Excise guidelines for the fuel industry

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12 SOLVENTS

OUR COMMITMENT TO YOU The information in this publication is current at May 2009. This publication is an expression of the Commissioner's opinion on the operation of fuel excise legislation. This publication is not legally or administratively binding on the Commissioner and is not a 'public ruling' for the purposes of Section 105-60 or Division 358 of Schedule 1 to the Taxation Administration Act 1953. The law does not provide for legally binding rulings on fuel excise legislation. If you feel this publication does not fully cover your circumstances, please seek help from the Tax Office or a professional adviser. Since we regularly revise our publications to take account of any changes to the law, you should make sure this edition is the latest. The easiest way to do this is by checking for a more recent version on our website at www.ato.gov.au

12.1 PURPOSE

12.2 INTRODUCTION

12.2.1 WHAT IS A SOLVENT?

12.3 POLICY AND PRACTICE

12.3.1 WHAT ARE MY OPTIONS?

12.3.2 BLENDING SOLVENTS

12.3.3 WHAT IS THE SOLVENT RECYCLING EXEMPTION?

12.3.4 REMISSION OF DUTY FOR CHEMICAL TRANSFORMATION

12.4 PROCEDURES

12.4.1 WHAT DO I DO IF I AM MANUFACTURING A PRODUCT THAT I WANT ADDED TO THE FUEL BLENDS DETERMINATION?

If you want to enquire about amending the fuel blends determination you will need to contact us.

WHAT DO I DO IF I NEED MORE INFORMATION?

12.5 WHAT PENALTIES CAN APPLY TO OFFENCES IN RELATION TO SOLVENTS?

12.6 TERMS USED

12.7 LEGISLATION (quick reference guide)

12.7.1 Excise Act 1901

12.7.2 Crimes Act 1914

12.1 PURPOSE

This chapter deals with:
  • what a solvent is
  • obligations that arise with the blending of solvents
  • obligations associated with dealing with underbond and duty-paid product
  • packaging concessions for solvent suppliers
  • the recycling concession for solvent users
  • remissions of duty where solvents are chemically transformed
  • entitlement to fuel tax credits for excise paid on solvents, and
  • penalties that can apply to offences in relation to solvents.

12.2 INTRODUCTION

12.2.1 WHAT IS A SOLVENT?

Most fuels used in a non-fuel application are used as solvents. When referring to solvents we are referring to fuels used to dissolve or form solutions with other substances. Solvents are used in a wide range of industrial processes, for example cleaning. They can also be blended into other products such as paints and adhesives.
  Most solvents are classified to subitems 10.16, 10.25, 10.26, 10.27, 10.28 or 10.30 of the Schedule to the Excise Tariff Act.

How much excise do I have to pay on solvents?

Excise is payable on the majority of solvents. Very limited exceptions apply. [229] The applicable excise rate is 38.143 cents per litre [230] .

  For more information about excise rates refer to Chapter 10 - Fuel in the excise tariff .

Am I entitled to a fuel tax credit for excise paid on solvents?

If you acquire, manufacture, or import into Australia, solvents that are subject to fuel tax [231] for use in your business, you may be entitled to a fuel tax credit. If you package certain solvents into small packages you may be entitled to a fuel tax credit.

  For more information on packaging rules and fuel tax credits visit our website at www.ato.gov.au and refer to Fuel schemes essentials.

12.3 POLICY AND PRACTICE

12.3.1 WHAT ARE MY OPTIONS?

The options available to you depend upon what you intend to do with the solvents. If you intend to manufacture other excisable goods then you need to be licensed as a manufacturer. If you are licensed you will be able to receive fuel underbond If you intend to use the solvents other than to manufacture excisable goods you will need to use duty paid solvents. There is one exception to this. If you intend to use solvents to manufacture non excisable goods and the solvents are chemically transformed (other than by combustion) during the manufacturing process then you may be able to have a storage licence and receive the solvent underbond

Underbond solvents

To receive underbond solvents:
  • you will need to hold an excise licence, and
  • you or your supplier will need to hold a movement permission (Continuing or Single) that allows the product to move underbond between the licensed premises.
If you do receive underbond solvents then:
  • you do not have to pay excise duty until it is delivered into the Australian domestic market (this includes consumption by an excise licence holder on licensed premises), and
  • if you hold a periodic settlement permission (PSP), you must enter the amount used or delivered in your settlement period on your weekly excise return and pay the relevant duty , or
  • If you do not hold a PSP then you will need to lodge an excise return prior to using or delivering the solvent, pay the relevant duty and wait until you receive a Delivery Authority from us.

  For more information about periodic settlement permissions and payment of duty see Chapter 6 - Payment of duty.

Duty-paid solvents

Duty-paid solvents are outside the excise system and therefore no reporting requirements apply and you do not need an excise licence to receive them. However, if you are unlicensed you cannot use a duty-paid solvent to create another excisable fuel product , as this is excise manufacture and requires a licence.  

  For more information about whether a particular process involves excise manufacture you should seek advice from us . See section 13.4.1 - What do I do if I need more information?

12.3.2 BLENDING SOLVENTS

A blended solvent is produced by blending an excisable fuel with:
  • another excisable fuel, or
  • another substance.

Excisable blends

You must hold an excise manufacturer licence to make an excisable blend. You must pay excise on a blend when it is delivered into the Australian domestic market. The amount of excise is calculated under section 6G of the Excise Tariff Act, and takes into account any excise already paid.

  For more information about Section 6G refer to 11.2.1 in C hapter 11 - Blending .
 
  Excisable blends are classified to subitem 10.30 of the Schedule to the Excise Tariff Act unless it is a distinct product as described in the Schedule, such as:
  • Blends of gasoline and ethanol (10.7 of the Schedule to the Excise Tariff Act)
  • A liquid aromatic hydrocarbon mixture of benzene, toluene or xylene (subitem 10.25 of the Schedule to the Excise Tariff Act)
  • Mineral turpentine (subitem 10.26 of the Schedule to the Excise Tariff Act), or
  • White spirit (subitem 10.27 of the Schedule to the Excise Tariff Act).

Non-excisable blends

You do not need an excise manufacturer licence to make a non-excisable blend. There are four circumstances when a blend is not excisable:
  1. all the components of the blend are duty-paid at the same rate (this does not include blends containing ethanol, biodiesel or fuel on which a person is entitled to a fuel tax credit)
  2. any excisable component is duty-paid and the blend falls within a determination made under section 95-5 of the Fuel Tax Act 2006 [232]
  3. any excisable component is duty-paid and the blend is a product that would otherwise be classified to subitem 10.30 of the Schedule to the Excise Tariff Act but cannot be used as fuel in an internal combustion engine, or
  4. the user of the solvent recycles the solvent for further use by them as a solvent (see Section 13.3.3 - What is the solvent recycling exemption? ).
You do not have to pay further excise if excise has already been paid on all components of the blend. If you use underbond product in the blend, excise is payable at the time the product is blended and must be included in your next excise return, if you have a PSP. If you don't, it must be delivered into the Australian domestic market, and duty paid, before being used in the blend.

  For more information about excise rates refer to Chapter 11 - Blending

12.3.3 WHAT IS THE SOLVENT RECYCLING EXEMPTION?

For a user of a duty-paid solvent to be exempt from excise, the solvent must be used in the manufacture of other goods, recycled by the person who used the solvent, the resulting recycled solvent must be classifiable to the same subitem as the original and the resulting recycled solvent must be for use by the same person. [233] This applies to the following fuels:
  • liquid aromatic hydrocarbons (consisting principally of benzene, toluene or xylene or mixtures of them) - subitem 10.25 of the Schedule to the Excise Tariff Act
  • mineral turpentine - subitem 10.26 of the Schedule to the Excise Tariff Act
  • white spirit - subitem 10.27 of the Schedule to the Excise Tariff Act
  • petroleum products (other than blends) not elsewhere included - subitem 10.28 of the Schedule to the Excise Tariff Act, or
  • blends not elsewhere included - subitem 10.30 of the Schedule to the Excise Tariff Act.
Example 12A A car components manufacturer makes body panels under contract for a major car maker. They purchase duty-paid solvent, classifiable to subitem 10.30, which is sprayed onto steel sheets to degrease them prior to pressing into panels. Excess solvent runs off, is collected in a sump and recirculated. Over time the solvent becomes too contaminated for further use. The manufacturer puts the contaminated solvent through a recycling process and returns the recycled solvent to the sump for further use. Under this exemption subitem 10.30 does not apply to this recycled solvent and it is not excisable.

12.3.4 REMISSION OF DUTY FOR CHEMICAL TRANSFORMATION

If your fuel product is transformed through a chemical reaction (other than combustion) to produce a product that is not excisable the duty is automatically remitted on the fuel. [234] This is the case in some large-scale petrochemical manufacturing processes. The remission allows manufacturers who chemically transform fuel to do this without incurring excise duty and having to claim fuel tax credits. The remission does not apply if the fuel:
  • is merely mixed with other substances to make products such as solvents, cleaning agents or paint (that is there is no chemical transformation),
  • is used in a manner other than chemical transformation, or
  • is used as a fuel (i.e. combustion).
Example 12A Benzene is sold to a polystyrene manufacturer who holds an excise storage licence. The polystyrene manufacturer may obtain underbond benzene from a manufacturer or supplier. The benzene is chemically transformed into styrene during the process. Styrene is not an excisable product. Liability for duty is remitted when the benzene is chemically transformed into styrene. The manufacturer does not have to pay duty on the benzene. However, the manufacturer must keep records of the volume of benzene used when directed, and produce these on request. [235]

12.4 PROCEDURES

12.4.1 WHAT DO I DO IF I AM MANUFACTURING A PRODUCT THAT I WANT ADDED TO THE FUEL BLENDS DETERMINATION?

If you want to enquire about amending the fuel blends determination you will need to contact us.

WHAT DO I DO IF I NEED MORE INFORMATION?

If you need more information on solvents contact us as follows:
  • phone 1300 137 292
  • fax (03) 9285 1168 , or
  • write to us at

    Australian Taxation Office

    PO Box 3001

    PENRITH NSW 2740
We will ordinarily respond to written information requests within 28 days. If we cannot respond within 28 days, we will contact you within 14 days to obtain more information or negotiate an extended response date.

12.5 WHAT PENALTIES CAN APPLY TO OFFENCES IN RELATION TO SOLVENTS?

The following are the penalties that may apply after conviction for an offence. Manufacture If you manufacture excisable fuel products without a manufacturer licence, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [236] If you manufacture excisable fuel products contrary to the Excise Act or any conditions specified in your licence, the penalty is a maximum of two years in prison or 500 penalty units. [237] If you manufacture excisable fuel products at premises that are not specified in your licence, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [238] Move, alter or interfere If you move underbond excisable fuel products without approval, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [239] Note: This includes moving underbond excisable fuel products from your premises to any other location or for export. If your movement of underbond excisable fuel products does not comply with the permission to move the underbond excisable fuel products, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [240] If you move, alter or interfere with excisable fuel products that are subject to excise control , without permission, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [241] Deliver If you deliver excisable fuel products into the Australian domestic market contrary to your permission, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [242] Records If you do not keep, retain and produce records in accordance with a direction under section 50 of the Excise Act, the penalty is a maximum of 30 penalty units. Directions If you do not comply with a direction in regard to what parts of the factory can be used for various matters, the penalty is a maximum of 10 penalty units. [243] False or misleading statements If you make a false or misleading statement, or an omission from a statement in respect of duty payable on particular goods, to us, a penalty not exceeding the sum of 50 penalty units and twice the amount of duty payable on those goods. [244] Evade If you evade payment of any duty which is payable, the maximum penalty is 5 times the amount of duty on the excisable fuel products, or where a court cannot determine the amount of that duty the penalty is a maximum of 500 penalty units. [245] Facilities etc. If you do not provide all reasonable facilities for enabling us to exercise our powers under the Excise Act, the penalty is a maximum of 10 penalty units. [246] If you do not provide sufficient lights, correct weights and scales, and all labour necessary for weighing material received into, and all excisable fuel products manufactured in, your factory and for taking stock of all material and excisable fuel products contained in your factory, the maximum penalty is 10 penalty units. [247] If we mark or seal excisable fuel products or fasten, lock or seal any plant in your factory and you alter, open, break or erase the mark, seal, fastening or lock, the maximum penalty is 50 penalty units. [248]

12.6 TERMS USED

Deliver into the Australian domestic market [249]

' Deliver into the Australian domestic market ' is the term we use in this manual for when excisable fuel products are released into domestic consumption. The term used in the legislation is 'deliver for home consumption'.

Normally this will be by delivering the goods away from licensed premises but includes using those goods yourself (for example using in your own operation). The term 'home consumption' is not defined in the Excise Act and there is no definitive case law that looks at the issue in question. However there are several cases where issues closely related to it are considered. [250] The conclusion drawn from those cases is that 'home consumption' refers to the destination of goods as being within Australia as opposed to exporting them. Excisable fuel products Excisable goods are goods on which excise duty is imposed. Excise duty is imposed on goods that are manufactured or produced in Australia and listed in the Schedule to the Excise Tariff Act. As these guidelines deal with fuel products, we have used the term excisable fuel products. Excisable fuel products include:
  • petrol
  • diesel
  • crude petroleum oil
  • heating oil
  • kerosene
  • fuel ethanol, and
  • biodiesel.
Excise control Goods are subject to excise control from the point of manufacture until they have been delivered into the Australian domestic market or for export. Goods subject to excise control cannot be moved, altered or interfered with except as authorised by the Excise Act. Excise return An excise return [251] is the document that you use to advise us:
  • the volume of excisable fuel products that you have delivered into the Australian domestic market during the period designated on your PSP, or
  • the volume of excisable fuel products that you wish to deliver into the Australian domestic market following approval.
Penalty units A penalty unit is specified in section 4AA of the Crimes Act 1914 and, at the time of writing, is $110. Remission A remission of excise duty extinguishes the liability for duty that was created at the point of manufacture. Section 50 direction This is a written instruction issued under section 50 of the Excise Act to a licensed manufacturer, or proprietor of licensed premises, to keep specified records, furnish specified returns, retain records for a specified period and produce those records on demand by us. Underbond This is an expression not found in excise legislation but it is widely used to describe goods that are subject to excise control. Excisable goods that are subject to excise control are commonly referred to as 'underbond goods' or as being 'underbond'. This includes goods that have not yet been delivered into the Australian domestic market and goods moving between premises under a movement permission.

12.7 LEGISLATION (quick reference guide)

In this chapter we have referred to the following legislation:

12.7.1 Excise Act 1901

Section 24 - Excisable goods and goods liable to duties of Customs may be used in manufacturing excisable goods Section 25 - Only licensed manufacturers to manufacture excisable goods Section 26 - Licensed manufacturers to manufacture in accordance with Act and licence Section 27 - Licensed manufacturers to manufacture only at licensed premises Section 49 - Facilities to officers Section 50 - Record keeping Section 51 - Collector may give directions Section 52 - Weights and scales Section 58 - Entry for home consumption etc. Section 61 - Control of excisable goods Section 61A - Permission to remove goods that are subject to CEO's control Section 61C - Permission to deliver certain goods for home consumption without entry Section 77H - Blending exemptions Section 77J - Goods that are not covered by subitem 10.25, 10.26, 10.27, 10.28 or 10.30 Section 78 - Remissions, rebates and refunds Section 92 - Seals etc. not to be broken Section 117A - Unlawfully moving excisable goods Section 117B - Unlawfully selling excisable goods Section 120 - Offences

12.7.2 Crimes Act 1914

Section 4AA - Penalty units
Excise guidelines for the fuel industry
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