Issue
Where imported ethanol and locally produced ethanol are co-mingled (blended) and stored in the same tank, is the blended ethanol excisable for the purposes of the Excise Act 1901 (Excise Act)?
Decision
Yes. Where imported ethanol and locally produced ethanol are co-mingled (blended) and stored in the same tank, the blended ethanol is excisable for the purposes of the Excise Act.
Facts
A distillery located in Australia produces ethanol and stores it in a tank at the plant where it is produced (local ethanol).
The local ethanol is used as feedstock in the production of both on-road fuel (denatured ethanol) and domestic grade ethanol for human consumption.
The distillery intends importing ethanol (imported ethanol) for use as feedstock for the production of domestic grade ethanol.
The local ethanol and the imported ethanol will be co-mingled (blended) and stored in the same tank at the distillery.
Reasons for Decision
Subsection 4(1) of the Excise Act defines 'excisable goods' as meaning goods in respect of which excise duty is imposed by the Parliament.
Subsection 5(1) of the Excise Tariff Act 1921 (Excise Tariff Act) imposes excise duty on goods listed in the Schedule to the Excise Tariff Act (the Schedule) that are manufactured or produced in Australia.
The combined effect of subsection 4(1) of the Excise Act and subsection 5(1) of the Excise Tariff Act is that for goods to be subject to duties of excise, they must be specified in the Schedule and manufactured in Australia.
Domestic grade ethanol for human consumption manufactured or produced in Australia falls within Item 3 of the Schedule, being, 'spirits; other excisable beverages exceeding 10% by volume of alcohol'.
Fuel ethanol manufactured or produced in Australia is listed at both paragraph 10(e) and sub-item 10.20 of the Schedule. The paragraph and sub-item both provide that denatured ethanol for use as a fuel in an internal combustion engine is an excisable good in respect of which excise duty is payable.
Ethanol imported into Australia and stored underbond in a Customs warehouse is under Customs control and liable to duties of customs. In accordance with subsection 30(1B) of the Customs Act 1901 , the imported ethanol remains under Customs control unless and until it is either used as an input in excise manufacture, delivered into home consumption in accordance with an authority to deal or a relevant permission, or exported to a place outside Australia; whichever occurs first.
Subsection 24(2) of the Excise Act provides that goods liable to duties of Customs duty may, while subject to the control of the Customs, be used in the 'manufacture' of excisable goods in accordance with the Excise Act.
Section 4 of the Excise Act defines 'manufacture' as follows: Manufacture includes all processes in the manufacture of excisable goods and, in relation to beer, includes the provision to the public at a particular premises of commercial facilities and equipment for use in the production of beer at those premises.
The courts have extensively examined the meaning of the word 'manufacture' in the context of legislation other than the Excise Act. Whilst it is not possible to directly adopt judicial interpretation of the word as it appears in legislation outside the excise regime, these cases do provide useful guidance.
In Federal Commissioner of Taxation v. Jax Tyres Pty Ltd ; ; , Shepherd J stated:
The test to be applied in determining whether or not an article is manufactured is that formulated by Darling J in McNicol v. Pinch [1906] 2 KB 352 where his Lordship said at 361, "The essence of making or of manufacturing is that what is made shall be a different thing from that out of which it is made". That test has been adopted by the High Court; see FCT v. Jack Zinader Pty Ltd per Dixon J (as he was) at 343."
The application of these tests may sometimes be a difficult exercise. The question is one of fact and degree. An exercise in judgment is involved.
The Commissioner is of the view that the ethanol resulting from co-mingling imported and excisable product is a different thing from that out of which it was made, and that blending imported ethanol with local ethanol is 'manufacture' within the meaning of section 4 of the Excise Act.
Where imported ethanol and locally produced ethanol are co-mingled (blended) and stored in the same tank, the blended ethanol is excisable for the purposes of the Excise Act.