
Subsection 6(1) of the PSO Act gives the meaning of 'oil' for the purposes of the PSO Act as: oils: the following are oils: (a) petroleum based oils (including lubricant base oils; prepared lubricant additives containing carrier oils; lubricants for engines, gear sets, pumps and bearings; greases; hydraulic fluids; brake fluids; transmission oils; and transformer and heat transfer oils); (b) synthetic equivalents of goods covered by paragraph (a); (c) ...
Therefore, the purpose of imposing a levy on the oils listed in item 15 of the Schedule is to provide funding for the payments that are made to recyclers of used oil.
In practice, when oils are collected for recycling, petroleum based oils will be intermixed with synthetic oils. They will undergo the same collective recycling and re-refining processes with a view to being used as oil once more.
However, ethylene glycol products cannot be collected and treated in the same manner. When added to petroleum based used oil, ethylene glycol contaminates the used oil thereby reducing the quality of the product for recycling.
There are also significant differences in how the two waste products are recycled. Ethylene glycol can be filtered, neutralized, and distilled to recover the pure glycol, which can be reused without compromising performance.
Engine oil, however, is affected chemically as a result of its use. Recycling engine oil is a much more complex process than recycling ethylene glycol.
Therefore, there are significant differences between the way in which used ethylene glycol is collected and reprocessed. We have also established that the PSO Scheme does not cover, and was not intended to cover, the recycling of ethylene glycol based heat transfer fluids. It follows that, for the purposes of item 15(A) of the Schedule, an ethylene glycol heat transfer fluid is not a synthetic equivalent of a petroleum based heat transfer oil.
Accordingly, an ethylene glycol based heat transfer fluid is not a synthetic equivalent of a petroleum based heat transfer oil for the purposes of subitem 15(A) of the Schedule.