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Ruling

Subject: Excise on food product

Question

Is the product you intend to manufacture an excisable good?

Answer: No

Relevant facts and circumstances

You intend to manufacture an essence (your product). Your product will be used to flavour food and beverages.

Your product will be produced in a highly concentrated state and is only intended to be used in very minor amounts, typically a few drops. As such, it will not add an alcoholic content to the food or beverages.

Your product will be more than 10% alcohol by volume.

Your product will consist of:

· Water;

· Flavouring; and

· Neutral spirit.

You have obtained approval to receive the neutral spirit as a concessional spirit.

Relevant legislative provisions

Excise Act 1901 section 4

Excise Act 1901 section 54

Excise Tariff Act 1921 section 5

Excise Tariff Act 1921 Schedule

Reasons for decision

Under section 54 of the Excise Act 1901 (the Excise Act), the licensed manufacturer of excisable goods is liable to pay Excise on those goods. Under section 4 of the Excise Act, excisable goods are goods in respect of which Excise duty has been imposed.

Section 5 of the Excise Tariff Act 1921 (the Excise Tariff Act) states that duties of Excise are imposed as per the Schedule to that Act.

The Schedule to the Excise Tariff Act relevantly contains the following excisable goods:

In your case, your product exceeds 10% by volume of alcohol. However, for it to be considered excisable goods, it must either be classified as an other excisable beverage or a spirit. If it is not an other excisable beverage or a spirit, then excise duty will not apply to it.

Is your product an other excisable beverage?

The term other excisable beverage is defined in the schedule to the Excise Tariff Act as:

Any beverage containing more than 1.15% alcohol by volume, but does not include:

(a) beer; or

(b) brandy; or

(c) wine.

The term beverage is not defined in the Excise Tariff Act nor the Excise Act. As such, we must look to the common law for a definition.

The case of Bristol-Myers Company Pty Ltd v Commissioner of Taxation (1990) 23 FCR 126 (Bristol-Myers) is considered a leading case in defining the term beverage. While Lockhart J considered Sales Tax legislation and not Excise legislation, the case has a wide application and has been subsequently approved in other, non-Sales Tax, contexts.

In Bristol-Myers, Lockhart J discussed the distinguishing features of a beverage. He stated:

A beverage is consumed either hot or cold and is normally taken to quench the person's thirst or for stimulation or as an accompaniment to solid foods either at mealtimes or between meals. Beverages may contain stimulants such as caffeine and they may be used for refreshment or to overcome thirst. Beverages are not generally formulated to provide nor do they invariably provide essential nutrients to the meals with which they are consumed. An important part of a beverage is to replenish fluids. It is an important element in the concept of a beverage that it is something one drinks not eats. This is quite a usual means of distinguishing beverage from other types of liquid foods which are not beverages such as gravy, sauce and syrup.

After applying the Macquarie Dictionary definition of the word beverage, he eventually concluded that a beverage is 'any liquid which is swallowed to quench thirst or for nourishment'.

In your case, you intend to manufacture an essence to be used to flavour food and beverages. It is produced in a highly concentrated state and is only intended to be used in very minor amounts, typically a few drops. It is not intended to be drunk as an alcoholic beverage, and particularly it is not intended to be drunk straight - because of its concentrated flavour, it would be unpalatable if consumed this way.

As such, your product is not swallowed to quench thirst or for nourishment. It is not used to replenish fluids; rather it is added as an ingredient into other foods or non-alcoholic beverages. As such, your product is an essence and not a drink, and is not considered to be a beverage.

Is your product a spirit?

Subsection 77FM(1) of the Excise Act states that spirit blending to produce another spirit is taken to be the manufacture of that spirit. However, subsection 77FM(2) states that spirit blending will not constitute manufacture of a spirit if the blending occurred under certain circumstances set out in a legislative instrument. Subsection 77FM(3) gives the Commissioner of Taxation the power to make legislative determinations for the purposes of subsection (2).

The Commissioner of Taxation has issued Excise (Spirit blending exemptions) Determination 2010 (No. 1), which is a legislative determination for the purposes of subsection 77FM(2) of the Excise Act. At paragraph 8, it states:

Spirit blending to produce spirit is taken not to constitute the manufacture of a spirit described by item 3 of the Schedule in the following circumstances:

…

(b) the blending of spirit that has been previously entered for home consumption under sub-items 3.5, 3.6 and 3.7 of the Schedule with… another substance by a person who has approval under the Excise Act to use that spirit.

In your case, you have received permission to enter a spirit for home consumption under item 3.7 of the Schedule to the Excise Tariff Act, and to blend that spirit with another substance. As such, under Excise (Spirit blending exemptions) Determination 2010 (No. 1), you are not considered to have manufactured a spirit when you manufacture your product.

As such, the product is not a spirit for the purposes of item 3 of the Schedule to the Excise Tariff Act.

Conclusion

As your product is not an other excisable beverage, and as it is also not a spirit for the purposes of the Excise Act and the Excise Tariff Act, then it is not an excisable good under item 3 of the Schedule to the Excise Tariff Act. As such, excise duty is not imposed on your product.