Edited version of your written advice

Authorisation number: 1012780204868

Ruling

Subject: Cleaner fuel grants

Question 1

If the licensed manufacturer enters the biodiesel for home consumption prior to selling the product to retailers and stores it on its premises as duty paid fuel, is it liable for any further excise liability if there is a change to excise rates for biodiesel after the fuel has been entered for home consumption?

Answer

No

Question 2

If the licensed manufacturer enters the fuel for home consumption prior to selling the product to retailers and stores it on its premises as duty paid fuel, is it entitled to offset the excise liability against the grant payable under the Energy Grants (Cleaner Fuels) Scheme Act 2004?

Answer

Yes

This ruling applies for the following periods

1 February 20XX to 30 June 20XX unless legislative changes that overrule this ruling occur.

The scheme commences on

1 February 20XX

Relevant facts and circumstances

A warehouse operator and manufacturer (licensed manufacturer) operates a premise that is licensed under section 79 of the Customs Act 1901 and Part IV of the Excise Act 1901. As part of its operations it imports biodiesel and then resells the fuel to retailers and truck and bus companies. The biodiesel in question complies with standards set out in the Fuel Quality Standards Act 2000. Accordingly the fuel is a 'cleaner fuel' under the Energy Grants (Cleaner Fuels) Scheme Act 2004 (EGCFS Act).

Under its licences, the licensed manufacturer is able to store both non-duty paid fuel and duty paid fuel.

The licensed manufacturer is registered for the cleaner fuel grant under section 9 of the Product Grants and Benefits Administration Act 2000 and has authorisation to offset the excise liability against the grant payable when the fuel is entered for home consumption.

Relevant legislative provisions

Energy Grants (Cleaner Fuels) Scheme Act 2004 section 2

Energy Grants (Cleaner Fuels) Scheme Act 2004 section 3

Energy Grants (Cleaner Fuels) Scheme Act 2004 subsection 4(1)

Energy Grants (Cleaner Fuels) Scheme Act 2004 section 5

Energy Grants (Cleaner Fuels) Scheme Act 2004 subsection 5(1)

Energy Grants (Cleaner Fuels) Scheme Act 2004 section 6

Energy Grants (Cleaner Fuels) Scheme Act 2004 subsection 7(1)

Excise Act 1901 section 58

Excise Act 1901 subsection 58(1A)

Excise Act 1901 section 59

Excise Act 1901 section 59A

Excise Act 1901 subsection 61(1)

Excise Act 1901 section 61C

Excise Regulations 1925 Regulation 58

Product Grants and Benefits Administration Act 2000 section 9

Reasons for decision

Issue 1

Summary

There is no further excise liability if there is a change to excise rates for biodiesel after the fuel has been entered for home consumption.

Detailed reasoning

Section 58 of the Excise Act 1901 (Excise Act) relates to an entry of excisable goods for home consumption. In accordance with section 58(1A) of the Excise Act an 'entry' (referred to as a prepayment return) must be made in the approved form, containing such information as required by the CEO and lodged with the CEO. Payment of excise duty under an entry is required before an officer would consider passing the entry and authorising the goods to be delivered for home consumption.

Alternatively, under section 61C of the Excise Act a person may be issued a permission to deliver certain excisable goods for home consumption without making an entry for the goods. This is referred to as periodic settlement permission (PSP).

Under a PSP the duty is paid after the excisable goods are delivered into home consumption. A PSP allows a person to report deliveries and to pay duty on a periodic basis after the goods have been delivered into home consumption. Under a PSP, the person must:

• lodge an excise return, on the due date specified in the PSP. The return details the goods that have been delivered into home consumption during the settlement period, and

• pay the duty on the goods that have been delivered within the settlement period on the due date specified.

Delivery for home consumption

Excisable goods are delivered for home consumption when they enter the Australian domestic market. While the phrase 'delivered for home consumption' is not defined in the Excise Acts, case law provides direction that indicates it refers to the provision of excisable goods for consumption within Australia. 'Delivery for home consumption' generally occurs when the goods leave the possession of the last person licensed to keep and store excisable goods. Goods that are entered under a section 58 entry and stored on a licensed premise are not yet delivered into home consumption.

As the licensed manufacturer intends to store the duty paid biodiesel in tanks within its licensed premises the fuel would not be considered to be delivered for home consumption and as such could not be 'cleared' under their PSP. For that reason the licensed manufacturer would be required to enter biodiesel under section 58 of the Excise Act using a prepayment return if they intend to claim the cleaner fuel grant on the biodiesel prior to delivery to its clients. The licensed manufacturer would not be able to add any underbond product to the tank containing the duty paid biodiesel until the entire quantity was delivered from the tank.

Rate of duty when entered

Section 59 of the Excise Act states that duty rate to be paid is that when either the goods are delivered under section 61C of the Excise Act or when payment has been made subject to section 59A of the Excise Act (quotas). Where goods have been delivered under section 58 of the Excise Act the rate of duty is that in force when payment is made.

The issue concerning the payment in regards the entry under section 58 of the Excise Act is: Is the transfer of the Cleaner Fuel Grant amount a payment for the purpose of subsection 59(b) of the Excise Act? The licensed manufacturer's entitlement to a grant arises when they have a provisional entitlement to the cleaner fuel grant and make the claim for the grant (sections 5 and 6 of EGCFS Act). When the licensed manufacturer enters biodiesel it has the option of both paying the excise duty and receiving the grant separately or authorising the transfer of the credit to the Commissioner of Taxation (Commissioner) to offset its excise liability. See issue 2 for further discussion on entitlement and offsetting.

Paragraph 1 of Goods and Services Tax Determination GSTD 2004/4 Goods and services tax: can consideration for a supply be provided or received without transferring money (such as where the parties only make book entries recording their agreement that the supply is paid for)? (GSTD 2004/4) states:

In the absence of the transfer of money (or non-monetary consideration), consideration can be provided or received by way of setting off mutual liabilities in accordance with the doctrine of set-off.

Even though GSTD 2004/4 does not have any legislative bearing on the Excise Act and EGCFS Act it does outline the Commissioner's view on offsetting and how it is applied to in similar circumstances to that of the offsetting of excise liabilities with the cleaner fuel grant.

Also regulation 58 of the Excise Regulations 1925 states that the Commissioner can allow refunds or drawbacks to be set off against excise liabilities and this amount is deemed to have been 'paid' by the person.

The offsetting of the cleaner fuel grant therefore can be payment for the purpose of section 58 of the Excise Act and as such the rate applicable is that when the biodiesel is entered, the excise duty is either paid by monetary form or offsetting of the liability by the cleaner fuel grant occurs.

Quotas

If the Commissioner determined that the prepayment of excise duty under these circumstances was a threat to the revenue or created an unintended competitive advantage, then a quota order could be issued. Quota orders under section 59A of the Excise Act apply to a particular good/commodity and limit the quantity of goods an entity can enter into home consumption at a particular rate of duty during a declared period. After consideration it has been determined that there is no reason for the Commissioner to consider issuing a quota in these circumstances. Practice Statement Law Administration PSLA 2012/3 The ATO role in determining and applying quotas under the Excise Act 1901 provides details on the making of quota orders.

Issue 2

Summary

The licensed manufacturer is entitled to offset the excise duty with the cleaner fuel grant once the fuel has been entered for home consumption.

Detailed reasoning

Section 2 of the EGCFS Act states the object of the Act is to provide grants that fully offset any excise duty or customs duty payable in relation to the manufacture or importation of biodiesel for which a provisional entitlement arises.

Entitlement to the cleaner fuel grant is outlined in sections 5 and 6 of EGCFS Act.

Subsection 5(1) of the EGCFS Act states that you are provisionally entitled to a cleaner fuels grant for a quantity of fuel if you satisfy the following relevant requirements:

• the fuel is imported into or manufactured in Australia

• you imported, manufactured (yourself or on your behalf) or bought (from an importer, manufacturer or licensed person) the fuel

• at a particular time (the qualifying time), you enter the fuel or if someone else entered the fuel, you consume or finally sell the fuel

• if you did not import the fuel, you are a licensed person for the fuel at the qualifying time

• the fuel is a cleaner fuel

• you did not sell the fuel to a licensed person for the fuel or include the fuel in a fuel blend

• no other provisional entitlement for the fuel arose, and

• each requirement (if any) prescribed by the regulations is satisfied.

In order to qualify for a cleaner fuels grant the fuel must be a 'cleaner fuel'.

Biodiesel is a 'cleaner fuel' as defined in subsection 4(1) of the EGCFS Act.

Subsection 4A(1) states that biodiesel is a fuel that is manufactured by chemically altering vegetable oils or animal fats to form mono-alkyl esters that complies with the applicable fuel standard.

Based on the facts supplied, the licensed manufacturer is provisionally entitled to a cleaner fuel grant under subsection 5(1) of the EGCFS Act if the licensed manufacturer:

• Import biodiesel that complies with the applicable fuel standard.

• Enter the fuel by the lodgement of a prepaid excise return.

• Store the biodiesel it has entered at its licensed premises separately and clearly identifiable from under bond excisable goods.

Subsection 6(1) of the EGCFS Act states that you are entitled to a cleaner fuels grant for a quantity of fuel if you satisfy the following relevant requirements:

• you are provisionally entitled to the grant

• you make a claim for the grant

• you are registered under the Products Grants and Benefit Administration Act 2000, and

• entitlement arose at the qualifying time.

Under section 3 of EGCFS Act the Commissioner has general administration of the EGCFS Act. The Commissioner under his general powers of administration allows the offsetting of excise liability with the cleaner fuel grant. This is achieved when a claimant lodges an Excise return (either under a PSP or prepayment), the Cleaner fuels grants scheme claim form and also lodge a Cleaner fuels grants scheme Authority to transfer credit to bring effect to the offsetting.

Therefore the licensed manufacturer will be able to offset the excise duty once the fuel has been entered for home consumption if:

1. All the requirements of the EGCFS Act and the PGBAA are satisfied then there would be an entitlement to the cleaner fuel grant on the duty paid biodiesel.

2. The offsetting of the excise duty would occur by lodging:

a. the prepaid excise return

b. Cleaner fuels grants scheme claim form

c. Cleaner fuels grants scheme Authority to transfer credit

Disqualifying Circumstances

Subsection 7(1) of EGCFS Act states that the licensed manufacturer would not be provisionally entitled, and taken never to have been provisionally entitled to the cleaner fuel grant, if after the qualifying time (the time the biodiesel was entered) the duty paid biodiesel was sold to a licensed person for fuel (paragraph 7(1)(a) of the EGCFS Act) or it was included in a fuel blend (paragraph 7(1)(b) of the EGCFS Act).

A 'licensed person' for the fuel is defined in section 4 of the EGCFS Act and includes a person who is:

• A licensed manufacturer under the Excise Act

• The holder of a storage licence under the Excise Act

• A PSP holder under section 61C of the Excise Act, or

• A permission holder under section 69 of the Customs Act.

So any biodiesel sales the licensed manufacturer makes to an entity that would be considered a 'licensed person' for the fuel would create a disqualifying circumstance in relation to cleaner fuel grant entitlement.

If the duty paid biodiesel was consumed in a form other than 100% biodiesel (that is, it was used to manufacture a B5, B10, B20 or any other blend) then the licensed manufacturer would lose their entitlement to a grant on that fuel and would need to repay the amount of grant. This applies to any biodiesel sold by the licensed manufacturer to another entity that uses the fuel in a blend or blends, or that the licensed manufacturer themselves may manufacture using the duty paid biodiesel. If the licensed manufacturer uses the fuel to manufacture a blend then the initial cleaner fuel grant entitlement is lost and consideration would then be needed to determine if a new cleaner fuel grant entitlement applied to the resulting blend.

In either of these instances the general interest charge could be applied as under section 7(1) of the EGCFS Act the licensed manufacturer would never be considered to be provisionally entitled to the grant.