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Diversion of illicit alcohol

How to claim a remission, drawback or refund and avoid illegally diverting alcohol into the domestic market.

Last updated 8 June 2023

Alcohol diverted for home consumption

Sometimes businesses illegally divert illicit alcohol into the Australian domestic market for home consumption after:

  • a remission, refund or drawback has been claimed
  • spirits have been obtained for an approved concessional purpose.
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Example: export diversion by storage licence holder

Wholesale B & S is a wholesaler with an excise storage licence. It stores well-known brands of beer and spirits, underbond, at a licensed warehouse.

Wholesale B & S pays excise duty at the correct rate on some of the beer they store, at the time it is entered for home consumption. They then load the remaining underbond beer into export containers at their licensed warehouse. However, they incorrectly declare the beer they are exporting to be spirits in the Australian Border Force (ABF) Integrated Cargo System (ICS).

Wholesale B & S then diverts the underbond spirits that they declared to ABF as exported into the Australian domestic market for sale. They sell the spirits directly to a retailer, and to another retailer via a wholesale distributor, without paying excise duty.

They sell the spirits to the retailer at a price that is significantly below the usual price of the brand because no excise duty has been paid on the spirits. The retailer sells the illicit spirits to consumers at a discount, while still making a profit.

This is an offence under the Excise Act 1901 that has been committed by both the:

  • excise storage licence holder (the wholesaler)
  • retailer.

Various offences and consequences could apply in this situation.

Penalties may include having to pay up to 5 times the amount of duty that would have been payable or criminal prosecution.

End of example

Remission, refund or drawback claims

Sometimes businesses make incorrect claims for a remission, refund or drawback of excise duty. In these situations, once the remission, refund or drawback of excise duty is granted, the excisable alcohol is then diverted into the Australian market for consumption.

In some situations, claims are fraudulently made. In other situations, the claims are made correctly however the products may be diverted into the Australian market by an entity other than the claimant (for example, goods may be diverted before or at a destruction facility).

Other than a remission for eligible entities under the Remission scheme, you can generally only claim a remission of the excise duty you would have had to pay for your goods if both of the following apply:

  • your goods can't be delivered into the Australian domestic market
  • you haven't paid the excise duty for them.

You can only claim a refund of excise duty you've paid on goods delivered for domestic consumption under certain situations. You can't claim a refund for duty-paid products that go missing, or are destroyed, in transit.

You can only claim a drawback of excise duty if you export excisable alcohol products that have had excise duty paid on them.

For more information, see Excise refunds and drawbacks for excisable alcohol.

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Example: diversion of alcohol that should have been destroyed

An excise-licensed manufacturer has a specific quantity of alcohol that is unfit for human consumption.

They apply to us for:

  • permission to destroy the alcohol on which duty has not been paid
  • remission of the excise duty.

We grant permission for the alcohol to be moved to a destruction facility and destroyed.

The manufacturer sends the alcohol to the destruction facility, however, it is not destroyed. Instead, lot and batch codes are removed and the alcohol is supplied to a wholesale distributor. They then sell alcohol duty unpaid, to a retailer at a significantly reduced price.

The retailer sells the alcohol to consumers at a much cheaper price than similar alcohol products, while still making a profit.

This is an offence under the Excise Act 1901 committed by each entity in the supply chain, including the:

  • destruction facility
  • wholesale distributor
  • retailer.

Various offences and consequences could apply in this situation.

Penalties may include having to pay up to 5 times the amount of duty that would have been payable or criminal prosecution.

In addition, selling products that the manufacturer declared were unfit for human consumption poses a risk to public health.

End of example

Concessional spirits used for non-concessional purposes

Sometimes concessional spirits are used for non-concessional purposes and excise duty isn't being paid. One example is where concessional spirits are used to produce an excisable alcoholic beverage. This is an offence and could pose a risk to public health if the concessional spirit used is unfit for human consumption (denatured spirit).

Concessional spirits are generally very high-strength spirits (around 96% alcohol by volume). You can only use concessional spirits for approved concessional purposes. You generally need to hold a concessional spirit permit.

Spirits are only free of excise duty if they are:

  • used for approved concessional purposes – that is, used for either    
    • fortifying Australian grape wine or grape must
    • an industrial, manufacturing, scientific, medical, veterinary or educational purpose
  • denatured in accordance with a formula approved by us, that is they    
    • are made unfit for human consumption
    • aren't for use in an internal combustion engine.

How to correct a mistake or amend a return

If you need to fix a mistake or amend an excise return to change information you have previously lodged, you should do this as quickly as possible. For example, when you haven't reported and paid all the excise duty you needed to.

To reduce penalties that may apply, you can make a voluntary disclosure.

You may also want to seek independent professional advice.

For more information on paying excise duty, see Lodging, paying and rates – excisable alcohol.