Excise: subitem 15.2 and process oils

Is a product which is derived from used oil through a recycling process consisting of propane de-asphalting and then vacuum distillation, and that has the characteristics of a process oil or base oil, classified to subitem 15.2 in the table in the Schedule to the Excise Tariff Act 1921 (subitem 15.2)?

Yes, a product which is derived from used oil through a recycling process consisting of propane de-asphalting and then vacuum distillation, and that has the characteristics of a process oil or base oil, is classified to subitem 15.2.

A recycler of used oil manufactures a product through the recycling of petroleum-based oil. The recycling process involves propane de-asphalting followed by vacuum distillation.

The product can be used as a chain bar lubricant, mould release oil, low grade lubricant or as a process oil in manufacturing rubber.

The product does not meet the criteria of an aromatic process oil as defined in the table in paragraph 3(6)(c) of the Excise Tariff Act 1921 (Tariff Act).

The product is not for use as a fuel.

Item 15 of the Schedule to the Tariff Act (item 15) includes goods that fall within subitems 15.1 to 15.4 other than: (a) goods for use as a fuel; and (b) exempt oils and hydraulic fluids.

Under subsection 3(1) of the Tariff Act, 'exempt oils and hydraulic fluids' include aromatic process oils which meet the criteria in the table in paragraph 3(6)(c) of the Tariff Act. Aromatic process oils are used as ingredients in the manufacture of a product, for example in the manufacture of rubber.

The facts refer to a product with properties which make it suitable for use as a process oil, however, as it does not meet the criteria in the table in paragraph 3(6)(c) of the Tariff Act it is not an exempt oil for the purposes of item 15.

Goods for use as an oil are classified to subitem 15.2 where they are derived from the recycling of petroleum-based oil, grease or their synthetic equivalents. Goods for use as a grease and derived in similar circumstances are classified to subitem 15.4 in the table in the Schedule to the Tariff Act.

As the facts refer to a product that is not for use as a grease it is not classifiable to subitem 15.4 of the table to the Schedule to the Tariff Act. However, it must be determined whether the product is classifiable to subitem 15.2.

Subitem 15.2 states the following: Item Subitem Description of goods Rate of Duty 15 15.2 Petroleum-based oils (including lubricant/fluid/oil products and greases) and their synthetic equivalents, recycled for use as oils (including lubricant/fluid/oil products) but not greases. $0.05449 per litre

Item | Subitem | Description of goods | Rate of Duty

15 | 15.2 | Petroleum-based oils (including lubricant/fluid/oil products and greases) and their synthetic equivalents, recycled for use as oils (including lubricant/fluid/oil products) but not greases. | $0.05449 per litre

The description of goods classifiable to subitem 15.2 includes the requirement that the good is 'for use as oils (including lubricant/fluid/oil products)'.

The Prefatory Notes to the Schedule give the meaning of the phrase 'lubricant/fluid/oil products' as: lubricant / fluid / oil products means the following: (a) lubricant base oils; (b) prepared lubricant additives containing carrier oils; (c) lubricants for engines, gear sets, pumps and bearings; (d) hydraulic fluids; (e) brake fluids; (f) transmission oils; (g) transformer and heat transfer oils.

Therefore it can be concluded that, where recycling has occurred, a good for use as an oil listed in the definition of 'lubricant/fluid/oil products' is a good that is for use as oil for the purposes of subitem 15.2.

For the purposes of the subitem, we need to determine whether the uses a recycled product is for are limited to those uses in the definition of lubricant/fluid/oil products. Pearce and Geddes in Statutory Interpretation in Australia , 6th ed (2006) at 6.56 to 6.60 discuss the meaning of 'includes' in interpreting definitions in legislation. While the description in Column 3 of the Table in the Schedule to the Tariff Act is not a definition per se, the meaning of 'includes' is the same. Pearce and Geddes conclude that in most instances 'includes' is used to extend the normal meaning of a term. They do acknowledge that the Courts have found in some cases that 'includes' has a limiting effect but it must be clear that this is the intent.

Taking into account subitem 15.2 and the other impacting provisions, it is not reasonable to conclude that the term 'including' should have a limiting effect.

Exempt oils and hydraulic fluids were included in the Tariff Act under the Excise Tariff Amendment Act (No. 1) 2000 . One of the exempt oils is 'aromatic process oil' that meets specified criteria. The purpose of excluding recycled oil of this type from item 15 is explained in paragraph 2.3 of the Explanatory Memorandum to the amending Act as follows:

The intention of the Product Stewardship Arrangements is to reduce the impacts of waste oil through an excise style levy imposed on virgin oils and lubricants. Where oils are used in the manufacture of another product, are not contributing to the waste oil problem and are clearly distinguishable from oils that do, these oils should be excluded, where feasible, from the levy. The Government has decided to exempt certain oil products meeting these criteria from the PSO levy...

Additionally the following is from the Second Reading speech to the amending Bill:

The changes exempt from the levy those products which have been identified to be solely used for the manufacture of other products and do not result in waste oil.

Process oils are not listed in the definition of lubricant/fluid/oil products, therefore they would not come within the description oils in item 15 if 'including' is given a limiting effect. If process oils do not come within item 15 then there is no need to provide an exemption for specified process oils within the table in paragraph 3(6)(c) of the Tariff Act. There is nothing in the extrinsic material relating to the exempt oils that indicates that 'aromatic process oils' would not ordinarily be considered oils for the purposes of item 15. To achieve the intended outcome of not imposing the levy on certain types of aromatic process oils an explicit exemption was required.

It follows that a process oil is an oil and use as a process oil is use as an oil.

Therefore, a product that is derived from the recycling of petroleum-based oil, grease and their synthetic equivalent that is for use as a process oil, and that does not meet the criteria of an exempt oil, is for use as an oil and therefore classifiable to subitem 15.2.