Explanatory Memorandum
Circulated By the Authority of the Treasurer, the Hon Wayne Swan MP)Chapter 6 - Excise manufacture and spirits
Outline of chapter
6.1 Schedule 6 to this Bill amends the Excise Act 1901 (the Excise Act) to specifically deem the blending of spirits to produce spirit as excise manufacture for the purposes of the Excise Act.
6.2 This is necessary for imported high strength neutral spirit, as it currently derives its concessional duty treatment (that is, a 'free' rate of excise duty) from being blended with domestic high strength neutral spirit and entering the excise system.
Context of amendments
6.3 'Excise manufacture' is the production or manufacture in Australia, of goods specified in the Schedule to the Excise Tariff Act 1921 (Excise Tariff). 'Manufacture' is taken to include a process that involved the provision of knowledge, the application of skills, experiences or services of labour which results in the conversion of materials into a saleable commodity. The commodity must be different from the inputs which went into making it.
6.4 The concessional spirits regime is a mechanism under the Excise Tariff which allows domestic high strength neutral spirit to be delivered into the domestic market at a 'free' rate of duty. This is generally high strength neutral spirit for 'a specified industrial, manufacturing, scientific, medical, veterinary or educational purpose'. There is no mechanism which allows imported high strength neutral spirit to be directly delivered into the domestic market without payment of duty.
6.5 Currently, importers of high strength neutral spirit blend or mix imported product with domestic excisable high strength neutral spirit. In the case of imported high strength neutral spirit, this blending results in its transfer into the excise system and the extinguishment of any customs liability other than any ad valorem component that must be paid. The entirety of the excisable high strength neutral spirit blend, which includes the imported component, is then delivered into the domestic market at a 'free' rate of duty under the concessional spirit regime.
6.6 There are provisions in the Excise Act which specifically deem the blending of fuel to constitute excise manufacture. However, there is no explicit provision in the Excise Act to ensure that blending spirits to produce spirit is excise manufacture. This Bill amends the Excise Act by inserting an equivalent provision to ensure that blending spirits, including imported and domestic high strength neutral spirit, to produce spirit constitutes excise manufacture.
Summary of new law
6.7 The new subsections 77FM(1) and (4) of the Excise Act have a similar effect to section 77G, which relates to fuel blending, and deems spirit blending to produce spirit to constitute manufacture. This will mean blending which results in an item that is classifiable to item 3 of the Excise Tariff (spirits) is excise manufacture. This will cover the blending of spirits for an industrial, manufacturing, scientific, medical, veterinary or educational purpose.
6.8 The new subsections 77FM(2) and (3) have a similar effect to subsections 77H(3) and (4), relating to fuel blending exemptions, and allows the Commissioner of Taxation (Commissioner) to make determinations by legislative instrument that exempt certain activities from constituting excise manufacture.
Comparison of current and new law
| New law | Current law |
| Subsections 77FM(1) and (4) specifically deem the blending of spirits to produce spirit to constitute excise manufacture. | There is no equivalent provision in the Excise Act for spirits. |
| Subsections 77FM(2) and (3) allow the Commissioner to exclude certain activities from constituting excise manufacture by legislative instrument. | There is no equivalent provision in the Excise Act for spirits. |
Detailed explanation of new law
6.9 The new subsections 77FM(1) and (4) deem spirit blending to produce spirit to constitute manufacture. This means that blending resulting in a spirit that is classifiable to item 3 of the Excise Tariff is excise manufacture. This includes spirits for an industrial, manufacturing, scientific, medical, veterinary or educational purpose. This will maintain the status quo for the concessional spirits regime and ensure that blending of spirits to produce spirits for industrial, manufacturing, scientific, medical, veterinary or educational purposes is delivered into the domestic market at a 'free' rate of duty.
6.10 The new subsections 77FM(2) and (3) allow the Commissioner to make determinations by legislative instrument that exempt certain activities from constituting excise manufacture. Any determination made will be a legislative instrument under the Legislative Instruments Act 2003 . Excluding blending operations via a legislative instrument prevents the Excise Act from becoming unnecessarily complex. Making a determination will ensure that certain approved end users of spirits will not fall into the excise system and then be subject to licensing requirements. The sorts of blending that could be covered by the determination include where incidental or remnant blending occurs in a tank or container.
Application and transitional provisions
6.11 The amendments commence from the date of Royal Assent.