Edited version of your written advice

Authorisation Number: 1013070647123

Date of advice: 19 August 2016

Ruling

Subject: Excise Equivalent Goods

Question 1

Does adding various ingredients to alcoholic concentrate prior to packaging constitute manufacture for the purposes of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) and/or the Excise Act 1901 (Excise Act)?

Answer

Yes

Question 2

If so, is the alcoholic product manufactured subject to excise duty under the Excise Tariff Act 1921 (the Tariff)?

Answer

Yes

Question 3

Do you need an excise manufacturer licence when you contract a licensed manufacturer to make excisable goods on your behalf?

Answer

No

This ruling applies for the following period:

Ongoing

The scheme commences on:

Ongoing

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a distributor of cider products and other alcoholic beverages.

You are registered for goods and services tax (GST).

You will import into Australia, in bulk, a concentrated alcoholic product. The product is a fermented, fruit-based product which you have described as 'cider' (imported product).

The imported product contains:

• X% by volume of alcohol, and

• Ingredient X to give it colour.

The imported product is subject to further processing in Australia, which a third party undertakes on your behalf under contract.

The imported product will have various ingredients added to it.

The final product will be a beverage containing X% alcohol by volume, and will be packaged into Y x Z can packs.

Relevant legislative provisions

Excise Act 1901 Section 4,

Excise Act 1901 Section 25,

Excise Tariff Act 1921 Section 5,

Excise Tariff Act 1921 The Schedule,

A New Tax System (Wine Equalisation Tax) Act 1999 Subdivision 31-A and

A New Tax System (Wine Equalisation Tax) Regulations 2000 (WET Regulations) Regulation 31-4.01.

Reasons for decision

These reasons for decision accompany the Notice of private ruling

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Summary

The addition of various ingredients to the imported alcoholic concentrate constitutes manufacture.

Detailed reasoning

For the purposes of both the WET Act and the Excise Act 'manufacture' includes making or producing something that is commercially distinct from its inputs. This may include making something different out of a product or products, changes in form, differences in utility, improving goods and so on.

Excise Ruling ER2012/1 Excise: the meaning of the expression 'manufactured or produced' for the purposes of the Excise Acts, and Wine Equalisation Tax Ruling WETR 2009/2 Wine equalisation tax: operation of the producer rebate for other than New Zealand participants both contain further information on what constitutes manufacture.

Both rulings cite McNichol and Anor v. Pinch [1906] 2 KB 352, where Darling J stated at page 361:

… the essence of making or of manufacturing is that what is made shall be a different thing from that out of which it is made.

The addition of various ingredients in a product which is different to the imported product, and therefore manufacture has occurred in Australia for the purposes of WET and excise.

The final product manufactured in Australia determines the appropriate alcohol tax treatment (WET or excise).

Question 2

Summary

The alcoholic product manufactured in Australia is a beverage containing more than 1.15% alcohol by volume and is not wine. Therefore it is subject to excise duty.

Detailed reasoning

Section 5 of the Tariff imposes excise duty on goods that are manufactured or produced in Australia and that are specified in the Schedule to the Tariff.

Sub-item 2 of the Tariff imposes duty on 'other excisable beverages not exceeding 10% by volume of alcohol'.

The term 'other excisable beverage' is defined in the Schedule to the Tariff as:

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

a) beer; or

b) brandy; or

c) wine.

Wine is defined in the Tariff as having the same meaning as in Subdivision 31-A of the WET Act.

Section 31-1 of the WET Act defines wine as meaning any of the following: grape wine, grape wine products, fruit or vegetable wine, cider or perry, mead and, sake (but it does not include beverages that do not contain more than 1.15% alcohol by volume).

The base from which your product is made is a concentrated, fermented fruit product which you have described as cider; therefore the end product would not meet the definition of a grape wine, grape wine product, mead or sake. It may, however, meet the definition of fruit wine or cider.

Fruit wine and cider are defined in sections 31-4 and 31-5 of the WET Act respectively. Fruit or vegetable wine is also subject to certain requirements as specified in regulation 31-4.01 of the A New Tax System (Wine Equalisation Tax) Regulations 2000 (WET Regulations). There are currently no regulations relating to cider.

Relevantly, both fruit wine and cider must not have added to them any liquor or substance that gives colour or flavour. As the base from which your product is made contains X, your final product does also. X is a substance that gives colour or flavour. Therefore your product is not a fruit wine or cider under the WET Act and WET does not apply.

As your product is not wine, and is over 1.15% alcohol by volume, it is not excluded from the Tariff. It is therefore subject to excise duty as an 'other excisable beverage'.

The current rate of excise duty payable on the product is less than $90.00 per litre of alcohol (this rate is subject to indexation twice annually in line with the consumer price index).

Question 3

Summary

As your product is excisable, and is manufactured in Australia, an excise manufacturer licence is required to manufacture it.

However, where you have a contract manufacture arrangement with a licenced manufacturer you are not required to hold a manufacturer licence yourself. It is sufficient that the contract manufacturer has the appropriate licence.

Detailed reasoning

Section 25 of the Excise Act provides that only a licensed manufacturer may manufacture excisable goods. The premises at which they are licensed to manufacture are specified in their licence.

We accept that where the person undertaking the physical manufacture on your behalf is licensed, and manufactures the goods and pays excise duty on your behalf, the requirements of the Excise Act have been met. This avoids the need for multiple manufacturer licences for the same premises, particularly where an entity manufactures on behalf of a number of clients which is often the case.

ATO view documents

Excise Ruling ER2012/1 Excise: the meaning of the expression 'manufactured or produced' for the purposes of the Excise Acts

Wine Equalisation Tax Ruling WETR 2009/2 Wine equalisation tax: operation of the producer rebate for other than New Zealand participants