The Alcohol Industry - Excise Technical Guidelines (current to 30 June 2006)

Chapter 1 - Excise in the Tax Office

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

AIG Alcohol Industry Group

WET Wine equalisation tax

1.2 About this guide

The information in this publication is current at February 2006.

The publication is an expression of the Commissioner's opinion on the operation of alcohol excise legislation. This publication is not legally or administratively binding on the Commissioner and is not a 'public ruling' for the purposes of Division 358 of Schedule for Section 37 of the Taxation Administration Act 1953. The law does not provide for legally binding rulings on alcohol excise legislation.

This guide is a reference tool for the alcohol industry and for employees of the Tax Office who are responsible for legislative supervision of the alcohol industry.

The policy set out in this guide is Tax Office policy. It may not be the policy of other Commonwealth, state or territory government bodies that the alcohol industry may deal with.

This guide is primarily concerned with excise as it applies to alcohol and alcoholic beverages that are produced or manufactured in Australia. It does not deal with similar goods that are manufactured outside Australia and then imported.

For further details about using imported spirits in the manufacture of excisable goods, see chapter 7, section 4.10.

This guide is not intended to advise on manufacturing processes and should only be used as a guide to compliance with excise requirements and legislation.

This guide makes no attempt to address every possible way and circumstance in which excise legislation might apply. With regard to the information contained in this guide:

• clients must choose whether and how to apply this information to their own specific circumstances, and
• clients who rely on the information contained in this guide and in so doing make genuine errors will be considered to have taken reasonable care.

This guide is concerned largely with the various Acts and associated regulations that relate to alcohol and touches briefly on wine equalisation tax. However clients should be aware that other legislation exists that is not administered by the Tax Office and which may affect clients in the alcohol industry, for example:

• Food Standards Code
• Trade Practices Act
• Therapeutic Goods Act
• Health Act
• Liquor Licensing Acts in each of the States and Territories, and
• Trade Measurement Act (that is weights and measures requirements in each state and territory).

The Tax Office cannot give advice on how legislation administered by other commonwealth or state agencies affects clients.

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 dor this is by checking for a more recent version on our website at www.ato.gov.au.

1.3 How to use this guide

Because there are many aspects to consider in the manufacture and use of excisable goods this guide has been designed to assist those already engaged in the alcohol industry, as well as those contemplating entering the industry for the first time. If you are a distiller or brewer you should refer to the chapters that are relevant to your circumstances.

For example, if you intend to apply for a licence to manufacture beer, you will have to consult the following chapters to gain an understanding of your responsibilities under excise legislation:

• Chapter 2: Alcohol licensing
• Chapter 3: Excise liability and payment of duty
• Chapter 4: Movement permissions
• Chapter 5: Record keeping
• Chapter 6: Beer, and
• Chapter 11: Measuring strength and volume of alcoholic beverages.

1.4 Forward

If you want to know more about us, go to the Excise website at www.ato.gov.au.

Section 2 Excise Overview

Excise duty is a commodity-based tax currently imposed on the following domestically produced goods:

• alcoholic beverages (not including wine)
• tobacco products
• petroleum products, and
• coal (duty free rate as at 10/2/2005).

Excise has been defined by the High Court of Australia as 'an inland tax on a step in the production, manufacture, sale or distribution of goods' [Ha & Anor v. State Of New South Wales & Ors; Walter Hammond & Associates Pty Limited v. State Of New South Wales & Ors (1997) 0805C - HCA at paragraph 9,146 ALR 355 at 361].

Excise matters can be regulated and imposed only by the Commonwealth Government under the powers accorded to it under the Constitution.

The excise system and collection of excise duty is administered by the Tax Office. Amendments to excise legislation and major policy changes are dealt with by Treasury.

The excise system relies on voluntary compliance. The Tax Office expects that licensed manufacturers and persons entrusted with excisable goods will carry out their responsibilities honestly, appropriately and on time.

In accordance with the Taxpayers' Charter, the Tax Office assesses a licensee's performance in an impartial, fair and professional manner, presuming that licensees try to deal honestly.

The Taxpayers' Charter is complemented by The Compliance Model, which explains the Tax Office's attitude to compliance.http://connect/sb/content.asp?doc=/content/kdNet/SbjCmplMdl.htm

Section 3 Excise Background

Briefly, the history of excise in Australia is as follows:

• Around 1792 the NSW Army Corps conducted trade using rum as currency.
• 1799 saw the introduction of the first collection of excise on spirits.
• A government brewery was set up in Sydney in 1802.
• In 1838 the first excise duties were imposed in South Australia on locally produced spirit.
• The Victorian government in 1892 imposed an excise on beer, although a lower rate applied to beer made only from barley-malt and hops.
• With federation in 1901, control of excise passed from the States to the Commonwealth Government and the whole Australian market was opened to licensed alcohol producers on payment of uniform excise duties.

Customs administered all excise matters until February 1999 and current excise legislation reflects the historical administration by Customs.

Excise duties are fixed rates of duty (for example $ per litre of alcohol) as opposed to ad valorem rates of duty (% of $ value). Current rates may be seen at Excise rates of duty. Due to the level of the rates, excise duty comprises a significant part of the final product price which the consumer pays.

In order to ensure that the correct amount of excise duty is paid, highly regulated physical and documentary controls are in place from the time of manufacture of excisable goods until the time of payment of the excise duty.

This guide outlines the excise legislation and the processes and controls that make up the excise system in the Tax Office.

Section 4 The Alcohol Industry Group Within Excise

The Alcohol Industry Group (AIG) was set up in February 1999 with the transfer of the excise administration and revenue collection function from Customs to the Tax Office. The processing of payments is carried out by a separate group - the Excise Returns Processing Unit in Wollongong.

The Wine Equalisation Tax (WET) Business Unit was introduced with the implementation of tax reform on 1 July 2000 and became part of the AIG in May 2001.

In addition to administering the legislation contained in the Excise, Distillation, Spirits and WET Acts and associated regulations, the AIG's other roles include:

• being a single point of contact to clients
• liaising with clients, industry and other agencies to identify and implement ways to improve our administrative systems
• providing technical advice and support
• issuing licences to alcohol clients
• granting permissions to move under bond goods
• administration of the Concessional Spirits Permit Scheme
• administration of the refunds, remissions, drawbacks and rebates regime
• risk assessment and management, and
• compliance management.

Section 5 Legislative References

In this guide, unless otherwise stated, a reference to the:

• Excise Act is a reference to the Excise Act 1901
• Excise Acts is a reference to the Excise Acts as defined in section 4 of the Excise Act 1901
• Excise Regulations is a reference to the Excise Regulations 1925
• Excise Tariff Act is a reference to the Excise Tariff Act 1921
• Distillation Act is a reference to the Distillation Act 1901
• Distillation Regulations is a reference to the Distillation Regulations 1926
• Spirits Act is a reference to the Spirits Act 1906
• Spirits Regulations is a reference to the Spirits Regulations 1926
• Taxation Administration Act is a reference to the Taxation Administration Act 1953
• WET Act is a reference to the A New Tax System (Wine Equalisation Tax) Act 1999
• WET Regulations is a reference to A New Tax System (Wine Equalisation Tax) Regulations 2000, and
• Collector is a reference to the Chief Executive officer (CEO) or an authorised officer - section 4 Excise Act 1901.

Throughout this guide, except where excise legislation is quoted, the words Tax Office are used to indicate Collector, CEO and Commissioner.

Chapter 2 - Alcohol Licensing

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

ABN Australian Business Number

AIG Alcohol Industry Group

BOPS Brew-on-premises shops

EIN Excise indentification number

ETI Excise tariff item

WET Wine Equalisation Tax

1.2 Foreword

If you want to know more about Excise go to our website at www.ato.gov.au.

Section 2 Licences

2.1 Overview

A person is required to be licensed if they wish to manufacture excisable alcoholic products, store excisable alcoholic products, distil spirits or make and sell methylated spirits.

In accordance with the Excise Act, manufacture includes all processes in the manufacture of excisable goods and, in relation to beer, includes the provision to the public at particular premises of commercial facilities and equipment for use in the production of beer at those premises - Brew-on-premises shops (BOPS)¹. Activities which require an excise manufacturer licence are covered at section 2.2 in this chapter.

Parts III and IV of the Excise Act deal with excise licences for the manufacture and storage of excisable goods².

Part III of the Distillation Act deals with licences for the distillation of spirits.

Section 20 of the Spirits Act deals with licences to make and sell methylated spirits.

A licensed manufacturer may only manufacture or store the goods specified in the licence, and only at the premises specified in the licence³. A licensed manufacturer must hold a separate licence in respect of each separate premises where manufacturing or storage is to take place.

In the Excise Acts, the word 'Collector' means the Commissioner of Taxation or an officer authorised under the Excise Act⁴.

Apart from applying for an excise manufacturer or storage licence, a distiller licence, or a methylator licence, an applicant needs to register with the Tax Office in order to establish an appropriate excise account with the Tax Office. An applicant needs to register for excise activities only once, irrespective of how many other licences or permits they may subsequently apply for. The excise registration form may be found on our website at www.ato.gov.au.

This is a separate procedure from applying for an Australian Business Number (ABN) which you may have previously obtained.

An ABN is a unique identifying number issued to a client when they register their business in the Australian Business Register. If a client does not have an ABN they will be provided with an EIN when they register for excise purposes.

A client account number is used to identify an excise account. Clients will be advised of their client number when they are licensed for excise.

2.2 Excise manufacturer licences

For administrative purposes, excise manufacturer licences for the manufacture of excisable alcoholic beverages are divided into three categories: Beer, Brew-on-premises shops (BOPS), and Liqueurs and other excisable beverages. Separate licences are issued for each of the three manufacturing categories. (Note: Distillers licences and methylators licences are dealt with separately in section 2.3 and 2.4.)

BOPS are premises which are licensed to produce beer for non-commercial purposes using commercial facilities or equipment that is the operators supply the facilities, machinery, ingredients and advice to enable the public to make beer for their own consumption. For more information regarding BOPS see chapter 6 section 6.

An excise manufacturer licence⁵ granted under Part IV of the Excise Act only authorises the licensee to manufacture and store the excisable goods which they manufacture. It does not authorise the licensee to distil spirits⁶.

Other activities for which an excise manufacturer licence is required include:

• fermentation (excluding alcoholic products that are covered by WET)
• adding flavours, colours
• reduction (adding water)
• blending
• packaging (in bottles, cans, kegs) - involving in-line mixing (that is where the addition of syrup forms part of the packaging process), and
• maturation of spirits in wood during which the storage has imparted flavour characteristics and possibly some colour from the wood.

The Excise Act provides that the Tax Office may refuse to grant a licence where, among other reasons, refusal is necessary to protect the revenue⁷.

2.3 Excise storage licences (including duty free shops)

2.3.1 General

A storage licence⁸ issued under Part IV of the Excise Act authorises the licensee to carry out the following activities at the premises specified in the licence:

• storage only of packaged product
• storage only of bulk product in steel, glass, plastic (see section 2.2 for storage in wood)
• packaging (in bottles, cans, kegs) - not involving in-line mixing
• repacking (outer cartons only), and
• filtering (except when filtering is combined with other procedures and becomes a part of the manufacturing process).

The licensee must apply for a manufacturer licence if they wish to carry out further activities at their premises, for example, blending, brewing, or a distiller's licence for distillation⁹.

The Excise Act provides that the Tax Office may refuse to grant a licence where, among other reasons, refusal is necessary to protect the revenue¹⁰.

Goods that are not excisable goods, for example wine, may be stored in the premises specified in a storage licence. However the non-excisable goods must be readily identifiable from the excisable goods, to ensure that excisable goods may be accounted for to the satisfaction of the Tax Office.

2.3.2 Duty free shops

Duty free shops are regulated by the Tobacco Industry Group (TIG).

A duty free shop is a warehouse where the licence authorises the sale in the warehouse of goods to relevant travellers. In the first instance, a Customs warehouse licence, issued under section 79 of the Customs Act 1901, is required. The Customs warehouse licence is conditioned to authorise the duty free sale of imported goods. Secondly, an excise storage licence, issued under Part IV of the Excise Act, is required. The excise storage licence is similarly conditioned to authorise the duty free sale of excisable goods.

Single or continuing movement permissions (see chapter 4) are required to authorise the under bond movement of goods.

2.4 Distillers' licences

Licences to distil spirits are issued under the Distillation Act for the following classes:

• spirit makers' licences
  • general licences authorising the licensee to distil spirits from any material
  • wine distillers' licences authorising the licensee to distil spirits from wine or lees of wine
• vignerons' licences authorising the licensee to distil spirits from wine or lees of wine for the purpose of fortifying wine, or
• experimenters' licences authorising the licensee to distil spirits from any material for the purpose of research into the production or use of fuel ethanol. including research relating to the development of technology for such production or use11.

Spirits is defined in section 6 of the Distillation Act and 'includes any liquor on which, under the name of spirits, any duty of Excise is imposed by the Parliament, whether the liquor is distilled or made or in any stage of distillation or making'. The Distillation Act and Regulations provide administrative provisions relating to excisable spirits.

Spirit is defined in section 4 of the Excise Act by reference to the Excise Tariff Act and includes neutral spirit and brandy, whisky, rum and liqueurs.

A person must hold an excise manufacturer licence if they wish to manufacture beer (Excise Tariff Item (ETI) 1C), Liqueurs (ETI 2G) or other excisable beverages (ETI 1D for beverages with an alcoholic strength not exceeding 10%, or ETI 2H for beverages with an alcoholic strength exceeding 10%) using spirit which they acquire for that purpose. However if they wish to distil the spirit to manufacture ETI 2G, 1D or 2H, they also must hold a distiller's licence.

For further information on distillation see chapter 7 section 3 legislation and licences.

The holder of a general spirit maker's licence may distil spirits from any material¹². The three main groups of raw materials are grain (for the production of whisky and neutral spirits), cane sugar (for the production of rum and neutral spirits) and fruit (for the production of brandy, where grapes are the raw material, and neutral spirits¹³).

The holder of a wine distiller's licence may only distil spirits from wine or lees of wine¹⁴.

The holder of a vigneron's licence may distil spirits from wine or lees of wine for use as fortifying spirit¹⁵ only¹⁶.

The holder of an experimenter's licence may distil spirits from any material for research into production or use of fuel ethanol, including research relating to the development of technology for such production¹⁷. There are currently no experimenter's licences issued.

Manufacturers of spirit which will be used as fuel ethanol are currently issued with general spirit maker's licences in addition to an excise manufacturer's licence, issued by the Fuel Industry Group, to cover the blending of ethanol and petrol (see further discussion at chapter 9, section 9 in this manual).

2.5 Methylator's licences

A person must hold a methylator's licence to make and sell methylated spirits¹⁸. A distiller who holds a general spirit maker's licence is not required to hold a separate methylator's licence¹⁹.

2.6 Granting of manufacturer and storage licences

Subsection 39A(1) of the Excise Act provides that the Tax Office may grant, or refuse to grant a licence. This power will be exercised giving due consideration to the principles of relevance, reasonableness and natural justice.

The Tax Office may refuse to grant a licence in specified circumstances. However the Tax Office may decline to exercise this power as it is not mandatory. Essentially the prescribed circumstances include²⁰:

• where the applicant is not a fit and proper person or company, including where the applicant is:
  • a person
  • a partner in a partnership
  • a company
• where the applicant is an associate²¹ of a person or company who is not fit and proper, or
• where a director, officer or shareholder of a company who would participate in the management or control²² of the company is not a fit and proper person, or
• where an employee of the applicant who would participate in the management or control of the premises in relation to which the licence is sought is not a fit and proper person, or
• where the physical security of the premises in relation to which the licence is sought is not up to acceptable business standards having regard to:
  • the nature of the premises, or
  • the kinds and quantity of the goods that would be kept at the premises, or
  • the procedures and methods that would be adopted by the applicant to ensure the security of goods at the premises, or
• where the plant and equipment that would be used in relation to goods at the premises in relation to which the licence is sought are not suitable having regard to the nature of those goods and the premises, or
• where the books of account or records are inadequate for ATO audit purposes, or
• where refusal to grant the licence is necessary to protect the revenue²³.

It should be noted that subsection 39A(2) creates a specific power of refusal alone that is separate to the general power to grant or refuse conferred by subsection 39A(1). A licence can be granted only under subsection 39A(1), but a licence may be refused under either subsection 39A(1)or subsection 39A(2).

The power to refuse to grant a licence under subsection 39A(2) is a restricted power. It requires the formation of a particular opinion before it can be properly exercised. However as the power to refuse in subsection 39A(1) is not fettered by any such precondition, it supports the argument that the two powers are separate in nature.

Subsection 39A(2) does not limit the grounds for refusal under subsection 39A(1) to only those listed there, as it does not use the words 'shall have regard only to the following' or similar, leaving open the matters which may be considered for the purposes of a refusal under subsection 39A(1).

2.7 Fit and proper persons (for manufacturer and storage licences)

In determining whether a natural person is fit and proper²⁴, the Tax Office may have regard to²⁵:

• whether within one year before making the application, the person has been charged with
  • an offence against a provision of the Excise Acts, or
  • an offence against a law of the Commonwealth, a State or a Territory that is punishable by imprisonment for a period of one year or longer or by a specified fine, and
• whether within ten years before making the application, the person was convicted of
  • an offence against a provision of the Excise Acts, or
  • an offence against a law of the Commonwealth, of a State or of a Territory that is punishable by imprisonment for a period one year or longer or by a specified fine, and
• whether the person has held a licence which has been cancelled or has participated in the management or control of a company that has had its licence cancelled, and
• whether the person is an undischarged bankrupt, and
• any misleading statement made in the application by the person, and
• whether the person knew that any statement made by the person in the application was false.

2.8 Fit and proper companies (for manufacturer and storage licences)

In considering whether a company is a fit and proper²⁶ company, the Tax Office may consider²⁷:

• whether within one year before making the application the company has been charged with
  • an offence against the Excise Acts, or
  • an offence against a law of the Commonwealth, a State or a Territory that is punishable by a specified fine, and
• whether within ten years before making the application the company was convicted of:
  • an offence against a provision of the Excise Acts, or
  • an offence against a law of the Commonwealth, a state or a territory that is punishable by a specified fine, and
• whether the company has held a licence that has been cancelled, and
• whether the company has been placed into receivership, is under external administration, has executed a deed of company arrangement that has not yet terminated, has been placed under official management, or is being wound up.

2.9 Conditions on manufacturer and storage licences

Conditions attached to licences are as follows²⁸:

• a licensee must advise the Tax Office in writing, within 30 days after one of the following matter occurs

0. the licence holder, a partner, a person who participates in the management or control of the licensed company or a person who participates in the management or control of the premises specified in the licence, is charged with an offence of the kind referred to in paragraph 39B(a) of the Excise Act (see first dot point at section 2.7)
0. a person referred to in paragraph (i) is convicted of an offence of the kind referred to in paragraph 39B(a) of the Excise Act or becomes bankrupt
0. where the licence holder is a company, a person not listed in the application for the licence as participating in the management or control of the premises commences to participate
0. a person not listed in the application for the licence as participating in the management or control of the premises commences to participate
0. where the licence holder is a partnership, there is a change in the membership of the partnership
0. where the licence holder is a company, the company is charged with an offence of a kind referred to in paragraph 39C(a) of the Excise Act (see first dot point at section 2.8) or the company is convicted of an offence of a kind referred to in paragraph 39C(b) of the Excise Act (see second dot point at section 2.8) or a receiver or administrator of the company is appointed or the company executes a deed of company arrangement or the company begins to be wound up
0. in relation to a manufacturer licence or storage licence, there is a substantial change in a matter affecting the physical security of the premises specified in the licence, or the plant and equipment used in relation to the goods at the premises specified in the licence
0. the licence holder has ceased to manufacture excisable goods, and/or
0. the licence holder has ceased to keep and store goods at the premises specified in the licence

• a licence is subject to any other conditions which are prescribed, and
• a licence is also subject to any other conditions which may be specified in the licence, being conditions which the CEO considers necessary for the protection of the revenue or for ensuring compliance with the Excise Acts.

Conditions which are specified in the licence (as distinct from the conditions which are imposed or prescribed by law) may be varied or revoked by the Tax Office and the Tax Office may impose one or more additional conditions, either on application by the licence holder or on the Tax Office's own initiative²⁹.

The above conditions do not apply to licences issued under the Distillation Act or the Spirits Act as Part IV of the Excise Act, which includes section 39D, is not incorporated into those other Acts³⁰.

2.10 Applications for licences - (under Excise Act, Distillation Act, or Spirits Act provisions)

Section 39 of the Excise Act provides that a person must make an application for a licence to manufacture excisable goods in a form approved by the Tax Office. Section 17 of the Distillation Act makes similar provision in respect of licences to distil, and subsection 20(1) of the Spirits Act for licences to make methylated spirits. If a person holds a spirit maker's general licence under the Distillation Act they do not need to obtain a licence under the Spirits Act to make methylated spirits³¹.

Application forms for the various excise licences are available by contacting the Client Services Section, Alcohol Industry Group (AIG), GPO Box 2318, Adelaide 5001 or online at the Tax Office website www.ato.gov.au. A person must lodge the application with the AIG.

Each application must be accompanied by an accurate plan, or sketch to scale, of the premises clearly identifying the proposed licensed area (outlined in red). The applicant, or an authorised official of the business, must endorse the plan or sketch as follows:

'I hereby certify that this is a correct plan/sketch of the premises at (insert address) operated by (insert name of business) and referred to in the application for an Excise Manufacturing Licence dated (the date of the application). I also certify that the area outlined in red is proposed to be licensed for manufacturing.'

Along with the application, the applicant must provide details of their record keeping system. Where the applicant intends to use a manual record keeping system they must forward copies of the intended records for assessment. On receipt of the completed application, the AIG will assess whether the applicant has complied with the requirements necessary for the issue of a licence. For further information see chapter 5 - Record keeping.

2.11 Issue of a licence

Before a person can be licensed to manufacture, store or otherwise deal with excisable alcohol product, they must register with the Tax Office for excise activities in order to establish an excise account. An application for excise registration - alcohol (form number 7102) may be obtained by contacting the AIG at GPO Box 2318, Adelaide SA 5001 or online at the Tax Office website www.ato.gov.au.

An applicant for registration for excise purposes does not have to be conducting a business or an enterprise.

Before a person can be issued with a licence, they must:

• lodge a security³² if required by the Tax Office
• establish to the satisfaction of the Tax Office that they will maintain adequate records.³³. See also chapter 9 section 11.5 and chapter 6 section 3.2
• satisfy the Tax Office that their premises have adequate physical security, to manufacture or store alcoholic goods/products ³⁴
• provide calibration certificates for storage tanks ³⁵, and
• provide a consent to obtain information - individual form for each person involved in the management or control of the business ³⁶

A person must not commence manufacturing excisable goods before they have been issued a licence³⁷.

A manufacturer's licence issued under the Excise Act, or any licence issued under the Distillation Act or Spirits Act comes into force on the day the licence is granted and remains in force, unless cancelled earlier, until 31 December after the day on which it was granted, or the day of renewal or last renewal³⁸. These licences must be renewed annually from 1 January. A letter advising of the impending expiry of the licence incorporating an application for renewal form will be sent to licensees well before the licence expiry date.

Licences are subject to conditions as per section 39D of the Excise Act. Conditions may be changed at any time, and are subject to objection rights. Where a manufacturer licence is renewed, the Tax Office may specify conditions different from those specified in the original licence. Furthermore the Tax Office may refuse to renew a manufacturer licence if the Tax Office is of the opinion that if the licence were renewed there would be an entitlement to cancel the licence.

2.12 Right to require security

Section 16 of the Excise Act gives the Tax Office the right to require and take securities for compliance with the Excise Acts and for the protection of the revenue. (Both the Distillation Act and the Spirits Act have similar provisions.) Section 17 of the Excise Act provides that securities may be in the form of a bond, documentary guarantee, cash deposit or any other method or combination of methods. In cases where the Tax Office assesses the risk to the revenue as being high, the Tax Office may require that a security should be backed up by a surety (a pledge from a financial institution or other third party to guarantee payment of the security amount should it be called up).

The Tax Office's power to require and take securities under section 16A of the Excise Act is a discretionary power therefore for the purposes of the Excise Act securities are not mandatory. However when a security is required by the Tax Office, the Excise Regulations may specify the amount required. For example, Regulation 214 of the Excise Regulations sets out that in the case of a manufacturer (beer) licence, the amount of security involved depends on the quantity of beer which the licensee manufactures in a year. Regulation 227 sets out the amount of security involved in the case of a manufacturer of liqueurs or other excisable beverages licence. In the case of an excise storage licence, the amount of security, if necessary, is not specified in the regulations. Therefore, any security for a storage licence is at the discretion of the Tax Office. The security for a storage licence is based on the estimated average monthly excise applicable to goods delivered from those premises if excise were payable.

Section 20 of the Excise Act provides that the Tax Office may require a new security at any time. There is no limit to the amount of a new security.

In compliance with section 19 of the Excise Act, the Tax Office reviews Excise Act securities on a three-yearly basis at which time they may be extended, revised or cancelled.

Unlike the security provisions of the Excise Act, Section 18 of the Distillation Act makes it mandatory for a security to be taken from an applicant in respect of any licence issued under that Act. However the Tax Office may use its discretion as to whether a surety is required. The specified amount of documentary security (without surety) for a spirit maker's or vigneron's licence is presently not less than $1000 and not more than $10,000³⁹. For an experimenter's licence the security is presently not less than $10 and not more than $1000⁴⁰.

Section 23 of the Distillation Act provides that the Tax Office may require a new security for the renewal of a licence to distil.

Similarly Regulation 11 of the Spirits Regulations makes it mandatory for a security with surety, to be taken from an applicant for a licence to make methylated spirits. Regulation 14 of the Spirits Regulations enables the Tax Office to require a new security at any time.

Section 3 Licence Suspensions and Cancellations

3.1 Background

The Excise Amendment (Compliance Improvement) Act 2000 was introduced in September 2000 and for the first time gave the Tax Office the discretion to grant, or refuse to grant a licence. It also provided for the cancellation and suspension of licences under certain conditions other than for offences against the Excise Acts.

3.2 Policy application

The Excise Act provides for the suspension or cancellation of manufacturer and storage licences in a range of circumstances.

It should be noted that the comprehensive suspension and cancellation provisions of Part IV of the Excise Act discussed in this section apply only to licences issued under the Excise Act and do not apply to licences issued under the Distillation Act or Spirits Act, each of which have their own provisions as set out below.

It would not fit with the Tax Office's Compliance Model (see Excise overview in chapter 1 - Excise in the Tax Office) if the Tax Office contemplated the suspension or cancellation of a licence simply as a result of one event, such as poor record keeping or a minor breach of licence conditions. The Tax Office will generally encourage the licensee to comply with legislation through a range of initiatives including education. The Tax Office will generally provide the licensee with formal written warning before recommending any suspension or cancellation action.

The cancellation of a licence issued under the Distillation Act is covered by section 24 of that Act as follows:

If the licensee is convicted of any offence against the Distillation Act, the licence may be cancelled by the Tax Office placing a notice in the Commonwealth Gazette.

The Tax Office may cancel an experimenter's licence by placing a notice in the Commonwealth Gazette if the licensee has not complied with time restrictions imposed for the completion of the distillation or the licensee is convicted of an offence against the Distillation Act.

The cancellation of a licence issued under the Spirits Act is covered by Regulation 16 of the Spirit Regulations. The Tax Office may cancel a licence to make methylated spirits if the holder of the licence is convicted of any contravention of the Spirits Act or Spirits Regulations.

3.3 Grounds for Excise Act licence suspension

The Tax Office may suspend a manufacturer or storage licence if the Tax Office has reasonable grounds for believing that⁴¹:

• the licensee, a partner, a director, officer, shareholder or employee of the company who participates in the management or control of the company or premises, is not a fit and proper person, or
• an employee of the licence holder who participates in the management or control of the premises specified in the licence is not a fit and proper person, or
• where the licence holder is a company, the company is not a fit and proper company, or
• the licence holder is an associate⁴² of a person who is not a fit and proper person or a fit and proper company, or
• the physical security of the licensed premises is no longer adequate, or
• the plant and equipment used at the licensed premises are such that the protection of the revenue is inadequate, or
• the records of account are inadequate, or
• a condition of the licence has been breached, or
• the licence holder has made a false or misleading statement to the Tax Office; or
• suspension is necessary for the protection of the revenue, or
• suspension is necessary for ensuring compliance with the Excise Acts.

3.4 Fit and proper persons

In considering whether a person is fit and proper⁴³ in the context of manufacturer or storage licence suspensions⁴⁴, the Tax Office may take into account⁴⁵:

• whether within one year of that consideration, the person has been charged with an offence against a provision of the Excise Acts or against a law of the Commonwealth, a State or a Territory that is punishable by imprisonment for a period of one year or longer or by a specified fine, and
• whether within ten years of that consideration, the person has been convicted of an offence against the above laws, and
• whether the person has held another licence which has been cancelled or has participated in the management or control of a company that has had its licence cancelled, and
• whether the person is an undischarged bankrupt.

3.5 Fit and proper companies

In considering whether a company is a fit and proper company in the context of manufacturer or storage licence suspensions⁴⁶, the Tax Office may take into account⁴⁷:

• whether within one year of that consideration, the company has been charged with an offence against a provision of the Excise Acts or against a law of the Commonwealth, a State or a Territory that is punishable by imprisonment for a period of one year or longer or by a specified fine, and
• whether within ten years of that consideration, the company is convicted of an offence against a provision the above laws, and
• whether the company has been placed into receivership, is under external administration, has executed a deed of company arrangement, has been placed under official management, or is being wound up.

3.6 Method of suspension

If the Tax Office decides to suspend a licence, the Tax Office must give a written notice to the licence holder⁴⁸. This notice must be served either personally or by post on the licensee, or personally on a person who, at the time of service, apparently participates in the management of the licensed premises.

The Tax Office may suspend the licence immediately if it appears to the Tax Office to be necessary for the protection of the revenue, or for ensuring compliance with the Excise Acts. To do so the notice must state that the licence is suspended on and from the service of the notice. It must also state that the licensee may, within 7 days of the date of service, give to the Tax Office a written statement showing cause why the licence should not be cancelled.

The Tax Office may revoke the suspension at any time, but if the licence is not cancelled within 28 days of the date of suspension then the Tax Office must revoke the suspension.

At the time of suspension of the licence, Tax Office field staff will carry out a stock take at the licensed premises so that the total excise liability is known.

If the Tax Office does not see the need to suspend the licence immediately, the notice will not state that the licence is suspended. Instead the notice must state that if the licensee wishes to prevent the cancellation of the licence the licensee may, within 7 days of the date of service of the notice, give to the Tax Office a written statement showing cause why the licence should not be cancelled. In the meantime the licence continues in force without restriction but may be cancelled if the licensee does not make a submission against cancellation.

3.7 Consequences of suspension

If the notice⁴⁹ states that the licence is suspended, during the period in which the licence is suspended, a licensee must not without the Tax Office's permission⁵⁰:

• manufacture excisable alcoholic goods (if the holder of a manufacturer licence)⁵¹, or
• keep or store excisable alcoholic goods at the premises specified in the licence (if the holder of a storage licence)⁵².

During the period of suspension the Tax Office may give written permission⁵³ for:

• goods to be kept or stored at the premises specified in the licence
• a process to be carried out at the premises specified in the licence, and
• the movement of the goods from the premises specified in the licence to another place.

During the period of suspension the Tax Office may also⁵⁴:

• by written notice to the owner of the goods at the premises specified in the licence require the owner to move those goods to another approved place
• take control of the premises specified in the licence and of any goods at the premises as may be necessary for the protection of the revenue or for ensuring compliance with the Excise Acts, and
• by written notice to the licence holder, require them to pay any costs incurred by the Tax Office as a result of the suspension.

3.8 Cancellation of licences

The Tax Office may cancel a licence, but only if it is entitled to suspend the licence under section 39G of the Excise Act⁵⁵. It is not necessary for a licence to be suspended before it is cancelled. It is only necessary that the grounds for suspension exist.

However the Tax Office must cancel the licence if it receives a request from a licensee in writing to do so, and there are no excisable goods in the licensee's possession, custody or control.

In the event of a licensee wishing to close or sell their business, it is highly desirable that they give the Tax Office sufficient warning so that the Tax Office can arrange a final audit of goods at the licensed premises to calculate any excise liability. Depending on the circumstances, the licensee has the following options:

• pay any outstanding excise duty on goods which are held at the premises specified in the licence and which are still under the Tax Office's control. The licensee may then dispose of the duty paid goods as they wish
• obtain permission from the Tax Office to sell to another excise licensee any goods which are held at the premises specified in the licence, and which are still under the Tax Office's control. The licensee may then move the goods under bond to the new licensee's premises where they must be taken up in the stock records of the new owner
• if the licensee is selling the business with the stock included, the Tax Office will arrange to cancel the current licence and issue a licence to the new owner (if they have applied, and are eligible, for a licence) on the same day, so that a seamless transfer takes place. A new licence must be issued as excise licences are not transferable. If a seamless transfer of ownership cannot take place, the Tax Office will require the licensee to pay any outstanding excise duty or arrange the under bond movement of the goods to another licensed premises prior to the cancellation of the licence⁵⁶.

3.9 Method of cancellation

When a decision to cancel a licence has been made by the Tax Office rather than the licence holder, the Tax Office will in most cases, first suspend the licence. Refer to sections 3.6 and 3.7 for details of licence suspension.

When the Tax Office has made a decision to proceed with the cancellation of a licence, either with or without a prior period of suspension, the Tax Office must cancel the licence in writing. This notice must be served on the licensee either personally or by post, or personally served on a person who appears to participate in the management of the licensed premises⁵⁷.

The Tax Office must also give a notice to the owner of excisable goods at the licensed premises (who may be someone other than the manufacturer) requiring that owner, within a specified time, either pays the excise duty owing on the goods, or with Tax Office permission, removes them to another place⁵⁸. This notice must also state that if the owner does not comply with this requirement, the goods will be sold or disposed of⁵⁹. The notice must be served either personally or by post on the owner, or personally on a person who appears to participate in the management of the licensed premises⁶⁰.

If the owner of the goods fails to comply with the requirements of a duly served notice within the time specified in the notice, the Tax Office may sell or dispose of the goods⁶¹. This provision stands alone and should not be confused with the forfeiture and seizure provisions elsewhere in the Excise Act.

3.10 Consequences of cancellation.

The cancellation of a manufacturer licence results in the permanent cessation of the manufacture of excisable alcoholic goods. Although the licence has been cancelled there remains a possibility that the licensee may have excisable goods stored at the premises.

Subsection 39M(1) of the Excise Act prohibits the movement of excisable goods on which duty has not been paid without permission from the premises where a licence has been cancelled or has expired and has not been renewed.

If a licence other than a manufacturer (beer) licence has been cancelled or has expired and has not been renewed, subsection 39N(1) of the Excise Act provides for the Tax Office to have the goods moved from the licensed premises to another place approved of by the Tax Office.

Subsection 39N(2) of the Excise Act authorises the Tax Office to sell the goods if, six months after they have been moved as per subsection 39N(1), the owner has not claimed⁶² them in writing, or the duty, removal, storage and other charges on them have not been paid.

This means that in instances where a claim is made in writing by the owner the Tax office would not be authorised to sell the goods. If a claim has not been made by the owner within six months and the storage and other charges have not been paid, the Tax Office would be authorised to sell the goods.

The Excise Act allows for special (but similar) provisions in relation to a manufacturer (beer) licence:

• when a manufacturer (beer) licence has been cancelled or has expired and has not been renewed, the licensee must not remove or cause the removal of, any beer on which duty has not been paid without Tax Office permission from the premises to which the licence related⁶³
• where at the end of a month after a licence has been cancelled or has expired and not been renewed, beer on which duty has not been paid remains on the premises to which the licence related, the Tax Office may sell the beer and any containers and packages in which it is contained⁶⁴,
• if the Tax Office considers that any such beer is unsaleable or is likely to sell for an amount less than the duty payable together with the expenses of its removal, storage and sale, the Tax Office may destroy it⁶⁵, and
• at the end of a month after a licence has been cancelled or has expired and has not been renewed, the Tax Office may for the purposes of selling the beer and any containers or packages or for the purposes of destroying the beer, arrange the removal of the beer and any containers and packages in which it is contained, to another Tax Office approved location⁶⁶.

3.11 Delegation of power to suspend

The Assistant Commissioner, Compliance Management, is the current delegate for the suspension of excise licences.

The Tax Office will place all of the relevant issues for suspension before the delegate who will then decide whether or not to suspend a manufacturer or storage licence. The delegate must act to ensure that the principles of procedural fairness are adhered to. adhered to.

3.12 Considerations for suspension and cancellation

In considering whether to suspend or cancel a licence, the Tax Office will have regard to:

• whether any breaches by the licensee of the 'fit and proper person' criteria of sections 39B and 39C of the Excise Act are relevant to the licensee's future compliance with excise legislation (those sections of the Act state that the Tax Office may have regard to certain considerations, not that the Tax Office will or must have regard to those considerations)
  • for example, the conviction of a licensee under a law of the Commonwealth for assault may not be relevant to that person's holding a licence under the Excise Act, whereas that person's conviction for dishonesty or fraud may very well be relevant
• whether any or all of the reasons for suspension of a manufacturer or storage licence listed in section 39G of the Excise Act are relevant to the licensee's future compliance with excise legislation. (The section provides that the Tax Office may suspend a licence, not that it will suspend a licence)
• perceptions of community confidence which may be affected by action or lack of action by the Tax Office may affect the future likelihood of others complying with the Excise law
• any of the issues that have individually or cumulatively led to the licensee being assessed with a risk rating which may warrant suspension or cancellation of their licence.

The recommendation for the suspension or cancellation of a licence will not normally be based on any single event, but rather on a series of events which have led to a high risk rating. Before this high risk stage is reached intervention by senior management by way of counselling should take place. This should be done in an effort to bring the licensee voluntarily to an acceptable level of compliance.

However there may be circumstances where counselling is considered inappropriate because of the seriousness of a particular event which might trigger suspension action. The Tax Office would only consider recommending action to suspend prior to counselling where there are compelling reasons to do so.

The provision for suspension and cancellation of licences should be seen within the context of being only one of a range of possible tools designed to improve compliance and to treat risk. Other options are:

• modification of a Section 50 Direction (which may include, amongst other things records to be kept and provision of returns)⁶⁷
• increasing the amount of security and/or requiring one or more sureties⁶⁸
• issuing Infringement Notices⁶⁹
• increasing the extent or frequency of audits
• intervention by senior management
• placing additional conditions on a licence⁷⁰ or permission⁷¹, or
• cancellation of periodic settlement permission⁷².
• The selection of the appropriate tools will depend on the particular circumstances at the time, the extent of the risk to the revenue and the willingness of the licensee to voluntarily comply with Tax Office requirements.

Section 4 Disputing Decisions

4.1 Reviewable decisions

A client who is not satisfied with certain decisions or actions of the Tax Office has the right, under Part IVC of the Taxation Administration Act (TAA), to lodge an objection. An objection may be lodged against a wide range of decisions made by the Excise Business Line including, but not limited to, the following:

• Reviewable decisions under section 39Q of the Excise Act 1901 which include all decisions made under Part IV of the Excise Act including
  • refusal to grant, suspension or cancellation of a manufacturer or storage licence
  • imposing conditions on a manufacturer or storage licence, and
  • refusal to renew a manufacturer's licence.
• Reviewable decisions under section 82B of the Distillation Act 1901 including:
  • refusing to grant a licence under section 20
  • refusing to renew a licence under section 22
  • requesting a new security under section 23, and
  • cancellation of a licence by the CEO, under section 24.
• Reviewable decisions under section 20 of the Spirits Act 1906 including:
  • refusal to grant a licence to a person to make or sell methylated spirits.

4.2 Objection process

The process of review begins with the receipt of an objection from the client:

• If they wish to have the decision reviewed under the Taxpayers' Charter they may contact the tax officer handling their case or the Tax Office where the decision was made. A tax officer who was not involved in making the original decision will carry out a review
• If a person wishes to have the decision formally reviewed under the law, section 162 provides that they may object to the decision in the manner set out in Part IVC of the Taxation Administration Act 1953 as follows
  • within 60 days of the receipt of our decision they must lodge their objection in writing with Excise - Objections and Appeals, Australian Taxation Office, PO Box 9100, Wollongong, telling us what they object to and why
  • within 60 days of receiving the objection the Tax Office is obliged to make a decision about the objection and advise the person in writing of that decision
  • if that person is dissatisfied with the Tax Office decision they may apply to the Administrative Appeals Tribunal (AAT) for review or appeal to the Federal Court. The letter that accompanies the Tax Office notice of decision on the objection will explain the steps the person needs to follow to exercise their rights of review or appeal.

If the period of time within which an objection may be lodged has passed, a person may lodge the objection together with a written request asking the Commissioner to treat the objection as properly lodged (see subsection 14ZW(2) of the TAA). The request must state fully and in detail the circumstances concerning the reasons for the delay in lodging the objection.

If the Tax Office refuses to allow additional time to lodge an objection, the taxpayer may ask that this decision be reviewed by the AAT.

4.3 Taxpayers' Charter

Generally, under the terms of the Taxpayers' Charter, the following service standards will be adhered to when dealing with an objection:

• an acknowledgement letter will be sent to the client within 3 days
• if the client has not provided all the information we need to make an informed decision, we'll aim to contact them within 14 days to ask for the further information
• a decision regarding an objection should be made within 56 days of the receipt of the required information.
• If we find that the client's request raises particularly complex matters that will take more than 56 days to resolve after receiving all the required information, we will aim to contact them within 14 days to negotiate an extended reply date.

4.4 Further review

If the client is dissatisfied with the outcome of the review they have the right to lodge an appeal with either the AAT or the Federal Court.

Section 5 Glossary

5.1 Associates

Within sections 39A and 39G, the Excise Act makes reference to an 'associate within the meaning of the Income Tax Assessment Act 1997'. In turn, section 995-1 of the Income Tax Assessment Act 1997 (ITAA97) defines 'associate' as having the meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA36).

The following subsections are quoted for convenience. For certainty, reference should be made to the current version of the relevant legislation. At the time of writing subsections 318(1) and 318(2) of the ITAA36 provided as follows:

318(1) [Associates of a natural person]

For the purposes of this Part, the following are associates of an entity (in this subsection called the 'primary entity') that is a natural person (otherwise than in the capacity of trustee):

(a) a relative of the primary entity

(b) a partner of the primary entity or a partnership in which the primary entity is a partner

(c) if a partner of the primary entity is a natural person otherwise than in the capacity of trustee - the spouse or a child of that partner

(d) a trustee of a trust where the primary entity, or another entity that is an associate of the primary entity because of another paragraph of this subsection, benefits under the trust

(e) a company where

(i) the company is sufficiently influenced by:

(A) the primary entity; or

(B) another entity that is an associate of the primary entity because of another paragraph of this subsection. or

(C) another company that is an associate of the primary entity because of another application of this paragraph, or

(D) two or more entities covered by the preceding sub-subparagraphs, or

(ii) a majority voting interest in the company is held by

(A) the primary entity, or

(B) the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the preceding paragraphs of this subsection, or

(C) the primary entity and the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and because of the preceding paragraphs of this subsection.

318(2) [Associates of a company]

For the purposes of this Part, the following are associates of a company (in this subsection called the 'primary entity'):

(a) a partner of the primary entity or a partnership in which the primary entity is a partner

(b) if a partner of the primary entity is a natural person otherwise than in the capacity of trustee - the spouse or a child of that partner

(c) a trustee of a trust where the primary entity, or another entity that is an associate of the primary entity because of another paragraph of this subsection, benefits under the trust

(d) another entity (in this paragraph called the 'controlling entity') where

(i) the primary entity is sufficiently influenced by

(A) the controlling entity, or

(B) the controlling entity and another entity or entities, or

(ii) a majority voting interest in the primary entity is held by

(A) the controlling entity, or

(B) the controlling entity and the entities that, if the controlling entity were the primary entity, would be associates of the controlling entity because of subsection (1), because of subparagraph (i) of this paragraph, because of another paragraph of this subsection or because of subsection (3)

(e) another company (in this paragraph called the 'controlled company') where:

(i) the controlled company is sufficiently influenced by

(A) the primary entity, or

(B) another entity that is an associate of the primary entity because of another paragraph of this subsection or

(C) a company that is an associate of the primary entity because of another application of this paragraph, or

(D) 2 or more entities covered by the preceding sub-subparagraphs; or

(ii) a majority voting interest in the controlled company is held by

(A) the primary entity, or

(B) the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection, or

(C) the primary entity and the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection;

(f) any other entity that, if a third entity that is an associate of the primary entity because of paragraph (d) of this subsection were the primary entity, would be an associate of that third entity because of subsection (1), because of another paragraph of this subsection or because of subsection (3).

5.2 Fit and proper person or company

Sections 39B and 39H of the Excise Act list a number of matters that the Tax Office may have regard to when considering whether a natural person is a fit and proper person for the purposes of the granting or suspending a licence, respectively.

In the same way, sections 39C and 39I list a number of matters that the Tax Office may have regard to when considering whether a company is a fit and proper company for the purposes of granting or suspending a licence, respectively.

However the matters listed there are clearly not the only matters that the Tax Office may have regard to, as these provisions use the word 'may', not 'may only' or 'must only'. The list of matters that the Tax Office 'may' have regard to is therefore a non-exhaustive list, and logically it leaves the way open for the Tax Office to have regard to any other relevant matters which may not be listed.

The question of what is a fit and proper person for the purposes of the Excise Act was addressed in the Administrative Appeals Tribunal by Deputy President Forgie in Martino v Australian Taxation Office ([2002] AATA 1242). In her judgement she relied in part on the reasoning applied by the High Court of Australia in Australian Broadcasting Tribunal v Bond and Others (1990) 94 ALR 11, specifically by Mason CJ, and Toohey and Gaudron JJ, and also the earlier case of Hughes and Vale Pty Ltd and Anor v State of New South Wales and Ors (No. 2) (Dixon CJ, McTiernan, Williams, Webb, Fullugar, Kitto and Taylor JJ) (1955) 93CLR 127.

The following passages appear at the paragraphs specified of Martino (per Forgie DP).

(At 38.) 'In an earlier case of Hughes and Vale Pty Ltd and Anor v State of New South Wales and Ors [No.2] (Dixon CJ, McTiernan, Williams, Webb, Fullugar, Kitto and Taylor JJ) (1955) 93 CLR 127, it was said:

"The expression 'fit and proper person' is of course familiar enough as traditional words when used with reference to offices and perhaps vocations. But their very purpose is to give the widest scope for judgment and indeed for rejection. 'Fit' (or 'idoneus') with respect to an office is said to involve three things, honesty, knowledge and ability: 'honesty to execute it truly, without malice affection or partiality; knowledge to know what he ought duly to do; and ability as well in estate as in body, that he may intend and execute his office, when need is, diligently, and not for impotency or poverty neglect it." (page 156) '

(At 43, after quoting Dixon CJ and Toohey and Gaudron JJ.) 'What is apparent from these passages from the High Court's judgement in the Bond case, is that the matters we must take into account in determining what is a fit and proper person depends upon the context in which those words appear.'

and

' ... it seems to me that the privileges, obligations and responsibilities of a licence holder under the Act must have some hand in shaping the matters to which regard must be had ...'

(At 46.) 'Given the nature of the privileges, obligations and responsibilities of the holder of a production licence, qualities of diligence, honesty and the likelihood of his or her observing the law would seem to be pivotal characteristics to be taken into account ... '.

5.3 Protection of (or to protect) the revenue

The expressions 'protect the revenue' and 'protection of the revenue' appear at several places in the Excise Acts, but there is no definition of them. The meaning of 'protect the revenue' was considered by Deputy President Forgie in Martino v Australian Taxation Office ([2002] AATA 1242). Commencing in paragraph 50 she said:

' ... The expression "protect the revenue" is not defined in the Act and I am not aware of any authorities that have considered it. The word "revenue" has been considered in Stephens v Abrahams (1902) 27 VLR 753 by Hodges J in the context of an appeal against a conviction for, in essence, presenting a false document with intent to defraud the revenue contrary to the Customs Act 1901 ("Customs Act"). Hodges J took:

"... the 'revenue' to be moneys which belong to the Crown, or moneys to which the Crown has a right, or moneys which are due to the Crown, as indicated by sec. 153 of the Customs Act 1901, which says:-All duties shall constitute Crown debts charged upon the goods in respect of which the same are payable and payable by the owner of the goods and recoverable at any time in any Court of competent jurisdiction by proceedings in the name of the Collector.' I would include those duties as part of the revenue, and the question is, Was there evidence of an intent to defraud the revenue-that is, to get out of the revenue something that was already in it, or to prevent something from getting into the revenue which the revenue was entitled to get? That, I think, would be defrauding the revenue." (page 767 and see also Parker v Churchill (1986) 9 FCR 334 at 348, per Jackson J)

51. The ordinary meanings of the word "protect" include "keep safe, take care of" (The New Shorter Oxford English Dictionary, 3rd edition, 1993) and they would seem to be the senses in which the word is used in the expression "protect the revenue". Mr Martino's licence may only be cancelled if it is necessary to take care of the money belonging to the Crown in right of the Commonwealth. That has the aspect of ensuring that the Commonwealth receives all that it should in the form of any excise that is ultimately payable in respect of tobacco originally grown on Mr Martino's farm and keeps all that it receives. It also has the aspect of not spending more of the Commonwealth's money than need be spent in carrying out its supervisory duties and responsibilities under the Act and in ensuring that the tobacco is not marketed illegally in Australia, and so avoid the payment of excise duty, if it cannot be marketed legally.

52. What is meant by the word "necessary"? I have taken the view that the meaning adopted by Allen J in State Drug Crime Commission of NSW v Chapman (1987) 12 NSWLR 447:

"As to the word 'necessary' it does not have, in my judgment, the meaning of 'essential'. The word is to be subjected to the touchstone of reasonableness. The concept is one as to what reasonably is necessary in a commonsense way. As Pollock CB said in Attorney General V Walker (1849) 3 Ex 242; 154 ER 833:

'It may be stated as a general rule that those things are necessary for the doing of a thing which are reasonably required or which are legally ancillary to its accomplishment.'" (page 452) '

1 Section 4 of the Excise Act.

2 Section 4 of the Excise Act - definition of `excisable goods'.

3 Sections 26 & 27 of the Excise Act, sections 34 & 36 of the Distillation Act, sections 20 & 26 of the Spirits Act, regulation 12 of the Spirits Regulations.

4 Section 4 of the Excise Act - definitions of `Collector' and `CEO'.

5 Section 4 of the Excise Act - definition of `manufacturer licence'.

6 Section 12 Distillation Act - a person shall not distil spirits unless licensed under this Act.

7 Section 39A of the Excise Act.

8 Section 4 of the Excise Act - definition of `storage licence'.

9 Section 26 of the Excise Act.

10 Section 39A of the Excise Act.

11 Section 13 Distillation Act.

12 Paragraph 13(a)(1) Distillation Act.

13 Paragraph 13(a)(1) Distillation Act.

14 Paragraph 13(a)(2) Distillation Act.

15 See section 57B Distillation Act for a definition of `fortifying spirit'.

16 Subsection 13(b) Distillation Act.

17 Subsection13(c) Distillation Act.

18 Section 20 of the Spirits Act.

19 Subsection 20(1) of the Spirits Act.

20 Subsection 39A(2) of the Excise Act

21 See glossary

22 Persons who participate in the management or control of an entity include directors and any other persons engaged in the professional administration of, or who are in charge of running the entity.

23 For an explanation of `protect the revenue', see glossary.

24 See also the glossary.

25 Section 39B of the Excise Act.

26 See also the glossary

27 Section 39C of the Excise Act.

28 Section 39D of the Excise Act.

29 Section 39DA of the Excise Act.

30 Section 8 of the Distillation Act; section 4 of the Spirits Act.

31 Subsection 20(1) of the Spirits Act.

32 Section 16 of the Excise Act; section 18 of the Distillation Act.

33 Paragraph 39A(2)(j) of the Excise Act.

34 Paragraph 39A(2)(h) of the Excise Act.

35 Paragraph 39A(2)(i) of the Excise Act.

36 The Privacy Act 1988.

37 Section 25 of the Excise Act.

38 Section 39E; section 21 of the Distillation Act.

39 Sub regulations 4(2) and 96(2) respectively of the Distillation Regulations

40 Regulation 117 of the Distillation Regulations

41 Section 39G of the Excise Act.

42 See glossary for definition

43 See glossary for further discussion of `fit and proper'.

44 That is, for the purposes of paragraphs 39G(1)(a), (b), (c), (d) and (f) of the Excise Act.

45 Scetion 39H of the Excise Act.

46 That is, for the purposes of paragraphs 39G(1)(e) and (f) of the Excise Act.

47 Section 39I of the Excise Act

48 Section 39J of the Excise Act.

49 Issued under section 39J of the Excise Act

50 Section 39K of the Excise Act

51 Paragraph 39K(1)(a) of the Excise Act.

52 Paragraph 39K(1)(b) of the Excise Act.

53 Subsection 39K(6) of the Excise Act.

54 Subsection 39K(6) of the Excise Act.

55 Section 39L of the Excise Act.

56 Subsection 39L(4) of the Excise Act.

57 Subsection 39L(3) of the Excise Act.

58 Subsection 39L(4) of the Excise Act.

59 Paragraph 39L(4)(b) of the Excise Act.

60 Subsection 39L(5) of the Excise Act.

61 Subsection 39L(6) of the Excise Act.

62 Essentially, writing to assert rightful ownership, and a lawful entitlement to possession, of the goods.

63 Section 77E of the Excise Act.

64 Subsection 77F(1) of the Excise Act.

65 Subsection 77F(2) of the Excise Act.

66 Subsection 77F(3) of the Excise Act.

67 Paragraph 50(1)(a) of the Excise Act.

68 See discussion at paragraph 1.12.

69 Part XA. An Infringement Notice provides for the payment of a penalty as an alternative to prosecution of certain offences.

70 Subsection 39D(3) and section 39DA of the Excise Act.

71 Sections 61A and 61C of the Excise Act.

72 Subsection 61C(1) of the Excise Act.

Chapter 3 - Excise Liability and Payment of Duty

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

ABN Australian business number

AIG Alcohol Industry Group

EIN Excise identification number

ETI Excise tariff item

PSP Periodic settlement permission

1.2 Appendices at the end of this chapter

Appendix 3.1 Classification decision chart.

1.3 Foreword

If you want to know more about Excise go to our website at www.ato.gov.au.

Section 2 Liability

Excise liability and payment of duty are dealt with in Part VI of the Excise Act.

Section 54 of the Excise Act deals with liability to pay excise duty as follows (in summary):

1. the licensed manufacturer of excisable goods or the owner of the excisable goods, where the owner enters the goods for home consumption, is liable to pay excise duty on the goods
2. despite (1) above, in the case of a Brew on Premises Shop (BOPS), only the proprietor is liable to pay excise duty on the beer manufactured in the BOPS.

Section 61 of the Excise Act provides that excisable goods remain under the Tax Office's control until delivered for home consumption¹ or for export. Excisable goods are defined in section 4 of the Excise Act as goods on which excise duty has been imposed. The Excise Tariff Act imposes excise duty on goods manufactured or produced in Australia that are classified in the Schedule to the Excise Tariff Act. The goods become subject to the Tax Office's control at the time they are manufactured and remain so until they are delivered for home consumption or for export.

There are two methods regulating the delivery of goods into home consumption and the payment of duty:

• entry for home consumption (pre payment of duty), and
• delivery without entry (periodic settlement of duty.

Section 3 Entry For Home Consumption, Delivery Without Entry, Calculation of Duty, Lodgement and Payment

3.1 Entry for home consumption (pre payment of duty) and delivery without entry (periodic settlement of duty)

3.1.1 Entry for home consumption (pre payment of duty)

Under subsection 58(1) of the Excise Act, a licensed manufacturer or owner may make an entry for excisable goods. When the entry is passed by an officer, it authorises the removal of the goods for home consumption or removal to an approved place. The entry of the goods for home consumption is made by lodging an excise return (form number 4285) (or an alternative approved format)² with the Tax Office, paying the duty on the goods³ and receiving an Authority to Deliver. This is referred to as prepayment. The Authority to Deliver authorises the removal of the goods for home consumption. When goods have been physically removed from a licensed place by authority given under section 58, then those goods have been delivered for home consumption and are no longer subject to Tax Office control.

A person who is not the holder of a periodic settlement permission (PSP), and is required to prepay duty on excisable goods, must not deliver such goods into home consumption until they have in their possession an Authority to Deliver for those goods⁴.

An entry of goods for home consumption requiring pre-payment of duty must be made on an approved form, namely, an excise return (form number 4285) available on our website at www.ato.gov.au or in a manner approved by the Tax Office (that is an application may be made to the Tax Office for approval to lodge the required information in a different format)⁵.

3.1.2 Delivery without entry (periodic settlement of duty)

Under section 61C of the Excise Act, a person may apply for and be granted a periodic settlement permission (PSP) by the Tax Office to deliver certain goods for home consumption without entry. This is also known as periodic settlement or deferred payment of duty.

A PSP allows a person to deliver excisable goods into home consumption for a specified period (usually 7 days), and defer lodging an excise return (form number 4285) and paying excise duty for those goods until after the end of the period. In accordance with the terms of the PSP, on the first working day after the specified period, the PSP holder must lodge an excise return with the Tax Office for any goods which have been delivered during the period and pay the duty (if any) owing on those goods. For example, the end of the period is a Sunday, the excise return and payment of duty are due on the following Monday, unless the Monday is a public holiday in which case they are due on the next working day.

On receipt and successful processing of the excise return, the Tax Office will send written confirmation of this to the permission holder.

The goods are deemed to be entered for home consumption on the day on which they are delivered for home consumption⁶.

In most instances delivery for home consumption occurs when the goods are physically moved out of the licensed excise place where they are stored. However it is not necessary in all cases for the goods to be physically removed from the licensed premises where they are stored for them to be considered to be delivered into home consumption, for example if the goods are to be consumed on the licensed premises. Excisable goods consumed at a licensed excise premises are considered to have been delivered for home consumption.

Where goods have been physically removed from a licensed place, subject to a section 61C permission, then those goods are considered to have been delivered for home consumption and are no longer subject to Tax Office control.

3.1.3 Excisable goods delivered while an excise tariff proposal is in place

Excisable goods means goods in respect of which excise duty is imposed by the Parliament, and includes goods the subject of an excise tariff or excise tariff alteration proposed in the Parliament⁷.

An Excise Tariff proposal is taken to have been proposed in the Parliament at the time at which a motion was moved in the House of Representatives to introduce the tariff alteration⁸.

The date of effect of any proposed alteration to rates of duty is included in the Excise Tariff proposal. The proposed alteration to rates of duty applies from the proposed date of effect for all affected excisable goods entered for home consumption, or deemed to have been entered for home consumption, from the proposed date of effect. The excise tariff proposal may be validated or rejected by Parliament. If the proposed rates of duty are rejected by the Parliament, and those proposed rates of duty are higher than the previous rates of duty, excisable goods entered for home consumption at the higher proposed rates may be subject to refund.

3.1.4 Excisable goods with a free duty rate

The above provisions for goods cleared on pre-payment provisions or periodic settlement arrangements apply equally to goods that are dutiable and those that are classified to an excise tariff item that carries a rate of 'free'.

Settlement periods for alcoholic products on which the rate of duty is not free will be for a maximum of seven days. For products with a free rate of duty, for example concessional spirits, the settlement period can be no more than one month.

When a change occurs to a rate of duty during the settlement period, the PSP holder is required to lodge two returns - one covering the period up to the date of the rate change and one return covering the period from the date of the rate change.

An application is required from PSP holders for each adjustment for over or under payments that have occurred outside the current settlement period.

Alternatively, with Tax Office approval, a PSP holder may make adjustments to an excise return for overpayments (set-off) or underpayments (set-on) that have occurred outside the current settlement period, without seeking specific approval for each occasion⁹. These adjustments include refund claims, drawback claims and underpayments.

Alcohol industry clients can request Tax Office approval by contacting the AIG at GPO Box 3218, Adelaide SA 5001. Further details are available on Law Administration Practice Statement PS LA 2003/1 Excise Duty - Reporting and accounting for debit and credit adjustments outside the current reporting period for further information.

3.2 Calculation of duty

Excise on alcoholic beverages is calculated on the amount of alcohol contained in a product. Litres of alcohol (Lals) are calculated by multiplying the volume of the product (in litres) by the alcoholic strength (% a/v).

The amount of duty is calculated by multiplying the number of Lals by the duty rate of the appropriate excise tariff item (ETI). The ETI and rate are found in the Schedule to the Excise Tariff Act (the Classification Decision Chart at Appendix: 3.1 outlines basic rules for the classification of alcoholic beverages). The volume of alcohol contained in goods is taken to be the volume that would be the volume if the alcohol was measured at 20 degrees Celsius.¹⁰

Excise legislation requires that the exact amount of duty is paid, however for administrative expediency an acceptable level of calculation precision has been adopted allowing all quantity calculations to be to at least two decimal places of a litre or of a Lal. A person may aggregate clearances for each excise tariff item and truncate the final quantity for duty to one decimal place for the purposes of making up the excise return as follows:

Tariff classification 2H

No. of bottles	Bottles size(mls)	Quantity in litres	Declared (or actual) strength	Litres of alcohol (Lals)
2	700	1.40	37.0%	.51
3	700	2.10	37.0%	.77
4	1125	4.50	37.0%	1.66
			Total	2.94
			Truncated	2.9

The duty on beer (and only beer) is calculated on the alcohol content above 1.15%.¹¹ This is sometimes known as the dutiable quantity or dutiable Lals (litres of alcohol). For example, the dutiable quantity of alcohol in 100 litres of beer at 5% alcohol by volume is 100 x (5% - 1.15%) = 3.85 Lals. For all other excisable alcoholic beverages duty is calculated on the entire alcoholic content including the first 1.15%.

The methodology for calculation of alcoholic strength for beer, spirits, liqueurs and other excisable beverages is detailed at www.ato.gov.au (spirits).

3.3 Volumes for duty purposes

Calculation of dutiable volumes for beer is covered in chapter 6 section 4.2 in this manual.

Section 77B of the Excise Act provides for tolerances in the calculation of dutiable volumes for beer. There are no similar tolerances for spirit or other excisable beverages in the legislation. Therefore in compliance with a principle of the Taxpayers' Charter the Tax Office will administer the legislation as if the same tolerances as apply to beer also apply to spirit and excisable beverages. Any further extension to volume tolerances will require legislative change through a submission to Treasury.

The calculation of dutiable volumes for spirit or other excisable beverages is as follows:

In a bulk container

A bulk container means a container that has the capacity to have more than 2 litres of liquid packaged in it.

Spirit or other excisable beverages may only be entered for home consumption, packaged in a bulk container with Tax Office approval and in accordance with subsection 58(5) of the Excise Act.

For spirit or other excisable beverages packaged in a bulk container, the tolerance allowed on volume is 1% of the nominated/labelled volume.

If the actual volume does not exceed the nominated/labelled volume by more than 1%, the dutiable volume is the nominated/labelled volume.

If the actual volume exceeds the nominated/labelled volume by more than 1%, the dutiable volume is the nominated/labelled volume plus the volume by which the actual volume exceeds the nominated/labelled volume by more than 1%.

If the volume of the contents is not nominated/labelled, the dutiable volume is the actual contents volume.

Note that spirit or other excisable beverages must not be entered for home consumption packaged in a bulk container without the written approval of the Tax Office¹².

In other than a bulk container

For spirit or other excisable beverages in other than a bulk container the tolerance allowed on volume is 1.5% of the labelled volume.

If the volume of the contents of a container, other than a bulk container, is indicated on a label printed on or attached to the container and:

• the actual volume does not exceed the labelled contents by more than 1.5%, the dutiable contents are the labelled contents
• the actual contents exceeds the labelled contents by more than 1.5%, the dutiable contents are the labelled contents plus the volume by which the actual contents exceeds the labelled contents by more than 1.5%, or
• if the volume of the contents is not indicated on a label, the dutiable contents are the actual contents.

3.4 Lodgement of excise return

3.4.1 Entry for home consumption (pre-payment)

An excise return (form number 4285) can be lodged by faxing it to 1300 131 456 or by sending it to the Tax Office at the Excise Returns Processing Unit, PO Box 9100, Wollongong, NSW, 2500. Excise duty may be paid using one of the approved Tax Office payment methods outlined in section 3.5 of this chapter. The Tax Office will forward an authority to deliver following processing of the return and receipt of payment.

3.4.2 Delivery without entry (periodic settlement)

An excise return (form number 4285) may be lodged by faxing it to 1300 131 456 by the time and date specified in a PSP or by sending it to the Tax Office at the Excise Returns Processing Unit, PO Box 9100, Wollongong, NSW, 2500. Any duty owed may be paid using one of the approved Tax Office payment methods outlined in section 3.4.

3.5 Payment of duty

Duty is payable before excisable goods are delivered for home consumption except where a PSP is held¹³.

3.5.1 Method of making payments

Excise payments may be made by any of the following payment options:

• electronic funds transfer - including direct credit and BPAY
• in person at a Post Office, or
• mail (by cheque or money order).

The Tax Office does not accept payment by credit card.

3.5.2 Payment advice books

A payment advice booklet is required to make excise payments at a post office or by mail. A personalised payment advice booklet may be ordered by phoning 1800 815 886 quoting your ABN or EIN and your relevant client account number.

Section 4 Excise Return Form

4.1 Excise return form

Clients must use the prescribed forms listed below when dealing with the Tax Office on the specified excise matters. The forms are available on our web site at www.ato.gov.au or by contacting the AIG on 1300 137 290 or at GPO Box 2318, Adelaide SA 5001.

Excise return

An excise return (form number 4285) is used to advise the Tax Office of the nature and volume of goods that will be delivered for home consumption subject to approval, or the nature and volume of excisable goods that have been delivered for home consumption during a specified period (weekly in most instances).

Amending excise return

Clients use an amending excise return (form number 4286) to amend an excise return (form number 4285). This form may only be used to change the details contained in the product details area of the original return (for example tariff classification, statistical code, instrument code or volume). Clients need to lodge a separate amending excise return (form number 4286) for each original return lodged.

If a client wishes to change other information in their original excise return (for example client details or the settlement period) they must lodge a new excise return form as the amending excise return form does not cater for changes to these sections. The new return must contain the amended details and refer to the original return. Clients will be advised when the amended details have been processed.

If the amending return results in an increased excise liability, an extra payment is required. If the amending return results in an excise credit in the client's favour:

• a refund will be processed, or
• the credit can be offset against a future excise liability.

4.2 Refund, drawback and remission forms

Application for excise refund

An application for excise refund (form number 4288) should be completed to request a refund of excise duty¹⁴ on goods that that have been delivered for home consumption and where the licensee may be entitled to a refund of the amount of duty paid.

Application for excise drawback

An application for excise drawback (form number 4287) should be completed to request a drawback of excise duty¹⁵ where the excise duty has been paid on goods that are subsequently exported.

Application for excise remission

An application for excise remission (form number 4289) should be completed to request a waiver of an existing excise liability that has not yet been paid¹⁶. This is generally where goods on which duty has not been paid, will not enter home consumption because they have been or will be, destroyed, or are no longer fit for human consumption.

Lodgement of applications

All application forms for refund, drawback and remission must be forwarded to the AIG by faxing them to (08) 8208 1399 or by sending them to Claims Officer, Alcohol Industry Group, GPO Box 2318, Adelaide, SA, 5001.

Section 5 Losses

5.1 Liability for losses

Section 61 of the Act establishes the control the Tax Office¹⁷ has over excisable goods from the time they are manufactured until they are delivered for home consumption or until they are delivered for export, whichever occurs first. Section 60 allows for the Tax Office to request persons to account for excisable goods which have been in their possession, custody or control. Losses incurred during manufacture also need to be accounted for. Licensees should record each loss or variance of excisable product such that each loss or variance is readily identifiable to the operation which produces it.

A prospective licensee is required to satisfy the Tax Office as to the reliability and security of their methods of production before a licence will be granted. Once licensed they are required to advise the Tax Office of significant changes to methods within 30 days of those changes occurring¹⁸.

A licensee should advise the Tax Office of any abnormal losses which are outside historical parameters (that is the licensee should know what previous losses have occurred for each manufacturing process). The reasons given for such losses will be considered by the AIG and clients will be notified of the outcome (acceptance or non-acceptance of the loss).

See chapter 7 Appendix 7.19 Record keeping requirements, operational losses and gains page 137, and chapter 9 section 11.8 Unaccountable losses - concessional spirit.

5.2 Production losses

5.2.1 Spirits

Loss before receiver

Section 51 of the Distillation Act provides that if due to unavoidable accident there is a loss of vapour or spirit before the spirit reaches the spirit receiver, and the Tax Office is advised of this accident immediately on its discovery, the Tax Office shall investigate the accident. The Tax Office may remit the duty on the quantity of spirit lost. However no allowance for the loss will be made if the loss was not reported immediately on its discovery ('immediately' means as soon as practicable).

Still to receiver

The still house contains the plant for spirit production. A licensee should record any loss after the spirit has been run from the still to a calibrated receiver. Comparisons of estimated production runs of spirit percentage by volume from fermenters to still to receivers will highlight any unusual loss.

Receiver to vats and vat transfers

The Tax Office accepts due to the volatile nature of distilled spirit, that losses will occur in transfers from receivers to calibrated vats and from vat to vat. Surveys of spirit receivers and vats before and after each operation will show any unusual loss patterns. A licensee should record all losses.

Filling of drums/kegs

A licensee should carry out and record a vat survey of dip and strength before and after any filling of drums/kegs, and record any transfer loss. A licensee should also record the actual gross weight of each drum/keg together with the strength (including obscuration).

Requests for bulk filling of batched casks must be in writing and sent to the AIG for approval. The batch, that is the source vat, should be dipped before and after the casks are filled. This dip reading is taken as the volume that was pumped into the casks. The licensee should then calculate an average volume for the casks. The restriction in this method is that all casks should be filled and emptied as a whole in order to adequately account for the product.

If breakage or loss due to leakage occurs in any one cask the total batch should be revatted and refilled from calibrated vats.

Filling - bulk transfers

Filling of or from bulk tankers should be measured by flow meter or dipping of the calibrated tanker. Filling from a vat to a bulk tanker should be recorded from the vat survey prior to the operation and after completion of each filling. A licensee should notify the Tax Office as soon as practicable of any unusual or significant occurrences during the filling of casks, drums and bulk tankers - these occurrences may include breakages, damaged vessels or strength discrepancies.

Storage in wood

Maturation of brandy, whisky or rum requires at least two years storage in wood¹⁹. This can be in wooden casks or vats (or both) during the maturation period.

An inevitable loss of spirit will occur during storage in wood due to leakage, absorption and evaporation. However absorption and evaporation should be normal and constant when casks are sound.

As a rough guide, loss during normal storage in wooden casks is considered to be:

• 4% in the first year
• 2% for each subsequent year, and
• a pro rata loss tolerance for part of a year, for example a storage period of 2 years and 4 months equates to 6% loss tolerance for the first 2 years plus 0.7% (rounded up) for the final 4 months.

However it must be remembered that climatic conditions and storage location, among other factors, may affect losses during maturation and each circumstance will be considered individually.

The smaller the cask the larger the ratio of wood surface area to volume of spirit. The larger the ratio, the higher the expected rate of loss during maturation. Therefore the Tax Office will consider the size of the casks involved in assessing maturation loss.

Losses in wood should be computed separately for each cask. Licensees should report excessive losses to the Tax Office as soon as practicable after discovery. The causes of excessive losses may be, but are not limited to, porous timber, slack hoops, defective staves, loose bungs, pillage or fraud.

The Tax Office will assess current vat loss against historical losses for the same operation.

Bottling/canning

The spirit vat used for bottling/canning should be accurately calibrated and properly authenticated calibration charts should be available. A licensee should use only properly validated measuring instruments for testing spirit strength when assessing duty liability and losses sustained in transit, storage and bottling of spirits (see chapter 11).

A licensee should use scales for determining spirit quantities contained in casks and drums. All weight measuring equipment should have a current certificate of accuracy issued by the appropriate weights and measures authority.

If waste or loss cannot be determined because of inaccurate container calibrations or faulty equipment, the Tax Office will request that the licensee have the faults rectified to our satisfaction.

A licensee should record all bottling losses and report any abnormal losses to the Tax Office as soon as practicable (see chapter 7 Appendix 7.19).

The Tax Office will consider the circumstances for the above losses and determine whether to call up the duty on the lost product.

Under bond movement and storage

A licensee must maintain documentation covering the under bond movement of spirit in order to account for the product. The documentation should be sufficiently detailed to enable the correct calculation of any excise liability. A licensee must record all losses and gains and report any abnormal losses to the Tax Office.

5.2.2 Liqueurs and other excisable beverages

Regulation 234B of the Excise Regulations provides that allowance may be made for loss or waste which is considered reasonable during the storage of spirit intended for use in the manufacture of liqueurs or other excisable beverages plus any losses which arise out of the manufacture, storage or bottling of liqueurs or other excisable beverages.

Due to variable formulas, composition of the products, and properties of materials used, the percentage loss during manufacture will vary greatly from brand to brand. The overall percentage loss will also be greater compared to a bottling operation of potable spirits.

5.2.3 Alcoholic Products

Production variations

A licensee is required to keep records of any variations (losses and gains) of product and can, therefore, be expected to have a historical record of any operational losses incurred at each stage of the manufacturing process.

Packaging variations may be divided into accountable and unaccountable variations.

Accountable variations may comprise:

• filter losses (these can be measured by weighing the filter dry and wet to determine the weight and hence the quantity absorbed by the filter)
• quantity of samples drawn for quality assurance, and
• leakages/drainings/flushings.

Unaccountable packaging losses may be calculated as follows:

header tank opening dip

less

header tank closing dip

volume of packaged product

volume of filter losses

volume of breakages, leakages

volume of samples drawn

volume of product drained / flushed

equals

Unaccountable losses.

A licensee must be able to account to the satisfaction of the Tax Office for large losses over and above normal operational losses¹⁹. Licensees should advise the Tax Office as soon as practicable of such losses and provide details of such losses in any application for remission of duty²⁰.

Section 6 Demands for Payment

Section 60 of the Excise Act deals with protecting the revenue by enabling the Tax Office to demand amounts equal to the duty that would have been paid on excisable goods that are not kept safely or are not accounted for to the satisfaction of a Collector.

Subsection 60(1) of the Excise Act provides that where a person who is entrusted with the possession, custody or control of excisable goods:

fails to keep those goods safely; or when requested by a Collector, fails to account for those goods to the satisfaction of a Collector, the person shall, on demanded in writing made by a Collector, pay an amount equal to the duty owing on those goods

'The object of s60 is to impose an obligation upon a person in possession, custody or control of excisable goods to ensure that these goods do not find their way into home consumption without the payment of duty.' Sidebottom v Giuliano [2000] FCA 607, Finkelstein J.

'...the account of the goods that is required is an account which shows an authorised relinquishment of possession, custody and control or, despite an unauthorized loss of possession, custody and control, that the goods have not got into home consumption without the payment of duty or that, notwithstanding the failure to keep the goods safely, Customs control over them is still effective.' Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279, Menzies J.

The reference to Customs control should also be read as being a reference to the Tax Office's control.

Paragraphs 60(1)(a) and (b) of the Act are not cumulative. If it is clear that there has been a failure to keep the goods safely (for example the goods have been stolen, pillaged or lost), an accounting is not necessary and the Tax Office may make a demand for payment under paragraph 60(1)(a). If there is doubt as to whether there has been a failure to keep the goods safely the Tax Office will ask the person responsible for the goods to account for the goods before making a demand under paragraph 60(1)(b). The person responsible will not have accounted for the goods by simply providing evidence of their sale or disposal. To account for the goods satisfactorily it is necessary to show that the goods have not entered into home consumption without payment of duty.

Subsections 60(1A) and 60(1B) deal with under bond excisable goods that are lost in transit between specified premises. When requested by the Tax Office if the person responsible for the movement of the goods fails to account for those goods, or part of those goods to the satisfaction of the Tax Office, that person shall, on written demand, pay to the Tax Office an amount equal to the excise duty which would have been payable on those goods, or part of those goods.

Subsection 60(2) provides that amounts payable under subsections 60(1), (1A) or (1B) are debts due to the Commonwealth and may be sued for and recovered in a court of competent jurisdiction through proceedings in the name of the Tax Office.

A person has a right to a review of a decision made under section 60.

The process of review of a Tax Office decision is outlined in chapter 2, section 4.1.

Section 7 Short Payments

Section 62 of the Excise Act deals with deficiencies in duty occurring at the premises of an excise manufacturer and provides that when a tax officer has taken stock of excisable goods and materials, and it appears that duty has not been paid on excisable goods on which duty should have been paid, the licensee shall immediately pay the amount of the deficiency unless the deficiency is accounted for to the satisfaction of the Tax Office. This provision allows the Tax Office to take account of the materials used as inputs to excise manufacture. When a manufacturer cannot account to the satisfaction of the Tax Office for the full amount of excisable product that should have been produced from a quantity of inputs, the Tax Office may demand an amount equivalent to the duty deficiency.

Similar provisions exist in section 50 of the Distillation Act dealing with inputs for distilling spirit. When the quantity of spirit produced is less than the quantity of spirit that should have been produced, when considering the quantity and strength of the material that has been distilled, the Tax Office may serve on the distiller an account showing the deficiency. If the distiller cannot account for the deficiency to the satisfaction of the Tax Office, the distiller is liable to pay an amount equal to the duty that would have been paid if the spirits were entered for home consumption on the day the account was served.

The Taxation Administration Act provides that liabilities arising under section 54 of the Excise Act (see section 2: Liability) and section 50 of the Distillation Act are tax related liabilities. Therefore the collection and recovery of debts arising under these sections may be dealt with in the same way as any tax related debt.

Section 8 Goods Returned to Stock After Removal or Delivery for Home Consumption

ATO ID 2005/45 refers.

Goods falling within the following categories may be returned to under bond stock:

• incorrect stock selections, and
• over delivery.

ATO ID 2005/45 refers to both of the above circumstances and may be viewed at www.ato.gov.au.

Returns are subject to the following conditions:

• they should be accompanied by the original documentation, and
• they should be returned within 48 hours of delivery. The Tax Office may allow further time if satisfied that the goods have been returned without delay.

Breakages that occur after goods have left Tax Office control cannot be returned to under bond stock.

Section 9 Refunds, Drawbacks and Remissions

9.1 Refunds

The Excise Act provides that refunds may be allowed as follows²⁰:

• in respect of excisable goods generally or in respect of goods included in a class of excisable goods
• in accordance with prescribed circumstances, conditions and restrictions, and
• the amount and means of determining the amount of any remission, rebate or refund of excise duty may be prescribed by regulation.

The Excise Regulations provide that a refund of excise duty shall not be allowed unless an application for the refund is delivered to the Tax Office²¹.

The Excise Regulations require that an application for a refund must be in writing, signed by the applicant and state the nature and particulars of the claim²².

The Excise Regulations prescribe the circumstances under which refunds are made²³. The circumstances are listed below.

50(1) Reference	Circumstance for refund
(a)	Goods on which excise duty has been paid have, while subject to Tax Office control, deteriorated or been damaged, pillaged, lost or destroyed, or become unfit for human consumption24.
(b)	Goods on which excise duty has been paid, being goods that are subject to Tax Office control, are not worth the amount of excise duty paid on the goods.
(c)	Excise duty has been paid through manifest error of fact25 or patent misconception of the law (for example the goods have been entered under the wrong excise tariff item and too much duty has been paid).
(d)	Goods on which excise duty has been paid have been taken up as ships stores or aircraft stores.
(da)	Goods on which excise duty has been paid are subject to a by-law after duty payment.
(db)	Goods on which excise duty has been paid are, at the request of a Minister of State, withdrawn from sale or distribution on the grounds of public health. (* see Note at the end of this table)
(k)	Returns of duty paid beer in bulk containers.
(tb)	Goods on which excise duty has been paid for the official use of a diplomatic mission or consular post and their families.
(tc) & (u)	Duty paid goods, purchased by or sold to a person, for use by a Government of a country other than Australia under the provisions of an agreement.
(ua) & (ub)	Duty paid goods sold to, or for use by, a person covered by a status of forces agreement.
(zzb) & (zzc)	Duty paid goods for the official use of an international organisation, or for the personal use of the holder of a high office in an international organisation, to which the International Organisations (Privileges and Immunities) Act 1963 applies.
(zzd)	Duty paid beer manufactured in a microbrewery.

* Note: In accordance with the Acts Interpretation Act 1901 Minister of State means any Commonwealth Minister or member of the Federal Executive Council but does not include a Minister of a State or Territory.

In the case of beer which may be subject to this particular refund provision, refund would apply to beer packaged in bulk containers and in other than bulk containers.

Remission (see section 9.3) would apply to any under bond part of product withdrawn from sale or distribution on the grounds of public health under refund circumstance 50(1)(db). The remission circumstance would be 'goods on which excise duty is payable are not worth the amount of duty payable'.

Application for excise refund (form number 4288) may be accessed at www.ato.gov.au.

The time limit for lodging an application for refund under 50 (1) (a), (b), (c) or (d) is normally 14 days after the date on which the excise duty was paid (paragraph 53 (1) (b) of the Excise Regulations) but may, for equitable reasons, be extended to 12 months after the date on which the Excise duty was paid (paragraph 53 (2) (b)).

Excise legislation does not prescribe a time limit for making an application for refund on duty paid bulk beer.

A refund of excise duty will not be allowed in a circumstance specified in (a), (b) or (db) in the table above unless the goods (not being goods that were pillaged, lost or destroyed, while subject to the CEO's control) were destroyed under Tax Office supervision.

If goods are to be destroyed off-site a refund approval from the Tax Office does not constitute permission to remove the goods from an excise establishment prior to destruction. This may only take place under the authority of a movement permission (see chapter 4).

The Excise Regulations allow the Tax Office to make arrangements with a person to whom a refund is payable to set off the refund against the whole or part of that person's liability for excise duty instead of the person receiving payment for the refund²⁶.

Special refund provisions exist for beer as follows:

The Excise Regulations establish that a refund of excise duty shall not be allowed under the circumstances prescribed in paragraph 50(1)(k) of the Excise Regulations (that is beer contained in a bulk container having packaged in it more than 2 litres of liquid) unless²⁷:

• the beer has been returned to the brewery at which it was made within 90 days after it was first removed from the brewery, or
• if the beer has been destroyed, it was destroyed because it had become unfit for human use, and
• the permission of the Tax Office for the destruction of the beer was sought within 90 days after it was first removed from the brewery at which it was made, and
• the quantity of beer that was in the bulk container when it was returned to the brewery at which it was made or was destroyed was not less than 87.5% of the volume of the bulk container as determined under section 77B of the Act at the time it was entered for home consumption.

The amount of duty which may be refunded is the amount of duty which has been paid only on the quantity of beer returned for refund. The amount of refund is not made on the original fill quantity. There is no provision for refund on beer which is packaged in other than a bulk container (for example beer in bottles or cans).

Refunds are a specific entitlement and, for this reason, the special refund provisions which apply to beer may not be extended to apply to other alcoholic beverages.

9.2 Drawback

The Excise Act states that the regulations may make provision for and in relation to allowing drawback of excise duty²⁸. Drawback of excise duty is dealt with in Part IV of the Excise Regulations. Drawback is a repayment of excise duty, subject to certain conditions, when excisable goods have been entered for home consumption, duty paid and subsequently exported. Sub-regulations 76(1) and 76(2) of the Excise Regulations are the authority under which arrangements for drawback are allowed.

Drawback of excise duty may be paid on specified goods²⁹ where:

• specified goods means
  • manufactured goods in the manufacture of which excisable goods have been used, or
  • excisable goods that have been subjected to a process or to treatment in Australia.
• excisable goods, in relation to specified goods, means excisable goods
  • on which excise duty has been paid, and
  • that have not been used in Australia other than:
    • in the manufacture of the specified goods or in being subjected to a process or to treatment for the purpose of producing the specified goods, or
    • for the purpose of being inspected or exhibited.
• on the exportation of specified goods, drawback may be paid in respect of:
  • the excisable goods used in the manufacture of the specified goods, or
  • the excisable goods that were subjected to a process or to treatment for the purpose of producing the specified goods and any excisable goods lost or wasted in the manufacture of the excisable goods
• drawback is not payable on the exportation of specified goods if the goods have been used in Australia other than for the purpose of being inspected or exhibited.

Drawback of excise duty is not payable where³⁰:

• the value of the goods for home consumption is less than the amount of drawback that would be payable on the exportation of the goods, unless the Tax Office approves drawback in respect of the goods, or
• on exportation of the goods
  • the excise duty paid on the goods has been refunded; or
  • after exportation, the goods are relanded in Australia.

Drawback of excise duty is not payable on the exportation of goods unless³¹:

• before exportation, the owner of the goods advises the Tax Office in an approved form of their intention to claim drawback on the exportation, and
• before exportation, the goods are available at all reasonable times for examination by the Tax Office, and
• detailed records of the receipt, use and disposal of the goods are available at all reasonable timed for examination by the Tax Office, and
• a claim for drawback is completed in an approved form and is lodged with the Tax Office within 12 months after the day on which the goods are exported, and
• the amount of the drawback is at least $50 or, the aggregate of claims for drawback lodged at the same time, is $50 or more.

Application for drawback (form number 4287) may be accessed at www.ato.gov.au.

9.3 Remissions

Section 78 of the Excise Act and sub regulations 50(1), 51(1) and 52(1) of the Excise Regulations also deal with remissions.

The circumstances for which remissions may be approved, on goods which have not been delivered for home consumption, include³²:

(a) goods on which excise duty is payable have, while subject to Tax Office control, deteriorated, or been damaged, pillaged, lost or destroyed, or become unfit for human consumption³³

(b) goods on which excise duty is payable are not worth the amount of duty payable, and

(ta) goods on which excise duty is payable are delivered for home consumption under section 61C of the Excise Act (that is periodic settlement permission) for the official use of a diplomatic mission of an overseas country or consular post and their families.

A licensee is required to forward any application for remission to the AIG. The AIG will assess whether remission may be approved without inspection of the goods and whether the licensee may pour the product to waste without Tax Office supervision.

A remission of excise duty will not be allowed in a circumstance specified in 50 (1) (a) or (b) above unless the goods (not being goods that were pillaged, lost or destroyed, while subject to the CEO's control) were destroyed under Tax Office supervision.

If goods are to be destroyed off-site, a remission approval from the Tax Office does not constitute permission to remove the goods from an excise establishment prior to destruction. Removal of the goods from an excise establishment prior to destruction may only take place under the authority of a movement permission (see chapter 4).

When a licensee applies for remission of packaged product subject to Tax Office control, they are required to retain evidence of the breakages (for example broken bottles with caps intact) and make the evidence available for Tax Office inspection. The Tax Office will assess the need to examine the evidence and will advise the licensee accordingly.

Application for remission may be accessed at www.ato.gov.au.

Section 10 Offsetting Stock Shortages Against Stock Surpluses

10.1 Basis of offsetting

Offsetting of stock shortages against stock surpluses is subject to approval by the AIG.

The AIG may only approve offsetting of excisable goods. The AIG cannot approve offsetting of excisable goods against imported goods.

Offsetting can only be applied within individual licensed premises. Offsetting across national operations, for example offsetting of a stock surplus in one premises against a stock shortage in another separate premises will not be approved.

Offsetting will not be approved to overcome deficiencies in a licensee's record keeping or manufacturing processes, for example where a licensee's record keeping is found to be unsatisfactory, the AIG will not approve offsetting to overcome such a deficiency.

Offsetting does not apply in terms of the value of packages but to the amount of excise liability which applies to those packages on a $ (dollar) duty basis.

At the end of each offset period where the duty liability of book stock exceeds the duty liability of actual floor stock, the difference in excise duty is to be paid to the Tax Office. Book stock is then to be corrected to show actual floor stock.

At the end of each offset period, where actual floor stock exceeds book stock, book stock is to be corrected to show actual floor stock.

Offsetting may be applied generally across excisable alcoholic goods. For example beer, spirits, liqueurs and other excisable beverages may be offset against each other.

10.2 Granting of approval for offsetting

(1) A licensee is required to apply in writing to the AIG for approval to offset. The application should provide full details of stock shortages and surpluses and state the reasons for the discrepancies.

(2) The AIG will advise the licensee in writing with details of the permission to offset.

10.3 Offsetting period

(1) Offsetting of stock shortages against stock surpluses is normally applied quarterly. If requested, the AIG may approve a shorter or different offset period where it can demonstrate that a shorter or different period would fit in better with the company's accounting system or work practices.

(2) A licensee is required to conduct a stock take at the end of each offset period. The licensee is required to send a stock variation report, together with a request to offset, to the AIG within 30 days of the end of each offset period and to include any offsetting payment with the licensee's next periodic payment.

(3) A licensee may conduct more frequent stock takes. However any stock shortages or stock surpluses detected during any stock takes conducted within the offset period are to be carried forward to the end of each offset period so that offsetting can be applied.

(4) Stock shortages and stock surpluses may not be carried forward to the next offset period but must be dealt with within the current offset period.

10.4 Options for payment of offsetting liability

With Tax Office approval a licensee may pay offsetting liability by either of the following methods:

• along with a stock variation report, the licensee sends payment to the National Director Alcohol, Excise, GPO Box 2318, Adelaide for the amount of the excise liability identified as a stock take shortage, or
• the licensee sends a stock variation report to the National Director Alcohol advising that the licensee's next periodic settlement will include an extra payment for the stock take shortage. The AIG will monitor the next periodic settlement to identify the extra payment as a stock take shortage.

10.5 Offsetting examples

Example 'A'

Surplus stock
	Big Ben Gin	15 X 750ml bottles
	Strength	43%
	Quantity	4.8 Lal
	T.I.	2H
	Rate:	$59.37 Lal
	Excise Duty	$284.97
Stock shortage
	Smuggler Rum	6 X 1.125ml bottles
	Strength	37%
	Quantity	2.4 Lal
	T.I.	2F
	Rate	$59.37 Lal
	Excise Duty	$142.49

The duty amount on the surplus stock exceeds the duty amount on the stock shortages. After applying offsetting, the duty amount payable to the Tax Office is nil. Stock records are adjusted to reflect the actual physical stock for each commodity.

Example 'B'

Surplus stock
	Beer	45 X 50 litre kegs
	Strength	2.9%
	Quantity	39.3 Lal
	T.I.	1C2a
	Rate:	$6.01 Lal
	Excise Duty	$236.19
Stock shortage
	Beer	90 cartons (375ml X 24) bottles
	Strength	4.9%
	Quantity	30.3 Lal
	T.I.	1C1c
	Rate	$35.04 Lal
	Excise Duty	$1016.71

The duty amount on the stock shortages exceeds the duty amount on the surplus stock by $825.52. After applying offsetting the duty amount of $825.52 is payable to the Tax Office. The 45 kegs of surplus beer must be returned to under bond stocks and stock records adjusted to reflect the actual physical stock for each commodity.

APPENDIX: 3.1 Classification Decision Chart

(section 3.2 in this chapter)

(see also WETR 2004/1 at www.ato.gov.au)

1 Entry for home consumption is not defined in the Excise Act. The expression is taken to mean `delivered for consumption in Australia' see Collector of Customs (NSW) v. Southern Shipping Co Ltd (1962) 107 CLR 279, judgement of McTiernan J. at page 784.

2 Subsection 58(1A) Excise Act

3 Section 59 Excise Act.

4 Subsection 58(1) Excise Act

5 Subsection 58(1A) Excise Act.

6 Subsection 61C(2) Excise Act

7 Section 4 of the Excise Act..

8 Subsection 4(3) of the Excise Act.

9 See Law Administration Practice Statement PS LA 2003/1 Excise Duty - Reporting and accounting for debit and credit adjustments outside the current reporting period.

10 Subsection 3(2) of the Spirits Act, subsection 6(2) of the Distillation Act and the preamble to The Schedule of the Excise Tariff Act.

11 Item 1(C) of the Schedule to the Excise Tariff Act.

12 Subsection 58(4) of the Excise Act.

13 See paragraph 2.1

14 Section 78 Excise Act; Part III Excise Regulations.

15 Section 79 Excise Act; Part IV Excise Regulations.

16 Section 78 Excise Act; Part III Excise Regulations..

17 CEO means the Commissioner of Taxation - section 4 of the Excise Act.

18 Section 39A & 39D Excise Act - see Chapter 5 of this manual for further details.

19 Section 12 of the Spirits Act 1906

20 Section 78 of the Excise Act

21 Sub regulation 51 (1) of the Excise Regulations

22 Sub regulation 52 (1) of the Excise Regulations

23 Sub regulation 50 (1) of the Excise Regulations

24 Paragraph 50(1)(a) Excise regulations.

25 Paragraph 50(1)(c) Excise regulations.

26 Sub regulation 58 (2) of the Excise regulations

27 Regulation 56 of the Excise Regulations

28 Section 79 of the Excise Act.

29 Section 77 of the Excise Regulations.

30 Regulation 78 of the Excise Regulations.

31 Subregulation 78A(1) of the Excise Regulations.

32 Subregulation 50(1) 0f the Excise Regulations

33 Paragraph 50(1)(a) Excise regulations.

Chapter 4 - Movement Permissions

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

ABN Australian business number

AIG Alcohol Industry Group

CMP Continuing movement permission

EDN Export declaration number

SMP Single movement permission.

1.2 Foreword

If you want to know more about Excise go to our website at www.ato.gov.au.

Section 2 Permissions

2.1 Overview

Section 61A of the Excise Act provides for the Tax Office to give permission for the movement of excisable goods on which excise has not been paid. Excise control over these goods while they are being moved is a key component of ensuring that the correct amount of duty is paid. Subsection 61A(1) provides for the movement of excisable goods under continuing movement permission from a specified place to another specified place. Subsection 61A(2) provides for the movement of excisable goods under single movement permission from a specified place to another specified place. Subsections 61A(2A) and (2B) provide for the delivery of excisable goods under permission for exportation.

2.2 Single movement permission (SMP) for movement of excisable goods between specified places

A single movement permission issued under subsection 61A(2) of the Excise Act authorises the removal of specified goods that are subject to Tax Office control (referred to as under bond goods) from one specified place to another specified place. A SMP allows for the release of the goods to the permission holder from the licensed premises where the goods are held. The permission holder may not necessarily be the licensee of the premises where the goods are held. Under bond movements will normally only be authorised between licensed premises. If an applicant proposes to move under bond goods to a non-licensed place they will need to provide adequate reasons why the duty should not be paid prior to the movement.

Application forms for a SMP (form number 8513) are available from the AIG or online at www.ato.gov.au. An applicant is required to forward the application to the Tax Office Alcohol Industry Group (AIG) for approval. Details of where to send the application are on the form.

The application must contain the following details:

• the name, address and ABN (if applicable) of the applicant
• details of the authorised contact person in case the AIG requires further information about the application
• reason for movement of the goods
• name, address and establishment code of the premises where the goods will be moved from
• name, address and establishment code of the premises where the goods will be moved to
• proposed form of transport and the name of the carrier (if applicable)
• date on which it is intended to move the goods
• signature of the applicant and date signed, and
• description of the excisable goods to be moved (bond marks or marks and numbers, number of packages, description of goods, quantity in litres of alcohol (Lals), excise tariff item number).

If an applicant does not have control of the receiving premises they should attach a letter from the operator of the receiving premises stating that they will accept responsibility for the under bond goods when they receive them. The letter should be signed and dated by the operator of the receiving premises and contain the following statement:

'We advise that:

• we are prepared to accept excisable goods on which excise duty has not been paid, as listed on (insert name of individual or business) documentation, and as approved by the Tax Office
• we will accept responsibility for the goods on receipt into our licensed premises, which includes any excisable product that cannot be accounted for after the correct receipt of goods
• our records are suitable for recording under bond goods
• our establishment code is (insert establishment code), and
• our address is (insert address).'

The AIG will fax the approved SMP back to the applicant who must keep a copy of the approved SMP for audit purposes and send the original, or a document showing all the relevant information, with the goods to the receiving premises. If the permission holder and the licensee of the premises where the goods are stored are different entities, the permission holder and the licensee are both required to keep a copy of the movement permission for audit purposes. The permission may be subject to conditions that the permission holder must comply with. These will be clearly stated on the permission. In the case of a reverse movement permission where the permission holder is the licensee of the receiving premises, the permission holder must send the original of the approved SMP, or a document showing all the relevant information, to the licensee of the premises from which the goods are to be dispatched.

If a SMP is refused the AIG will notify the applicant in writing of that decision and will clearly state the reasons for that refusal. There is no right of appeal under the Excise Act if an application is refused. Under the provisions of the Taxpayers' Charter (online at www.ato.gov.au) an applicant may request a review of our decision. An applicant also has a right of appeal to the Federal Court or the Federal Magistrates Court under the Administrative Decisions (Judicial Review) Act 1977.

A permission holder is liable for any duty payable on the goods included in the permission if they fail to keep the goods safely, or when requested, cannot account for the goods to the satisfaction of the Tax Office. Satisfactory accounting is where you can show the goods have not entered home consumption (that is consumption within Australia) without paying duty¹.

In the case where the permission holder is not a licensee, the licensee of the dispatching premises is liable for the goods while they are located in the dispatching premises. The permission holder is liable to account for the goods from the time they are cleared from the dispatching premises until they are received into the licensed receiving premises.

2.3 Continuing movement permissions (CMP) for movement of excisable goods between specified places

In cases where a person wishes to move under bond goods on a regular basis they can be granted a continuing movement permission (CMP) (form number 8452) under subsection 61A(1) of the Excise Act. Applications for a CMP are available from the AIG or online at www.ato.gov.au. The application should be sent to the AIG at the address stated on the form. The approved permission will be faxed to the applicant stating the details of which goods can be moved and the premises between which the goods can be moved. The permission may also include conditions that the applicant must comply with. When a CMP has been approved the permission holder does not have to apply for approval each time that they wish to move specified goods between the places specified in the permission.

CMPs may be approved in either of two arrangements:

• establishment to establishment, that is from one sending premises to one or more receiving premises listed in the CMP Schedule, or
• client to client, that is from all premises licensed under the sending entity's ABN to all premises licensed under the receiving entity's ABN. A separate schedule showing one sending premises (listed according to ABN) but with multiple receiving premises can be attached to one CMP.

A CMP application must include the following details:

• the name and ABN of the applicant
• the applicant's address
• the applicant's postal address
• whether the applicant currently holds a continuing permission
• details of the authorised contact person in case the AIG should require further information
• name, address and establishment code of the premises where the goods will be moved from
• name, address and establishment code of the premises where the goods will be moved to
• description of the excisable goods to be moved and the quantity per annum, and
• signature of the applicant and date signed.

If an applicant does not have control of the receiving premises, the applicant must attach a letter from the operator of the receiving premises similar to that shown at section 2.2.

If an application is refused the AIG will notify the applicant in writing of that decision and will clearly state the reasons for that refusal. Review options are the same as listed at section 2.2.

All permission holder delivery documentation is required to clearly show the CMP approval number and to indicate that the goods are under bond. The delivery documentation must contain sufficient information (including the excise tariff items for the goods) to allow the goods to be entered for home consumption or for export at the receiving premises and if necessary, to allow calculation of the amount of duty payable.

In the case of a reverse movement permission where the permission holder is the licensee of the receiving premises, the permission holder must provide a company document containing all the relevant information to the licensee of the premises from which the goods are to be removed.

If a permission holder wishes to add new receiving premises to their permission they must advise the AIG of the details of the new receiving premises by completing the schedule attached to the CMP form (form number 8452). They are required to supply evidence of commercial arrangements with any new additions to the receiving premises.

If a permission holder wishes to delete a receiving or dispatching premises from the permission they must contact the AIG in writing with details of the premises they wish removed from the permission.

Under the provisions of section 60 of the Excise Act, the permission holder is liable for any duty payable on the goods included in the permission if they fail to keep the goods safely or when requested cannot account for the goods to the satisfaction of the Tax Office. Satisfactory accounting is when you can show the goods have not entered home consumption (that is consumption within Australia) without paying duty.

In the case where the permission holder is not a licensee, the licensee of the dispatching premises is liable for the goods while they are located in the dispatching premises. The permission holder is liable to account for the goods from the time they are cleared from the dispatching premises until they are received into the licensed receiving premises.

Where under bond goods moved on permission are short delivered at the receiving premises only the actual quantity received is to be taken up into company records. The licensee of the receiving premise is to advise the AIG as soon as practicable of details of the goods short delivered.

2.4 Single Movement Permissions to deliver excisable goods for exportation

A SMP may be issued under subsection 61A(2B) of the Excise Act to give permission to deliver for exportation goods subject to Tax Office control (that is under bond goods). It is the authority for the licensed premises where the goods are held to release the goods to the permission holder. The permission holder may not necessarily be the licensee of the premises where the goods are held. Under bond movements will normally only be authorised from a licensed premises to a place for export. Places for export are prescribed in Regulation 23 of the Customs Regulations 1926. Places for export include wharfs and airports appointed under section 15 of the Customs Act 1901 and freight depots licensed under section 77G of the Customs Act.

SMP application forms (form number 12042) are available from the AIG or online at www.ato.gov.au. An applicant is required to forward their application to the AIG for approval. Details of where to send the application are on the form.

The AIG will fax the approved SMP back to the applicant who must keep a copy of the approved SMP for audit purposes and send the original with the goods to the receiving premises. If the permission holder and the licensee of the premises where the goods are stored are different entities, the permission holder and the licensee are both required to keep a copy of the movement permission for audit purposes. The permission may be subject to conditions that the permission holder must comply with. These will be clearly stated on the permission.

If an application is refused, the AIG will notify the applicant in writing of that decision and will clearly state the reason(s) for that refusal. Review options are the same as those listed at section 2.2.

The permission holder is liable for any duty payable on the goods included in the permission if they fail to keep the goods safely, or when requested cannot account to the satisfaction of the Tax Office that the goods have been exported or otherwise account for the goods. Satisfactory accounting is where you can show that the goods have not entered home consumption (that is consumption within Australia) without paying duty. Evidence that goods were delivered for export does not constitute evidence that goods have been exported².

In the case where the permission holder is not a licensee, the licensee of the dispatching premises is liable for the goods while they are located in the dispatching premises. The permission holder is liable to account for the goods from the time they are cleared from the dispatching premises until they are exported.

2.5 Continuing movement permissions to deliver excisable goods for exportation

In cases where a person wishes to move under bond goods for exportation on a regular basis they may be granted a CMP. Applications for a CMP (form number 12043) are available from the AIG or online at www.ato.gov.au. The application should be sent to the AIG at the address stated on the form. The approved permission will be faxed to the applicant stating the details of what goods may be moved and the premises between which the specified goods may be moved. The permission may also include conditions that the applicant needs to comply with. Once the permission is issued, the permission holder does not have to apply for approval each time that they wish to move specified goods between the specified places.

CMPs may be approved for the movement of specified goods from an establishment to one or more specified places for export (as listed in the schedule to the permission.

If an application is refused the AIG will notify the applicant in writing of that decision and will clearly state the reasons for that refusal.

Review options are the same as those listed at section 2.2.

Delivery documentation is required to clearly show the CMP approval number and to indicate that the goods are under bond. Delivery documentation must contain sufficient information (including the excise tariff items for the goods) to allow the excise duty payable to be calculated if necessary (in the event the goods are not exported and the goods are not accounted for).

If a permission holder wishes to add a new receiving place of export to the permission, they must advise the AIG of the details of the new place of export by completing the schedule attached to the CMP form (form number 12043).

If a permission holder wishes to delete a receiving or dispatching premises from the permission, they must contact the AIG in writing with details of the premises they wish removed from the permission.

Under the provisions of section 60 of the Excise Act, the permission holder is liable for any duty payable on the goods included in the permission if they fail to keep the goods safely or, when requested, do not satisfy the Tax Office that the goods have been exported and do not otherwise account for the goods to the satisfaction of the Tax Office. Satisfactory accounting is where you can show the goods have not entered home consumption (that is consumption within Australia) without paying duty. Evidence that goods were delivered for export does not constitute evidence that goods have been exported³.

In the case where the permission holder is not a licensee, the licensee of the dispatching premises is liable for the goods while they are located in the dispatching premises. The permission holder is liable to account for the goods from the time they are cleared from the dispatching premises until they are received at the place of export.

Where under bond goods moved on permission are short delivered at the place of export, the permission holder should advise the AIG as soon as practicable.

2.6 Other approval required for exportation

An export movement permission (SMP or CMP as per sections 2.4 or 2.5) gives the permission holder the authority to move excisable goods from an excise place to a place of exportation. It is not an approval to export. An export declaration number (EDN), that is an authority to deal with the goods which are to be exported, must be obtained separately from Customs. Customs will not issue an EDN unless the exporter has an export movement permission from the Tax Office.

2.7 Obtaining or providing information about permissions

Until recently, confidentiality provisions contained in section 159 of the Excise Act have prevented the Tax Office from being able to discuss protected information about Excise authorisations.

Subsection 159(3) was inserted into the Excise Act in 2004 and allows the Tax Office to release such information in certain circumstances.

Subsection 159(3A) allows information relating to permission and licence arrangements to be disclosed to a person dealing or proposing to deal with another person in relation to excisable goods or goods under the control of the Tax Office. This information will only be provided for ensuring the dealing or proposed dealing is in accordance with the Excise Act.

You can get information about permissions that relate to a person (including a company) that you are currently or proposing to deal with. The permission information includes:

• whether a person has a permission to move goods under the Excise Act, or whether a person has a licence to store or manufacture goods under the Excise Act
• the details of a permission or licence that a person has under the Excise Act, and
• any conditions that apply to the permission or licence.

You can request the release of this information or the Tax Office may initiate the release of this information after forming the opinion that this information has to be released to ensure that a dealing or proposed dealing is in accordance with the Excise Act.

1 Section 60 of the Excise Act.

2 Section 60(1D) of the Excise Act.

3 Section 60(1D) of the Excise Act.

Chapter 5 - Record Keeping

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

AIG Alcohol Industry Group

CEO Chief Executive Officer (the Commissioner of Taxation)

EDN Export declaration number

SVR Rectified grape spirit (spiritus vini rectificatus).

1.2 Foreword

If you want to know more about Excise go to our website at www.ato.gov.au.

Section 2 Record Keeping Requirements for Breweries

2.1 Overview

Section 50 of the Excise Act requires that licensed manufacturers must keep records as directed by the Tax Office and retain any records for such period as the Tax Office directs and produce the records to the Tax Office on demand¹.

A licensee is required to maintain adequate records to account for all excisable goods in their possession, custody or control and to properly acquit any excise liability on those goods. While the format of these records is flexible, the records must record each stage of production from the receipt of raw materials through to the delivery of the finished product.

The volume of alcohol contained in goods is taken to be the volume that would be the volume if the alcohol was measured at 20°C².

Excise manufacturers are required to correct volumes to 20°C at the following stages:

• for bulk receipts of alcohol from any outside source
• for bulk deliveries of alcohol to any outside destination, and
• at the header tank or bottling tank immediately prior to packaging.

2.2 Raw materials register

A licensee is required to record in a raw materials register details of all raw materials received into the brewery. They must be able to match the movement of raw materials into the brewery with related invoices and delivery documents.

A licensee is required to record the movement of raw materials out of storage to production. The minimum details required include:

• type of raw material
• opening stock quantity
• date raw material received
• quantity of raw material received
• date raw material used
• quantity of raw material used, and
• closing stock quantity.

2.3 Recipes

Maintaining recipe sheets is standard practice for breweries. The Tax Office uses these as a reference to establish the quantities of raw materials used to manufacture each particular beer. Recipes are also used to establish whether or not a product is 'beer' as defined in The Schedule to the Excise Tariff Act or whether it would be classified as an 'other excisable beverage'.

The minimum details required include:

• beer type
• malt type and quantity
• mash ingredients (type and quantity)
• hops details (type and quantity), and
• other kettle additions (type and quantity).

2.4 Brew house records

The minimum details required include:

• the type of beer being manufactured
• details of lauter tun, mash tun, kettle, and whirlpool
• the date on which batch manufacture started
• quantities of materials used (such as malt and hops)
• volume of water added to the kettle
• volume of liquid (wort) transferred to fermentation tanks
• details of fermentation tanks used, and
• details of losses incurred during transfer of product.

2.5 Fermentation and storage

The minimum details required include:

• date on which liquid (wort) was transferred to fermentation tanks
• volume of liquid (wort) transferred to fermentation tanks
• quantity of yeast added to the liquid (wort)
• details of specific gravity measurements during fermentation
• dates of specific gravity measurements during fermentation
• temperature at which specific gravity measurements were made, and
• fermentation tank details.

2.6 Bright beer register

Once the fermentation is complete a licensee is required to maintain a record of quantities of product transferred into the 'bright beer' tanks. Bright beer is an industry term for beer which has been matured, carbonated and filtered and is ready for packaging and drinking.

Minimum details required include:

• date product transferred into storage tanks
• quantity of product transferred into storage tanks
• whether the product was filtered during transfer
• date product moved out of storage tanks for packaging
• quantity of product moved out of storage tanks for packaging
• type of product in tanks, and
• details of identifying marks/numbers of tanks used.

2.7 Packaged product register

A licensee is required to record details of all packaged product.

Minimum details required include:

• product type
• package details (for example type and size of container)
• opening stock details and date
• quantities of packaged product as a running total
• strength of packaged product
• date on which product moved into store
• quantities moved into the packaged product store
• date on which product moved out of store, and
• quantities moved out of the packaged product store.

A licensee must be able to match any movement of packaged product with invoices, external delivery documents and records of any quantities used on brewery premises.

2.8 Other records

Other brewery records which are required to be maintained include:

• details of operational gains and losses
• details of packaging losses
• sales invoices and delivery documents
• copies of excise returns
• under bond movement documents, and
• refund and remission approvals.

Section 3 Record Keeping Requirements for Distilleries

The Distillation Act³ provides that the Tax Office may examine and take copies of, or extracts from, all books and accounts required to be kept by the distiller for the information of the Tax Office, and of all books kept by the distiller in relation to the distillery or the making or sale of spirits.

3.1 Still House Records

The still house is the production centre where fermented base distillation materials are input (charged) to the still, the output of the still being distilled alcohol (spirits).

Spirits may require further work within the still house before they are ready for transfer to the spirit store. The separation of still house stocks from spirit store stocks allows losses incurred during still house operations to be identified and treated as production losses which can be assessed relatively liberally⁴, provided that the licensee maintains adequate records to account for them.

The main records which should be kept in the still house are:

• notice book
• comparison account, and
• still house stock register.

3.1.1 Notice book

This is a record of all materials charged to the still (inputs). Minimum details required include:

consecutive number for each charge

• date each charge was made to the still
• type of material (for example distillation wine)
• identification of the charge vessel used (for example WC #3)
• results for each dip of the charge vessel in centimetres immediately prior to charging the still
• corresponding volumes in litres of charge material in each charge vessel
• the alcoholic strength of the charge material, as tested by laboratory analysis (for example  12.5% alcohol by volume)
• total amount of alcohol in the charge, in Lals (volume in litres multiplied by alcoholic strength), and
• identification of the still to which each charge was made (for example Pot #2).

3.1.2 Comparison account

This is a record of all spirits distilled from the still (outputs). Minimum details required include:

• the relevant charge numbers from the Notice Book (in the case of a continuous still this information may not be available)
• the date on which the spirit was produced
• the type of spirit produced. For example cane spirit or rectified grape spirit (SVR)
• identification of the still from which the spirit was produced
• identification of each receiving vessel. For example feints to FR4, SVR to SR1)
• results for each dip (in centimetres) of all receiving vessels
• temperature of the spirit at time of dipping
• corresponding volumes in litres and Lals of all spirits received into the receiving vessels, and
• the alcoholic strength of all spirit produced at 200C including feints, as tested by laboratory analysis.

A comparison account may be maintained as a separate record or the above details may be incorporated into a combined notice book/comparison account record.

3.1.3 Still house stock register

This is a record of all still house spirit vessels (including feints receivers) and their alcohol contents.

Minimum details required include:

• identification number of the vessel
• stock survey details pre and post each operation including
  • the date
  • dip result in centimetres
  • volume in litres
  • strength at a temperature of 20⁰C, and
  • volume in Lals, and
• operational loss or gain in Lals for each operation, calculated as the difference between the pre and post operation Lals.

A licensee is required to record all spirit movements into and out of each still house vessel in the still house stock register.

3.1.4 Other still house records

In addition to the notice book, comparison account and still house stock register, a licensee is required to keep records of operations within the still house, such as the recycling and cleaning up of spirit (for example ion exchange).

Some losses will normally occur during these operations. While still house production losses are not normally subject to call up of duty, adequate records should be kept to account for these losses.

3.2 Alcohol strength analysis

A licensee is required to maintain a separate record of analysis for spirit store and warehouse stock where charge material, spirits or waste from the still are tested for alcoholic strength.

This record should include:

• date of the test
• vessel identification number
• dip result in centimetres
• details of material tested, and
• alcoholic strength of the sample tested at 200C.

These records may be in the form of a still house test book or laboratory analysis records.

3.3 Spirit runnings

When the spirit has been re-worked and no further cleaning up is required, it is run from the still house stock into the bonded stock. From this point losses are more stringently assessed.

A licensee is required to keep a record of all stock run from the still house into bonded stock.

Details to be recorded on the spirit runnings record are:

Originating (still house) vessel

• date of the spirit run
• vessel from which the spirit was run
• type of spirit
• pre-operation dip in centimetres
• post-operation dip in centimetres
• calculation of the volume transferred (in litres)
• temperature of the spirit
• alcoholic strength of the spirit at 200C, and
• volume transferred in Lals.

Receiving (bond) vessel

• vessel to which spirit was run
• type of spirit
• pre-operation dip in centimetres
• post-operation dip in centimetres
• calculation of the volume received in litres
• temperature of the spirit
• alcoholic strength of the spirit at 200C
• volume received in Lals, and
• operational loss or gain in Lals.

In practice, there may be no physical movement in running the spirit from the still house to bonded stocks. The spirit may remain in the same multipurpose vessel. When holding still house stock the vessel is shown as a still house vessel and when holding bonded spirit store stock it is shown as a spirit store vessel.

3.4 Destruction of feints

Feints are waste products of distillation and include such products as methanol and fusel oils. A licensee is required to account for feints as they contain alcohol which makes them subject to excise control (subsection 6(1) of the Distillation Act says that feints means spirits received into the feints receiver). Feints must also be included in calculations of distillation efficiency to obtain an accurate efficiency figure.

Feints are stored in designated vessels known as feints receivers. A licensee will normally collect feints over a period of time until storage capacity limits are reached or it is necessary for other reasons to dispose of them. A licensee must apply to the Tax Office for approval to destroy feints. A licensee should therefore complete an application for remission and forward it to the Alcohol Industry Group (AIG) for approval. On receipt of approval under section 78 of the Excise Act, in accordance with the circumstances provided in regulation 50 of the Excise Regulations, they may destroy the feints and write that quantity off their records. They may apply to the AIG for continuing approval where the destruction of feints is an on-going issue.

3.5 Stocktakes and distillation efficiency

A licensee is required to carry out a stocktake of all stock on hand, including still house stock and feints.

For bulk stock in tanks and vats they are required to dip the tanks or vats, test the spirit strength (if they have not tested it within the previous month) and record stock details, noting losses and gains in the relevant stock records. They should record still house stock only in the still house stock register.

They are required to calculate still efficiency on a regular basis to ensure that all available alcohol in charge material is being recovered at an acceptable rate. Efficiency is to be expressed as a percentage of the total Lals available. The formula is:

closing stock + total spirit run to bond + feints destroyed x 100

opening stock + total Lals charged to still.

3.6 Spirit store records

The spirit store is the part of the distillery where spirit is held that has been worked in the still house to the point where no further distillation or cleaning up is required. Any bulk spirit received from an external supplier is also received into the spirit store. Storage vessels in the bulk spirit store include wooden vats, stainless steel tanks and either plastic or steel drums.

Spirit is normally held in the spirit store as follows:

• for the purposes of further production, including the following approved operations
  • blending
  • reducing
  • clarifying
  • bottling
  • casking (warehousing)
  • methylating
  • colouring, and
  • flavouring
• for the maturation of spirits in wood
  • prior to movement into the spirit warehouse (cask storage)
  • after maturation in casks in the spirit warehouse has been completed and the cask stock has been revatted back into the spirit store, and
• for storage before delivery for home consumption.

3.7 Vat register

This is the record of all spirit store vessels and the quantity of spirit contained in each vessel. A licensee is required to maintain a separate record, similar to the still house stock register, for each storage vessel. They are further required to survey each vessel before and after each operation to determine and record volumes in Lals and to measure and record temperatures.

They are required to correct volumes to 20⁰C at the following stages:

• on receipt of spirit from any outside source
• on delivery of spirit to any outside source, and
• at the header tank or bottling vat immediately prior to packaging.

Some licensees choose to correct volumes to 20⁰C throughout the manufacturing process. There is no obligation to correct volumes other than at the three stages mentioned above. However where a licensee's records are not required to be corrected to 20⁰C, they must record the ambient temperature for each operation in the vat register or the still house records.

The vat register should include the following details:

• the identification number of the vessel
• stock survey details pre and post each operation including the date, dip in centimetres, volume in litres, strength at 200C, temperature and volume in Lals, and
• the operational loss or gain in Lals for each operation, calculated as the difference between the pre and post operation Lals.

Losses and gains are to be recorded against the receiving vessel.

The vat register is therefore a record of:

• all spirit movements into and out of each vat in the spirit store
• all spirit operations in the store, and
• all stocks held in the store.

A licensee is required to verify the accuracy of the vat register periodically by stocktake, normally monthly, but at least quarterly.

For bulk stock in the spirit store the same principles apply as for a still house stock take (that is dipping and strength testing).

3.8 Operations notices

Operations notices provide written directions to distillery staff of the work that is to be done.

By means of an operations notice a licensee may direct how much spirit is required for a particular operation and from which vat it is to be drawn, which vessels are to be used and the nature of the operation. Distillery staff should use operations notices to record details such as dips and temperatures for transfer into the vat register, cask account or other relevant records.

3.9 Receipts

Before accepting a delivery of bulk spirit and updating stock records (for example the vat register), a licensee is required to check the goods received.

For spirits received by road tanker they are required to:

• check that seals are intact
• check the dip compartments and record the measurement converted to litres by referring to dip charts
• take temperature readings for each compartment
• correct litre volumes to 200C
• take samples from each compartment and measure alcohol strengths
• correct strengths to 200C and calculate and record the actual Lals received
• record any difference between the surveyed quantity (in Lals) and the supplier's details on the delivery document. This is the transit loss/gain. A licensee must advise the Tax Office as soon as practicable of any abnormal loss at this point.
• record in stock records details of the actual Lals received
• re-measure the quantity received after the spirit has been transferred into distillery receiving vessels, and
• record the transfer loss or gain in the stock records against the receiving vessel. This figure is the difference between the quantity signed for as received and the quantity measured in the receiving vat.

For spirits received by drum a licensee is required to:

• check that seals are intact
• weigh the drums and establish gross weights
• deduct tare weights to establish net weights of spirit contents
• draw samples and test strength, corrected to 200C
• establish contents in litres by referring to density tables (using apparent strength as tested)
• establish contents in Lals (add obscuration if required)
• record transit loss or gain on the delivery document (they must advise the Tax Office as soon as practicable of any abnormal loss at this point), and
• record the actual quantity received in stock records.

3.10 Deliveries

The recording process for ex-distillery deliveries is the reverse of the receipts procedure outlined above. All ex-distillery deliveries must be volume corrected to 20°C.

A licensee may only move spirits under bond with the permission of the Tax Office (see chapter four for details of movement permissions). Under bond movement of excisable goods may only be made between places specified in the permission. Exporters of under bond excisable product must obtain from the Tax Office an export movement permission (SMP or CMP) to move the goods under bond to a specified place for export prior to approaching Customs for an authority to export (that is a valid Export Declaration Number (EDN)).

A licensee must maintain a record of deliveries of spirit from the spirit store as follows:

• name and address of the supplier
• name and address of the consignee
• date of delivery from the distillery
• type of delivery vessel (for example, drums, bulk tanker, bottles)
• volume in litres (corrected to 200C for bulk tankers), alcohol strength, quantity in Lals, and
• type of spirit.

3.11 Bottling operations records

Under bond excisable spirit may only be packaged at licensed premises.

Bulk spirit cannot be duty paid before packaging.

Following blending, clarifying, colouring or flavouring, the volume of spirit in the bottling tank must be corrected to 20⁰C before commencing the bottling process.

The alcohol strength of the spirit must be calculated and recorded either at the header tank before bottling or by sampling at the bottling line.

Bottling operations records must include:

• quantity in litres (at 200C) and Lals of spirit delivered from the header tank
• strength of the spirit in the header tank
• number and size of bottles or cans
• total litres, strength and Lals of packaged product
• total litres, strength and Lals of catchings (losses), and
• reconciliation of Lals delivered from the header tank and Lals packaged and resultant losses.

3.12 Packaged stock records

Packaged stock records, commonly referred to as the case account, are records of all packaged stock held. Such records must show the number of cartons plus the following details:

• product line identification, total quantity, package size and number per carton for each packaged goods line
• receipts into the case account of packaged stock from bottling or of under bond stock from other licensees
• under bond deliveries from the case account to other licensees for duty payment or for export
• dates when stock is received, delivered or surveyed, and
• stocktake details.

3.13 Spirit warehouse records

Excise legislation prescribes that brandy, rum and whisky must be matured by storage in wood for a period of not less than two years⁵. The maturation area of a distillery is referred to as the spirit warehouse.

Storage in wood can be either in large wooden vats or in wooden casks and barrels. A licensee must record the date the spirit is put into wood, taking into account any period when the spirit is temporarily held in non-wooden vessels. Failure to maintain accurate records may mean that the date when the spirit has reached the required maturation age cannot be properly calculated.

Usually, maturing spirit is held in wooden casks to impart greater wood character. The transfer of the spirit from vats to casks, storage for an extended period and its subsequent return back into vats (called revattal) all incur losses. Therefore a licensee must maintain detailed records of quantities delivered from vats, quantities received into casks within the warehousing operations, and vice-versa for revattal.

The principal records for the spirit warehouse are the warehousing book that records details of all transfers from vats to cask storage, and the revattal book that records details of all spirit transferred from casks back to vat storage.

3.14 Cask storage methods

There are three acceptable methods by which spirit may be held in casks. They are the conventional method, the in situ method and the batching method. In each case a measured quantity is withdrawn from the full cask measure to allow for possible expansion. Once the spirit has been sent to cask storage it should remain untouched until revattal.

Contrary to other distillery operations a licensee must record loss or gain variations incurred in warehousing operations, where the spirit is transferred from vat to cask storage, against the delivery vessel, unless they maintain a separate cask account (the cask equivalent of the vat register).

Regardless of which method they use, a licensee must record the date of the warehousing operation and the date of the revattal operation. The acceptability of cask storage losses is determined from these dates (see also discussion in chapter 3 section 5.2.1).

3.15 Procedures for the conventional method

3.15.1 Warehousing

A licensee must:

• establish the quantity in litres and Lals from the delivery vat and record it in the vat register
• number the required casks consecutively

if the cask contents are to be measured by weight then

• weigh the casks empty
• fill and weigh the casks and mark tare and gross weights on each cask, and
• establish fill contents in litres and Lals for each cask.

If the cask contents are not measured by weight, measure the cask contents by flowmeter.

Record the details of each cask contents and the date in the warehousing book. Reconcile the total quantity (in Lals) warehoused in casks against the total quantity delivered from vats, calculate the operational gain or loss and record this against the delivery vat.

3.15.2 Revattal

A licensee must:

• take a sample of the cask contents and test for strength, noting any variations
• survey the receiving vat prior to operation to establish litre and Lals contents
• pump the contents of the casks for revattal into a receiving vat
• survey the receiving vat again to establish total quantity in Lals received from casks, noting also dip, temperature and litre volume
• reconcile revatted Lals quantity against the warehoused Lals quantity
• record details of casks revatted and note the date in the revattal book and the vat register
• calculate revattal loss and record in the revattal book and the vat register against the receiving vat.

The advantage of this method is that each cask can be treated as a separate entity for storage purposes. However it is labour intensive and not commonly used.

3.16 Procedures for the in situ method

3.16.1 Warehousing

• A licensee must:

• establish the quantity in litres and Lals from the delivering vat and record details in the vat register
• measure the capacity of individual casks (normally by flowmeter)
• number the casks consecutively, mark with the predetermined capacity, then fill the cask
• complete the details of each cask and contents and record the date in the warehousing book.
• reconcile the total quantity in Lals warehoused in casks against total quantity delivered from vats and calculate the operational gain or loss.

A licensee must fill each stack as a complete entity. Therefore they must survey the delivery vat for each stack. The advantage of this method is that once cask capacities have been established this information can be used for all subsequent warehousing operations for which those casks are used. The casks can be left stacked up without the need to take down the stack each time the casks are filled. As individual cask contents are known, each cask can be treated as a separate entity for storage purposes if required.

3.16.2 Revattal

The revattal procedure is the same as that outlined for the conventional method.

3.17 Procedures for the Batching Method

3.17.1 Warehousing

Batches of up to 30 casks may be filled by this method. A licensee must

• establish the quantity in litres and Lals from the delivering vat and record details in the vat register
• accept this quantity as the total quantity delivered into the casks
• divide the total quantity by the number of casks to give an average fill
• record the average fill in warehousing records as the contents of each cask in the batch and note the date, and
• identify batches and casks by sequential numbering systems.

3.17.2 Revattal

The revattal procedure is the same as outlined under the conventional method. However each batch must be revatted as a whole.

This is the simplest and least labour intensive cask storage methods. However a licensee may only use this method subject to written approval from the Tax Office.

As with the in-situ method, casks can be left stacked between fills. Each batch is treated as a separate entity for storage purposes and as such must be revatted as a whole.

3.18 Operational losses and gains

A licensee must record losses and gains incurred in still house and spirit store operations (where product is moved from one bulk storage vessel to another) against the receiving vessel. The only exception is when spirit is transferred to a vessel that is outside the spirit store, such as:

• warehousing into casks
• deliveries to other licensees or premises, or
• transfers to packaging.

In each of the above cases a licensee must record operational losses or gains against the delivery vessel.

3.19 Abnormal losses

A licensee is required to advise the Tax Office as soon as practicable when they incur losses that are outside normal losses for that type of operation. They are required to retain evidence that may substantiate the loss, such as broken bottlenecks or caps, photographs, or police/insurance reports. They should present these to the Tax Office when requested.

3.20 Stocktakes

A licensee is required to carry out stocktakes on a regular basis to establish the accuracy of stock records, detect omissions or errors in stock records, and identify security issues such as theft, plant and equipment problems.

They should carry out stocktakes on a floor-to-book basis. They are required to dip bulk storage vessels, record temperatures, measure volumes in litres and calculate Lals. Where they have not checked alcohol strength within the preceding three months, they are required to re-test and record alcohol strength. Stock records such as the still house and vat registers must then be updated.

A licensee is required to check and reconcile packaged stock against the case account. Duty is payable on packaged stock that cannot be accounted for to the satisfaction of the Tax Office. In some circumstances, they may offset stock shortages against stock surpluses (see chapter 3, section 10). They must refer the matter to the Tax Office for advice or further action.

A licensee should carry out regular stocktakes on a monthly basis, or more frequently if considered necessary. They are required to advise the Tax Office as soon as practicable if they find any discrepancies in bulk spirit stocks beyond normal loss parameters. For each bulk storage vessel, they should reset cumulative loss or gain figures to zero in their stock records after the stock take.

A licensee is liable for the payment of any excise duty which would have been payable on stock that has been lost, stolen or that they cannot account for to the satisfaction of the Tax Office. They must report full details of the matter to the Tax Office who will advise what action is required.

3.21 Duty payment

A licensee is required to keep the following records to substantiate duty payments:

• detailed invoices for all goods subject to duty payment including
• description of each excisable product line
• number of packages
• volume of each container
• alcohol content
• date of invoice
• date of delivery out of the distillery, and
• supplier and delivery addresses, and
• copies of excise returns on which payment has been made.

Section 4 Record Keeping Requirements for Manufacturers of Liqueurs and other Excisable Beverages

The Excise Act requires that licensed manufacturers must keep records as the CEO directs, retain any records for such period as the Tax Office directs and produce the records to the Tax Office on demand⁶.

A manufacturer of liqueurs and other excisable beverages is required to maintain records to satisfactorily account for all excisable goods in their possession, custody or control. While the format of these records is flexible, the records should record each stage of production from the receipt of raw materials through to the delivery of the finished product.

The volume of alcohol contained in goods is taken to be the volume that would be the volume if the alcohol was measured at 20°C⁷.

A manufacturer is required to correct volumes to 20°C at the following stages:

• on receipt of bulk spirit from any outside source
• on delivery of bulk spirit to any outside destination , and
• at the header tank or bottling tank immediately prior to packaging.

In order to do so they are required to keep the following records:

A spirit account, including the following details

• quantity in litres of spirit received
• date spirit received
• strength of spirit received
• type of spirit received
• quantity in litres of spirit transferred to manufacturing account, and
• date of transfer of spirit to manufacturing account

A manufacturing account, including the following details

• batch number
• date
• quantity of spirit and strength transferred from spirit account
• ingredients (as per approved formulae)
• quantity in litres and strength of product manufactured
• quantity in litres transferred to case account, and
• details of any losses/gains

A case account, including the following details

• quantity in litres received from manufacturing account
• quantity in litres bottled (number of cases, number and size of bottles per case)
• bottling run number and date
• details of any losses/gains
• details of delivery document (excise return, SMP, MP or EDN), and
• date of delivery.

Section 5 Record Keeping Requirements for Concessional Spirit Permit Holders

Regulation 142 of the Excise Regulations allows that the Tax Office may give approval for the delivery of spirit for industrial or manufacturing purposes approved by the Tax Office.

Regulation 148 of the Excise Regulations provides that every person receiving spirit in pursuance of regulation 142, in quantities exceeding 25 litres per month, must keep records in accordance with form 21 of the receipt and disposal of the spirit.

Regulation 149 of the Excise Regulations provides that all spirit that is delivered under regulation 142 remain subject to Tax Office control until used for the approved purposes.

Universities, technical colleges and other educational institutions are required to keep records of spirit use in accordance with regulation 158, and not regulation 148⁸. Regulation 158 does not require a form 21.

All permit holders are required to keep records to account for concessional spirit to verify that the spirit has been used in accordance with approved purposes.

A concessional spirit reseller is not required to keep records other than normal commercial documentation provided those records include:

• quantity and alcoholic strength of spirit received, delivered or sold
• individual sales showing
  • name and address of purchaser
  • permit number of purchaser, certificate registration number of practitioner, or name of secondary school, and
  • quantity and alcoholic strength of spirit sold
• quantity and alcoholic strength of stock on hand
• details of all spirit from the time of receipt, through break bulk to final repackaging (for resellers who repack spirits received in bulk containers), and
• details of all losses relating to repackaging, plus the final number and size of the new packages. The reseller should then record the packaged product details in stock records.

Spirit manufacturers and end-users are also not required to maintain any prescribed recording system provided that their records enable them to fully account for the disposal of spirit or their use in accordance with an approved purpose.

Final accounting for the end use of concessional spirit rests with the end-user. The Tax Office may require an end-user to keep records additional to normal commercial records if the end-user has insufficient internal stock controls in place or the records which are kept do not allow the end-user to properly account for the spirit.

5.1 Usage of Spirit for Fortifying Wine

A fortifier is required to record the following details for each fortification:

• date and fortification identification number
• operations/cellar note number (this may not be used in smaller wineries)
• wine details including
  • litres of wine
  • baumé9 of grape must10
  • baumé of fermented wine, and
  • alcoholic strength of wine
• spirit usage details including
  • litres of spirit used, and
  • alcoholic strength of spirit used
• fortified wine details, including
  • litres of fortified wine produced
  • alcoholic strength of fortified wine, and
  • baumé of fortified wine

The Schedule: Account Fortifying Spirit Usage form (Appendix 9.4 in chapter 9) is a suitable format for use by permit holders.

Section 6 Record Keeping Requirements for Excise Storage Licensees

The Excise Act¹¹ requires that a proprietor of an approved place (that is the premises specified in a storage licence) must keep records as the Tax Office directs, retain any records for such period as the Tax Office directs and produce the records to the Tax Office on demand.

The holder of an excise storage licence is required to keep records that show:

• details of the goods received into their licensed premises for storage
• details of the goods dispatched from their licensed premises
• if repacking, details of any losses or wastage incurred during the repacking process, and
• any other losses or gains of excisable product.

The volume of alcohol contained in goods is taken to be the volume that would be the volume if the alcohol was measured at 20°C¹².

Excise storage licensees are required to correct volumes to 20°C at the following stages:

• on receipt of bulk alcohol from any outside source
• on delivery of bulk alcohol to any outside destination, and
• at the header tank or bottling tank immediately prior to packaging.

An excise storage licence holder's records must be sufficiently detailed to enable them to satisfactorily account for all excisable goods which they receive into and dispatches from their licensed premises.

1 Section 50 of the Excise Act

2 The Schedule to the Excise Tariff Act

3 Section 60 of the Distillation Act.

4 See part 4.2.1 in Chapter 3.

5 Section 12 of the Spirits Act 1906.

6 Section 50 of the Excise Act.

7 The Schedule to the Excise Tariff Act

8 Regulation 160A provides that a reference to universities in regulation 158 includes technical colleges and other educational institutions.

9 A measurement of the sugar content in grapes.

10 New wine; the unfermented juice as pressed from the grape or other fruit.

11 Section 50 of the Excise Act.

12 The Schedule to the Excise Tariff Act.

Chapter 6 - Beer

This document has been archived. It is current only to 30 June 2006.

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

AGAL Australian Government Analytical Laboratories

ANTS A new tax system

BOPS Brew-on-premises shops

CEO Chief Executive Officer (the Commissioner of Taxation)

CPI Consumer price index

ETI Excise tariff item

GST Goods and Services Tax

NATA National Association of Testing Authorities

NSC National Standards Association

PSP Periodic settlement permission

1.2 Appendices at the end of this chapter

Appendix 6.1 The brewing process

Appendix 6.2 The brewing process - flow chart

Appendix 6.3 Beer excise legislation - a brief history

Appendix 6.4 Measurement of alcoholic strength.

1.3 Foreword

If you want to know more about Excise go to our website at www.ato.gov.au.

Section 2 Beer Excise

2.1 Overview

The commercial brewing process involves various stages including malting, fermentation, maturation and packaging. A brief explanation of these stages is described at Appendix: 6.1. A flow chart of the brewing process is at Appendix 6.2.

The glossary in chapter 13 of this manual explains some of the terms used in the brewing industry.

2.2 What is Beer?

Beer is defined in the Schedule to the Excise Tariff Act as follows:

'Beer' means a brewed beverage which -

1. is the product of the yeast fermentation of an aqueous extract of malted or unmalted cereals, whether or not containing other sources of carbohydrates;
2. contains hops, or extracts thereof, or other bitters¹;
3. has not had added to it, at any time, any alcohol from any other source; and
4. contains more than 1.15% by volume of alcohol.

The definition of beer is not an exhaustive definition. That is additional substances other than 'alcohol from any other source', can be added to the brewed beverage without altering its classification as beer.

'Alcohol from any other source' means alcohol from any source other than beer. However in accordance with Item 4 of Schedule 2 of the Excise Regulations, beer spirit (that is spirit distilled from beer) can only be used in the manufacture of beer if either or both of the following conditions are satisfied:

• the beer spirit is used in the manufacture of beer at the brewery at which the beer spirit was distilled, or
• if the manufacturer of the beer spirit holds a brewery licence in respect of another brewery, the beer spirit is used in the manufacture of beer at that other brewery.

Provided the manufactured product complies with the definition of beer, the addition of flavours such as honey or chilli may be used in the manufacture of beer.

The addition of alcoholic essences/flavours containing spirit other than beer would disqualify the manufactured product from the definition of beer. Such product, depending on its alcoholic strength, would be classified to ETI 1D (other excisable beverages of an alcoholic strength by volume not exceeding 10%) or to ETI 2H (other excisable beverages of an alcoholic strength by volume exceeding 10%).

Therefore beer is a beverage with an alcoholic strength of more than 1.15% alcohol by volume (a/v) and is the result of fermentation of malted or unmalted cereal grains (such as barley, wheat and rye) in water. It can contain other sources of carbohydrate such as sugar and flavourings. It must contain hops or extracts of hops or other bitters. It must not contain added alcohol from any other source (that is any added spirit must be distilled only from beer). There is no upper limit on the strength of beer.

Home brewed beer is not excisable provided it is not used for commercial purposes. The Schedule to the Excise Tariff Act, which lists all excisable goods and their relevant rates of duty excludes any liquor that has been produced for non-commercial purposes, using non-commercial facilities and equipment unless it contains distilled spirit.

2.3 Excise liability

The Excise Act² provides that excisable goods remain under Tax Office control until delivered for home consumption or for export. Excisable goods are defined in section 4 of the Excise Act as goods on which excise duty has been imposed. The Excise Tariff Act imposes excise duty on goods manufactured or produced in Australia that are listed in the Schedule to the Excise Tariff Act³. The goods become subject to Tax Office control at the time they are manufactured and remain so until they are delivered for home consumption or for export.

The duty on beer is calculated on the alcohol content above 1.15%. This is sometimes known as the dutiable quantity or dutiable litres of alcohol (Lals). For example the dutiable quantity of alcohol in 100 litres of beer at 5% alcohol by volume is 100 x (5% - 1.15%) = 3.85 Lals.

Excise duty on beer is adjusted according to increases in the CPI index in February and August each year⁴.

For a brief history of beer excise legislation see Appendix: 6.3.

2.4 Production losses

A licensee must be able to account to the satisfaction of the Tax Office for all losses of excisable goods⁵. Therefore, they are required to keep accurate records of any loss of product. Such records must be sufficient to enable them to compare current and historical losses for the same procedures to determine abnormal losses.

Any abnormal losses occurring after fermentation has taken place (that is when alcohol has been produced and beer becomes accountable), or when a brew is to be destroyed by tipping to waste, need to be detailed in an application for remission of duty⁶.

We accept that some losses do occur during production. In particular we recognise that losses occur at the following production stages:

• transfer of product from the fermenter (due to spent yeast being drawn off)
• filtration
• transfer between storage tanks
• reprocessing, and
• bottling.

Generally bottling losses may be calculated as follows:

header tank opening dip

Less

header tank closing dip

volume of packaged product

volume of filter losses

volume of breakages and leakages

volume of samples drawn

volume of drainings and flushings

Equals

bottling losses.

2.5 Calibration of vessels and instruments

The calibration of vessels and instruments is dealt with in chapter 11 section 4 of this guide.

Tanks which were calibrated will need to be recalibrated if:

• they are damaged (for example they suffer bumps, dents and bulges) and the extent of the damage creates doubt as to the continuing accuracy of previous calibrations, or
• they are moved, modified or extensively repaired, or
• doubt exists as to the accuracy of the calibrations.

The Excise Act⁷ provides that the Tax Office may direct a licensed manufacturer to keep certain records and produce them when required. This includes calibration charts and current instrument certificates.

2.6 Strength Testing and Sampling

The Tax Office has established rules for measuring the alcohol content in excisable products⁸. These rules are contained in Excise Act (Alcoholic strength of beer) Determination 2003 (see Appendix: 6.4). This Determination may also be accessed on our website at www.ato.gov.au. The rules require that measuring instruments and equipment be regularly tested and certified.

Should you wish to use other measuring equipment you should write to the Tax Office for approval giving full details of the alternative equipment and show that the alternative equipment will achieve the required accuracy to correctly measure the alcoholic strength of beer.

2.6.1 Sampling by the manufacturer

If a licensee is unable to establish their own accurate testing methods, each brew they make must be analysed by a NATA accredited laboratory at the licensee's expense. Such testing is to continue until they can establish consistency when comparing their own strength testing results against those of the NATA accredited laboratory.

Other than for naturally conditioned beers, samples should only be drawn after the beer has been pasteurised when there will be no further increase in the strength of the product.

2.6.2 Sampling by the Tax Office

The Tax Office may assess a licensee's strength testing methods by drawing samples and forwarding the samples (along with details of the estimated strengths) to AGAL or another NATA approved laboratory⁹.

A tax officer will draw samples only after the licensee or a responsible brewery official is advised. Alternatively, the tax officer may supervise the drawing of samples by the licensee or the responsible official.

Bulk beer	where the sampling point is the 'bright beer' stage no sample will be drawn while the tank is operational, or before the brewery has drawn its final pre-release sample and has entered the actual strength in brewery records.
Packaged beer	when the Tax Office requires samples at the packaging stage, sufficient samples are to be drawn from each run to ensure the analysis is representative of the total production run.

All samples drawn by the Tax Office are to be handled in accordance with Regulation 83 of the Excise Regulations as follows:

• the sample is to be drawn under the supervision of a tax officer
• if drawn from a bulk tank the sample is to be divided into three (3) equal parts
• if drawn from packaged product sufficient representative samples (in triplicate) are to be drawn. The number of samples may depend on the type and number of tests to be carried out
• the samples are to be properly sealed and labelled so as to be readily identifiable
• one sample is to be given to the owner and the other two parts retained by the tax officer
• when analysis is required one sample is to be delivered to AGAL
• details of samples are to be entered in a samples register, and
• officers are required to observe proper procedures for maintaining security and accountability of samples.

Other than for naturally conditioned beer, samples should only be drawn after the beer has been pasteurised (when there will be no further increase in the strength of the product).

2.7 Breweries producing less than 100,000 litres per year

2.7.1 Strength

The Excise Act (Alcoholic strength of beer) Determination No. 1 of 2003 (Appendix: 6.4) states:

• 'If the brewery produces less than 100,000 litres of beer in a financial year, a hydrometer and a formula approved by the CEO may, with permission, be used to measure beer's alcoholic strength'.

Question 17 of the application for a licence to manufacture beer asks how the applicant intends to establish or test the alcoholic strength of their product. If they apply for permission to use a hydrometer and a formula to calculate alcoholic strength, then the Tax Office may issue them with a licence allowing them to use that method. However the licence will be issued on condition that such a method must ensure that the strength of the beers are as close as possible to the nominated or labelled strengths, and must be within the permitted variations as required in the Excise Act (alcoholic strength of beer) Determination No. 1 of 2003.

2.7.2 Quantity

Some breweries producing fewer than 100,000 litres per year are attached to hotels. These often have a retail outlet for their product via the hotel's bar. In some instances the beer is pumped from a storage tank in the under bond area10 to the bar where it is sold as draught beer. Licensed breweries which operate in this manner usually pay their excise duty by periodic settlement11 as follows:

• excise duty payable is to be calculated by establishing the opening stock in litres at the beginning of the accounting period, adding to that quantity any transfers to the same tank during the accounting period and then deducting the closing stock in litres at the end of the accounting period.

2.8 Permitted variations in beer strength

Permitted variations are covered by the Excise Act (Alcoholic strength of beer) Determination No. 1 of 2003 (Appendix:6.4).

If the actual strength of beer, other than beer subject to secondary fermentation, does not exceed the nominated or labelled strength by more than 0.2%, the strength is the nominated or labelled strength and the tariff rate applicable to that strength applies.

If the actual strength of beer, other than beer subject to secondary fermentation, exceeds the nominated or labelled strength by more than 0.2%, the strength is the actual strength and the tariff rate applicable to that strength applies.

If the actual strength of beer subject to secondary fermentation does not exceed the nominated or labelled strength by more than 0.3%, the strength is the nominated or labelled strength and the tariff rate applicable to that strength applies.

If the actual strength of beer subject to secondary fermentation exceeds the nominated or labelled strength by more than 0.3%, the strength is the actual strength and the tariff rate applicable to that strength applies.

A practical example of the above calculation (for beer not subject to secondary fermentation) is:

BRAND NAME	QUANTITY (LITRES)	LABELLED STRENGTH	ACTUAL STRENGTH
A	22,000	5.7%	5.6%
B	383,000	3.0%	3.3%
C	71,000	3.5%	3.7%

BRAND A:

Labelled strength does not exceed actual strength by more than 0.2% tolerance. Therefore the dutiable Lals are (22,000 x (5.7% - 1.15%)) = 1,001 Lals.

BRAND B:

Actual strength exceeds labelled strength by more than 0.2% tolerance. Therefore the dutiable Lals are (383,000 x (3.3% - 1.15%)) = 8,234.5 Lals.

BRAND C:

Labelled strength does not exceed actual strength by more than 0.2% tolerance. Therefore the dutiable Lals are (71,000 x (3.5% - 1.15%)) = 1,668.5 Lals.

The correct classification within the Excise Tariff must be established to identify the rate of duty applicable to beer. The classification and therefore rate of duty, is dependent on both the alcohol strength before the deduction of the 1.15% excise free quantity of alcohol, and the size of the container in which the beer is packaged. In the preceding examples BRAND A will be classified under excise tariff item (ETI) 1C1c or 1C2c for beer at 5.7% strength, BRAND B under ETI 1C1b or 1C2b for beer at 3.3% strength and BRAND C under 1C1b or 1C2b for beer at 3.5% strength.

Separate calculations must be done for each batch of beers.

Note

• An average actual strength is determined for each packaging run.
• Where an average actual strength exceeds the allowable tolerance, excise duty is payable on the actual contents.
• Under bond movements:
  • if excisable beer is to be removed on an excise movement permission the documentation is to show the labelled alcohol strength, and the licensed packager is to pay the additional excise duty where the actual strength exceeds the allowable tolerance

Specific conditions within manufacturing or storage licences are to cover:

• reconciliation periods, for example monthly, quarterly and so on
• lodgement due dates
• what information to send to the Tax Office, and
• where to send the excise duty payment.

Excise duty payment options are:

a) at the time of lodging the excise return:

• payment of the full excise duty, based on the nominated or labelled strength, if the actual strength does not exceed the nominated or labelled strength by more than 0.2% (or 0.3% for secondary fermentation beers), and
• payment of the full excise duty, based on the actual strength, if the actual strength exceeds the nominated or labelled strength by more than 0.2% (or 0.3% for secondary fermentation beers) plus any additional duty payable as a result of the strength exceeding the allowable tolerance, or

b) the excise duty, based on labelled strength, can be paid at the time the excise return is lodged, and the additional excise duty where the actual strength exceeds the nominated or labelled strength by more than 0.2% (or 0.3% for secondary fermentation beers) is paid in accordance with the specific conditions of the client's licence. In the absence of specific conditions option (a) is to be used.

Example reconciliation				Single fermentation - 0.2% allowable tolerance
Bottling run	Average actual strength	Label strength	Variation
1	4.5%	4.5%	0.0%	Does not exceed tolerance - pay at label strength
2	4.8%	4.5%	0.3%	Exceeds tolerance - pay at actual strength
3	4.6%	4.5%	0.1%	Does not exceed tolerance - pay at label strength
4	4.4%	4.5%	-0.1%	Does not exceed tolerance - pay at label strength
5	4.3%	4.5%	-0.2%	Does not exceed tolerance - pay at label strength
6	4.7%	4.5%	0.2%	Does not exceed tolerance - pay at label strength
7	4.7%	4.5%	0.2%	Does not exceed tolerance - pay at label strength
8	4.8%	4.5%	0.3%	Exceeds tolerance - pay at actual strength
9	4.4%	4.5%	-0.1%	Does not exceed tolerance - pay at label strength
10	4.6%	4.5%	0.1%	Does not exceed tolerance - pay at label strength

Example

Bottling run 2 (bottling run of 10,000 litres): 10,000 litres x 0.3% excess strength-	= 30.0 Lals @ $ 35.53-	= $1,065.90
Bottling run 8 (bottling run of 30,000 litres): 30,000 litres x 0.3% excess strength-	= 90.0 Lals @ $ 35.53-	= $3,197.70
Total amount of additional duty payable		= $4,263.60

Example reconciliation				Secondary fermentation - 0.3% allowable tolerance
Bottling run	Average actual strength	Label strength	Variation
1	4.5%	4.5%	0.0%	Does not exceed tolerance - pay at label strength
2	4.8%	4.5%	0.3%	Does not exceed tolerance - pay at label strength
3	4.6%	4.5%	0.1%	Does not exceed tolerance - pay at label strength
4	4.4%	4.5%	-0.1%	Does not exceed tolerance - pay at label strength
5	4.3%	4.5%	-0.2%	Does not exceed tolerance - pay at label strength
6	4.7%	4.5%	0.2%	Does not exceed tolerance - pay at label strength
7	4.7%	4.5%	0.2%	Does not exceed tolerance - pay at label strength
8	5.0%	4.5%	0.5%	Exceeds tolerance - pay at actual strength
9	4.4%	4.5%	-0.1%	Does not exceed tolerance - pay at label strength
10	4.6%	4.5%	0.1%	Does not exceed tolerance - pay at label strength

Example

Bottling run 8 (bottling run of 20,000 litres): 20,000 litres x 0.5% excess strength	= 100.0 Lals @ $35.53	= $3553.00
Total amount of additional duty payable		= $3553.00

As stated earlier, breweries are required to pay the extra duty on beer that exceeds the allowable tolerance at the time of lodging their excise return or may, subject to Tax Office approval, pay the extra duty when the average strength, reconciled over an agreed settlement period (usually a month) exceeds the allowable strength tolerance. All beer produced during the agreed settlement period is to be included in the reconciliation. Breweries must apply to the Tax Office and receive approval for any settlement period.

Section 3 Brewer's Responsibilities

3.1 Onus to satisfy the Tax Office

The regulation of breweries under the Excise Act is based on the maintenance of satisfactory records to verify production and maintain accountability for excisable product.

Large commercial breweries generally use banks of counters on bottling lines to record production. The counters are usually in banks of three to ensure a consistent count. In some larger breweries stock inventory is automatically updated with the production line data. Irrespective of the size of a brewery or methods employed to measure production, system and management controls must be sufficient to ensure that production is accurately recorded.

3.2 Records to be kept

Section 50 of the Excise Act states in part:

• (1) A licensed manufacturer, and a proprietor of an approved place, shall:
  • (a) keep [i.e. maintain] records, and furnish to the CEO such returns, as the CEO directs;
  • (b) retain any records so kept for such period as the CEO directs; and
  • (c) on demand by an officer, produce the records to the officer.
• ...
• (2) An officer may inspect and take copies of, or extracts from, any records kept in pursuance of subsection (1).

Regulation 180 of the Excise Regulations states in part:

• (1) When required by the Collector, a brewer, distiller or manufacturer of any goods dutiable under the Excise Tariff (whether licensed under any Excise Act or not), must produce to the Collector or an officer nominated by the Collector, all books and accounts that:
  • (a) contain entries relating to relevant goods; and
  • (b) are in the possession, custody or control of the brewer, distiller or manufacturer.
• (1A) The Collector or nominated officer may inspect, and take copies of or extracts from, any such books or accounts.

Every licensed manufacturer of excisable beer must, when required by the Tax Office, produce all books and accounts in their possession, custody or control containing entries relating to the beer brewed. The Tax Office may inspect and take copies of, or extracts from, any records relating to the manufacture of beer.

The direction issued under section 50 of the Excise Act at the time of licensing will require a manufacturer to record the following details:

• raw materials used in the manufacture of the beer
• various stages of the brewing process
• quantity of beer produced
• loss or wastage of the beer or of the materials used in the manufacture of the beer, whether during or after manufacture
• storage of the beer
• under bond transfers, and
• periodic settlement payments or Excise Returns and supporting documents.

Record keeping requirements for breweries are set out in chapter 5 of this manual.

Section 4 Contents for Duty Purposes

4.1 Legal definitions

Excise duty is levied on litres of alcohol (Lals) at the rate specified in the relevant item of the Schedule to the Excise Tariff Act.

Bulk container means a container that has the capacity to have packaged in it more than two litres of beer¹².

Container includes a bottle, a can or any other article capable of holding liquids¹³.

1.1.1. 4.2 Calculating dutiable contents

A licensee must measure samples of packaged beer (including beer in kegs) for volume to ensure that the volume of beer in the container is within the tolerance allowed for that container.

Beer in a bulk container:

If a licensee intends to manufacture beer and package the beer in kegs, they are required to nominate the volume to which they intend to fill each keg size. They may provide this information at question 22 of their application for a licence, and at any time after they are licensed if they intend to change the fill volumes or introduce other bulk container sizes.

For beer packaged in a bulk container the tolerance allowed on volume is 1% of the nominated volume¹⁴.

If the actual volume does not exceed the nominated/labelled volume by more than 1% the dutiable volume is the nominated/labelled volume.

If the actual volume exceeds the nominated/labelled volume by more than 1%, the dutiable volume is the nominated/labelled volume, plus the volume by which the actual volume exceeds the nominated/labelled volume by more than 1%.

If the volume of the contents is not nominated the dutiable contents are the actual contents¹⁵

Beer in other than a bulk container

For beer packaged in other than a bulk container, the tolerance allowed on volume is 1.5% of the labelled volume¹⁶.

If the volume of the contents of a container, other than a bulk container, is indicated on a label printed on or attached to the container and:

• the actual volume does not exceed the labelled contents by more than 1.5%,the dutiable contents are the labelled contents
• the actual contents exceeds the labelled contents by more than 1.5%, the dutiable contents are the labelled contents plus the volume by which the actual contents exceeds the labelled contents by more than 1.5%, or
• if the volume of the contents is not indicated on a label, the dutiable contents are the actual contents.

Determination of dutiable contents

The Excise Act recognises that variations can occur during packaging/racking of product.

Where the actual contents are within the tolerances allowed:
Bulk:	Dutiable contents = Nominated fill.
Other than a bulk:	Dutiable contents = Labelled contents
Where the actual contents are not within the tolerances allowed:
Bulk:	Additional Dutiable Quantity (ADQ) equals Actual Contents (AC) less (Nominated Fill [NF] + 1%) that is ADQ = AC - (NF + 1%)
Other than a bulk:	Additional Dutiable Quantity (ADQ) equals Actual Contents (AC) less (Labelled Contents [LC] + 1.5%) that is ADQ = AC - (LC +1.5%)

EXAMPLES OF EXTRA DUTY CALCULATION

These extra duty calculations are applied to each production run for:

Packaged beer

750 ml bottle	(stated contents on label)
765 ml fill	(actual contents)
15 ml overfill	(difference between stated and actual contents)

750ml (stated contents)	X (multiply)	101.5% (1.5% tolerance)	=	761.25ml (total permissible fill before incurring extra duty)
765ml (actual contents)	- (minus)	761.25ml (total permissible fill before incurring extra duty)	=	3.75ml (quantity attracting extra duty)

Assuming an actual bottling run of 1,000 bottles, the volume of excisable product would be:

1,000 x 750ml	=	750.0 litres
plus
1,000 x 3.75ml	=	3.75 litres
	Total	753.75 litres

Bulk beer

49 litres fill	(actual contents)
47 litres nominated	(nominated fill)
2 litres overfill	(difference between actual contents and nominated fill)

47 litres (stated contents)	X (multiply)	101% (1% tolerance)	=	47.47 litres (total permissible fill before incurring extra duty)
49 litres (actual contents)	- (minus)	47.47 litres (total permissible fill before incurring extra duty)	=	1.53 litres (quantity attracting extra duty)

Assuming an actual racking run of 200 kegs, the volume of excisable product would be:

200 x 47 litres	=	9,400 litres
plus
200 x 1.53 litres	=	306 litres
	Total	9,706 litres

A licensee must sample and measure the product to determine whether the actual volume of the contents exceeds the nominated fill or labelled contents by more than the permitted tolerance. This must be done for each batch.

If a licensee lodges pre-paid excise returns they may adjust over or underpayments of excise duty, by lodging an amending excise return for each particular case.

If they are a PSP¹⁷ holder, a licensee is required to lodge an amending excise return detailing any adjustments for over or underpayments that have occurred outside the current settlement period. Law Administration Practice Statement PS LA 2003/1 sets out the conditions under which, with Tax Office approval only, a licensee may make such adjustments on an excise return without seeking specific approval for each occasion. Tax Office approval to participate in these arrangements must be obtained from the National Director Alcohol, Alcohol Industry Group, GPO Box 2318, Adelaide SA 5001.

Section 5 Refunds, Remissions and Return of Duty Paid Beer

5.1 Refunds - bulk beer

The Excise Regulations prescribe the circumstances for a refund on beer¹⁸:

excise duty must have been paid on the beer

the beer must be contained in a bulk container¹⁹, and

the beer is returned to the brewery at which it was made in the container it was in when removed from the brewery or the beer was destroyed by permission of the Tax Office.

Refund approvals do not constitute permission to remove goods from an excise establishment prior to destruction. Off-site destruction requires a movement permission from the Tax Office (see chapter 4).

The Excise Regulations prescribes that a refund of excise duty shall not be allowed under the circumstances prescribed in paragraph 50(1)(k) of the Excise Regulations unless²⁰:

• the beer has been returned to the brewery at which it was made within 90 days after it was first removed from the brewery, or
• if the beer has been destroyed
  • it was destroyed because it became unfit for human consumption, and
  • the permission of the Tax Office for the destruction of the beer was sought within 90 days after it was first removed from the brewery at which it was made, and
• the volume of beer that was in the bulk container when it was returned to the brewery at which it was made or was destroyed was not less than 87.5% of the volume of the bulk container at the time it was entered for home consumption.

Only the amount of duty which has been paid on the volume of beer returned or destroyed may be refunded. The amount of refund is not made on the original volume in the container.

The Excise Regulations²¹ prescribe that an application for a refund of excise duty must be in writing, signed by the applicant and state, as far as practicable, the nature and particulars of the claim.

Excise legislation does not prescribe a time limit for making an application for refund on duty paid bulk beer.

Refunds for alcoholic goods generally are dealt with in chapter 3 section 9 (Excise liability and payment of duty) in this manual.

5.2 Microbreweries refund

Breweries that produce fewer than 30,000 litres of beer may be eligible for a refund of part of the duty paid in the previous financial year.

Regulation 2AB of the Excise Regulations defines a microbrewery as a brewery that has all the following characteristics:

• it is legally and economically independent of any other brewery,
• in the previous financial year the total production of beer²²* by the brewery did not exceed 30,000 litres,
• in the current financial year it is likely that the total production of beer* by the brewery will not exceed 30,000 litres, and
• it sells beer (whether wholesale or retail), on which excise has been paid, directly from the manufacturing premises of the brewery.

Note: A brewery that is a subsidiary of another brewery within the meaning of the Corporations Law is not legally independent and therefore cannot be a microbrewery.

Section 46 in Division 6 of the Corporations Act 2001 defines a subsidiary as follows:

A body corporate (in this section called the first body) is a subsidiary of another body corporate if, and only if:

(a) the other body:

(i) controls the composition of the first body's board, or

(ii) is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body, or

(iii) holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital), or

(b) the first body is a subsidiary of a subsidiary of the other body.

Even if a brewery is not a subsidiary of another brewery, it cannot be economically independent of another brewery if its operations are subsidised by another brewery. It would therefore not be a microbrewery within the meaning of regulation 2AB of the Excise Regulations.

Paragraph 50(1)(zzd) of the Excise Regulations provides that the following circumstance is prescribed for the purposes of a refund of duty:

• excise duty has been paid on beer manufactured in a microbrewery during a financial year, and the amount of refund paid during the financial year does not exceed:
  • if the brewery is a microbrewery at the start of the financial year - $10,000; or
  • if the brewery first becomes a microbrewery after the start of the financial year - an amount worked out by:
    • (A) multiplying $10,000 by the number of days in the period starting when the brewery first becomes a microbrewery and ending at the end of the financial year; and
    • (B) dividing the result by 365.

Regulation 52AAA of the Excise Regulations provides that the amount of refund of excise duty that may be allowed in respect of beer in the circumstance specified in paragraph 50 (1)(zzd) is 60% (of the original Excise Return on which the duty was paid). Therefore, each request for a refund must relate to an original return.

The provisions enable a microbrewery as defined above to obtain a refund of 60% of the excise duty paid in a financial year, up to a maximum of $10,000 per year.

The procedure for lodgement and processing of microbrewery refunds is the same as for any other excise refund.

*Total production of beer by a microbrewery in a financial year comprises:

• beer manufactured by the microbrewery and entered for home consumption
• beer manufactured by the microbrewery and removed under permission (that is while subject to the CEO's control)
• beer manufactured by the microbrewery and on hand at 30^th June but not yet entered for home consumption, and
• beer manufactured by the microbrewery under contract for another entity

but does not include:

• beer manufactured by the microbrewery and approved for remission
• production or packaging losses at the microbrewery, and
• beer manufactured for the microbrewery by another independent brewery.

5.3 Remission

The Excise Act provides that remission of excise duty may be allowed in respect of excisable goods generally or goods included in a class of excisable goods, in certain circumstances and under prescribed conditions and restrictions²³.

Remission applies to excisable goods on which duty has not yet been paid. Remission is the removal of a liability to pay excise duty. The approval of an excise remission application allows an excise liability to be extinguished. This occurs where excisable goods, that are subject to the Tax Office's control, will not be entering home consumption because the product has deteriorated or been damaged, lost, pillaged, destroyed or become unfit for human consumption²⁴. Remission of duty will not be granted for under bond goods which have been stolen.

A remission of excise duty will not be allowed in most cases unless a signed application in writing is made to the Tax Office²⁵. A remission application is not required if the goods have been totally lost or have otherwise ceased to exist²⁶.

Any application for remission of excise duty must be in writing, signed, and state the nature and particulars of the claim²⁷. For the purposes of verifying an application for remission, the Tax Office may require the applicant to produce records or to give further information to substantiate the claim²⁸.

Remission approvals do not constitute permission to remove goods from an excise establishment prior to destruction. Off-site destructions require movement permissions from the Tax Office (see chapter 4).

Remissions for alcoholic goods generally are dealt with in chapter 3 section 9 in this manual.

5.4 Duty paid goods returned to the brewery

Goods falling within the following categories may be returned to under bond stock:

• incorrect stock selections, or
• over delivery.

Returns are subject to the following conditions:

• they must be accompanied by the original documentation, and
• they must be returned within 48 hours of delivery, or such further time as the Tax Office may allow if satisfied that the goods have been returned without delay.

Breakages that occur after goods have left Tax Office control must not be returned to under bond stock.

Interpretative Decisions (ATO IDs) which provide examples of when goods may or may not be returned to under bond stock after removal or delivery may be found at ATO IDs.

5.5 Reissued beer

Where duty paid beer is returned to the brewery and does not meet any of the above conditions for return to under bond stock, the beer may be treated as reissued beer and no credit of excise duty can be made. Such beer is subject to the following conditions:

• beer returned to the brewery for reissue must be kept separate from other beer in the brewery. It must not be removed from the brewery unless accompanied by an invoice or delivery document showing the correct details of the reissued beer, and
• the cancelled delivery dockets or invoices relating to the original removal from the brewery must be retained for audit purposes.

5.6 Spoilt beer

Where beer is unfit for human consumption and is sold for manufacturing purposes it may, with Tax Office approval²⁹, be removed from a brewery without entry for home consumption and without payment of duty in containers marked 'spoilt beer'³⁰.

The beer must be unfit for human consumption and the removal from the brewery is to be covered by an excise movement permission. The containers must be marked in compliance with the legislation.

Spoilt beer must be unfit for human consumption and not just out of specification. Excisable beer that is merely under-filled or under-strength is not unfit for human consumption.

The excise licensees should also apply in writing to the Tax Office for remission on the beer³¹.

Section 6 Commercial Facilities for Brewing Non-commercial Beer: Brew-On-Premises Shops (BOPS)

6.1 Background

In December 1993 legislation was introduced to impose excise on beer produced for non-commercial purposes using commercial facilities or equipment. Premises conducting these activities are known as Brew on Premises Shops (BOPS). These outlets offer the use of their commercial facilities and equipment to enable the public to make their own beer.

Typically, BOPS have a number of brewing kettles, chilling facilities and bottling equipment as permanent fixtures. They also provide beer-making ingredients such as yeast, malt and hops usually in kit form. BOPS staff are on hand to advise the customer in all aspects of beer making. The customer pays up front for the ingredients, use of the equipment, bottles (if needed) and the expertise of the BOPS staff. The customer is responsible for their own brew. Once the beer is bottled by the customer, about a fortnight after the initial process the customer takes the beer home for consumption.

It should be noted that this BOPS arrangement extends only to beer (see Excise Tariff Item (ETI) 1BB). There are no similar provisions for the non-commercial manufacture, using commercial equipment and facilities, of alcoholic drinks that do not meet the definition of beer.

6.2 Revenue collection from BOPS

Excise liability for BOPS is calculated on each batch (customer's fermenter). A batch is usually 48-50 litres in volume. The strength of the batch is taken to be a standard strength which applies to a particular recipe and has been verified by a test brew. BOPS operators are required to maintain sequential batch cards which contain the recipe and strength details for each brew, including test brews.

Excise is payable on the full contents of each fermenter. As bottling is done by individual BOPS customers, the bottling process is regarded as being inherently unreliable and as a consequence, no allowance is permitted for bottling or packaging losses.

Beer produced in BOPS is entered under ETI 1BB as 'beer produced for non-commercial purposes using commercial facilities or equipment'. The duty rate is currently 7% of the rate applying to goods classified to sub-item 1C.

BOPS customers who find that their brew is unfit for consumption may return the beer to the BOPS for a replacement brew. The BOPS operator can apply for remission of duty and can then brew an identical batch without the need to pay further duty, provided that the application for remission has been approved.

6.3 Labelling exemption

In recognition that the beer brewed and bottled in BOPS is intended for their customers' own use and not for commercial purposes, the Tax Office has exempted bottles leaving BOPS outlets from the labelling requirements of section 77C of the Excise Act.

6.4 Sample and test brews

Sample brews (that is brews for tasting), whether consumed on the premises or not, are permitted. Sample brews are to be classified according to the Schedule to the Excise Tariff Act as beer produced for commercial purposes and duty must be paid at the full applicable rate. Sample brews are not classified to ETI 1BB as beer produced for non-commercial purposes.

Test brews (including new recipes) are permitted. A BOPS operator may make test brews for bona fide analysis for quality control and for verification of the strength of beer recipes. A BOPS operator must not use test brews as samples or for tastings unless the full applicable excise beer rate is paid. All test brews must be recorded and batch card sequencing maintained for audit purposes.

With regard to test brews that have not been entered and duty paid at the full applicable excise rate, a BOPS operator must apply to the Tax Office for remission of duty for each test brew, using the appropriate tariff classification for beer produced for commercial purposes, and for approval to dispose of the test brews and to write them off the operator's records.

6.5 Guidance Notes

Guidance Notes for Applicants for BOPS Licences are available from the Alcohol Industry Group.

APPENDIX: 6.1 The Brewing process

(section 2.1 in this chapter)

The following description is intended to be indicative only of the brewing process and is not intended to cover all circumstances or all manufacturing processes which take place in a brewery.

Malting

The raw cereal, usually barley, is steeped (soaked) in water at a controlled temperature then allowed to germinate. Germination enables the development of enzymes required later in the brewing process. When shoots have appeared the grain is heat dried in a kiln until growth is halted or at least retarded. At this stage it has become what is known as 'malt' or 'malted barley'. After drying the malt is cleaned, polished, coloured and cured. Malting often occurs away from the brewery and is frequently done by independent specialist operators.

Mashing

At the brewery the ground malt (grist) is mixed with warm water in a false bottomed tub (mash tun) to form a mash. Other ground cereals such as unmalted barley, wheat or rice are often added to the mash to introduce particular characteristics. For example, stout is brewed by a similar method except that some roasted (black) barley or malt is included before mashing to give a darker colour. The temperature is raised progressively in the Lauter Tun (for filtration) to enable the enzymes developed during malting to convert the starches into fermentable sugars. The mash is allowed to settle. The spent grain forms a filter bed through which the liquid, now known as the wort, is drawn off into the wort kettle. The grain is 'sparged' (sprayed with hot water) to separate any remaining wort. This liquid is drained into the wort kettle.

Wort

Sugar is added and the wort is brought to boiling point in the wort kettle and the hops or hop extract added, usually in three stages. Hops give beer its characteristic bitter flavour and partially clarifies the wort. Boiling concentrates and sterilises the wort. This process takes about two hours. Immediately after the last addition of hops or hop extract, the wort is drained from the kettle. The hops are strained and sparged (sprayed with hot water) to remove any remaining extract.

Fermentation

The wort is cooled quickly and yeast added to enable fermentation to occur. The fermentation time varies according to the product desired and the yeast used. For example, lager is fermented at a maximum temperature of 16_C for about 8-10 days using yeast that settles on the bottom of the tank. Ale is fermented at temperatures of up to 24_C for 5 to 8 days using yeast that rises to the top of the vat. Carbon dioxide, a by-product of fermentation, is often reclaimed during this process for use at a later stage.

Storage, maturing and finishing

The new beer is pumped into storage tanks and is maintained under pressure from this point. It is allowed to mature for some time (a minimum of 7 days for draught beer or 14 days for packaged beer). The new beer may be carbonated by allowing controlled secondary fermentation to occur under pressure during maturation. Alternatively carbon dioxide is injected into the beer as it is filtered. After filtration the product is known as bright beer (that is matured, carbonated and filtered beer ready for packaging and drinking). Bright beer is an industry term and does not appear in excise legislation. If necessary, the product is blended to maintain uniformity and de-aerated water may be added to lower the alcohol content. Product that does not meet quality control standards is reprocessed.

Pasteurisation of bulk beer is done as part of the filtration process. It involves partial sterilisation and is designed to destroy any unwanted organisms, give the beer longer shelf life and prevent further fermentation. Pasteurisation involves heating the beer to about 60°C for approximately ten minutes followed by rapid cooling.

Beer is stored in large tanks at low temperature prior to packaging/racking.

Bottled or canned beer is pasteurised after it is bottled or canned.

Naturally conditioned beers

Naturally conditioned beers (or secondary fermentation beers) are made as follows:

Wort is prepared in the brew house, chilled, then transferred to fermenting vessels where it is mixed with yeast and allowed to ferment for 4 to 5 days. Fermented beer is then passed through a centrifuge to remove all the yeast on its way to the bottling tank. Small portions of yeast and liquid sugar are then added to the beer in the bottling tank and mixed just prior to bottling. After bottling the beer is stored in the warehouse for a minimum of 4 weeks to allow secondary fermentation to take place in the bottle. In this process the yeast ferments the liquid sugar to produce carbon dioxide gas plus an extra 0.5% by volume of alcohol in the beer.

Samples of the beer are then tested for alcoholic strength and carbon dioxide level. The beer is tasted to see if the flavour is acceptable and, if so, the beer is then released for sale. This whole process from brew house to release for sale usually takes a minimum of 5 weeks. Naturally conditioned beers are usually distinguishable by a small amount of sediment remaining in the bottle/glass after drinking.

APPENDIX: 6:2 The brewing process - flow chart

(section 2.1 in this chapter)

APPENDIX: 6.3 Beer excise legislation - a brief history

(section 2.3 in this chapter)

(1) The Beer Excise Act 1901 which was repealed in 1968 was the first piece of Commonwealth legislation covering the collection of excise duty on beer.

(2)In the earliest days of that Act, packaged beer was marketed in so-called pint and quart bottles which were reputed to be filled at the rate of:

• quart - 6 per gallon
• pint - 12 per gallon.

(3) Excise duty was paid using stamps bought by the brewery and attached to the outside of the case containing the bottled beer.

(4) Beer stamps were at first given monetary value but this became cumbersome because of various duty rate changes and in 1947 the system was changed so that stamps were expressed in gallons. The basis of dutiable quantities for bottled beer continued at the rate of 6 large or 12 small bottles to the gallon.

(5)

• (a) Fluid ounces gradually replaced reputed contents as the means of calculating dutiable contents. This is thought to be because of changes in Commonwealth and States Weights and Measures legislation. However there is no sign that the size, shape or contents of bottles was affected by this change. It was purely a change in terminology.
• (b) The so-called quart bottle (holding 1/6 of a gallon or 26 2/3 fluid ounces) became known as the 26 ounce bottle.
• (c) Duty was paid on the basis of six bottles to the gallon, so the dutiable content per quart bottle was 26 2/3 fluid ounces. The small so-called pint bottle became the 13 ounce bottle and attracted duty as though it contained 13 1/3 ounces.

(6) Following metrication in 1972 the 26 ounce bottle became accepted as 750mls and the 13 ounce bottle became accepted as 375mls for duty collection purposes.

(7) In 1984 an amendment was made to the definition of beer and excise was made subject to six-monthly Consumer Price Index adjustments each February and August.

(8) In 1988 an amendment was made to vary the method of calculating the duty liability of beer. This required duty to be paid on the alcohol content in lieu of the previous volumetric method.

(9) On 1 July 2000 when Tax Reform - A New Tax System (ANTS) was implemented, the excise duty rate on beer was split into three tiers imposing different rates for low strength, mid strength and full strength beers.

(10) From 4 April 2001, the beer rates were further subdivided to take account of package size (that is whether or not exceeding 48 litres) in order to reduce the impact of GST on draught beer sold across the bar. As a result six separate rates now apply to commercially brewed beer.

APPENDIX: 6.4 Measurement of Alcoholic Strength

(sections 2.6 and 2.7.1 in this chapter)

Excise Determination 2003/1

Commonwealth of Australia Gazette (No. GN 12, 26 March 2003

Excise Act 1901

I, MARGOT RUSHTON, Assistant Commissioner Excise in the Australian Taxation Office and Delegate of the Commissioner of Taxation, make this Determination under section 77FB of the Excise Act 1901.

1 Name of Determination

This Determination may be cited as the Excise Act (Alcoholic strength of beer) Determination No. 1 of 2003.

2 Commencement

This Determination commences on and from the date of publication of the Determination in the Gazette.

3 Definitions

In this Determination:

• beer means a beverage that meets the definition of beer in the Schedule to the Excise Tariff Act 1921;
• CEO means the Commissioner of Taxation;
• strength means the percentage by volume of alcohol at 20 degrees Celsius.

4 Application of Determination

This Determination applies to beer entered for home consumption on or after the date of commencement of the Determination.

5 Measuring equipment

(a) You must ascertain the alcoholic strength of beer by one of the following processes:

1. by the use of gas chromatography;
2. by the use of near infra red spectrometry; or
3. by distillation followed by the gravimetric measurement of the distillate or by measurement in a density meter.

(b) If the brewery produces less than 100,000 litres pf beer in a financial year, a hydrometer and a formula approved by the CEO may, with permission, be used to measure beer's alcoholic strength.

(c) You must calibrate the accuracy of the measuring instruments (eg, volumetric glassware, hydrometer, pycnometer, thermometer), at intervals of one year or less, against standard instruments that have been certified by an independent authority approved by the National Association of Testing Authorities (NATA). The standard instruments must be calibrated at intervals of five years or less.

6 Sampling and analysis

(a) You must ascertain the alcoholic strength of the beer by analysing samples of the product after it has reached its full alcoholic strength and is ready for packaging or has been packaged. Sufficient samples must be taken from each run to ensure the strength measured in accordance with paragraph 6(b) accurately reflects the true strength of the beer.

(b) You must analyse the samples with the approved calibrated equipment. The alcoholic strength of the beer is taken to be the average of the strength of all the readings. The alcoholic strength calculated is to be expressed as the volume that would be the volume of that alcohol if the alcohol were measured at a temperature of 20 degrees Celsius. Calculation by reference to the specific gravity of alcohol is to be made on the basis that, at a temperature of 20 degrees Celsius and in a vacuum, the specific gravity of alcohol in relation to water is 0.79067.

7 Permitted variations

For the purposes of working out the excise duty payable:

0. If the actual strength of beer, other than beer subject to secondary fermentation, exceeds the nominated or labelled strength by more than 0.2%, the strength is the actual strength.
0. If the actual strength of beer subject to secondary fermentation exceeds the nominated or labelled strength by more than 0.3%, the strength is the actual strength.

Dated        August 2003

MARGOT RUSHTON

Delegate of the Commissioner of Taxation

1 See Glossary at Chapter 13 for `bitters'.

2 Section 61 of the Excise Act

3 Section 5 of the Excise Tariff Act.

4 Section 6A of the Excise Tariff Act.

5 Section 60 of Excise Act.

6 Section 78 of the Excise Act and Regulation 50 of the Excise Regulations.

7 Section 50 of the Excise Act.

8 Section 77FB of the Excise Act.

9 Section 106 and 107 of the Excise Act.

10 The under bond area means the licensed excise manufacturing area as shown in the plans attached to the licence.

11 PSP means a Periodic Settlement Permission issued under section 61C of the Excise Act.

12 Section 77A of the Excise Act.

13 Section 77A of the Excise Act.

14 Paragraph 77B(1)(c) of the Excise Act.

15 Paragraph 77B(1)(e) of the Excise Act.

16 Subsection 77B(2) of the Excise Act.

17 Periodic Settlement Permission issued under section 61C of the Excise Act.

18 Paragraph 50(1)(k) of the Excise Regulations

19 A container that has the capacity to have packaged in it more than 2 litres of beer - Section 77A of the Excise Act.

20 Regulation 56 of the Excise Regulations

21 Subregulation 52(1) of the Excise Regulations

22 See definition of `total production' at final paragraph of section 5.2

23 Section 78 of the Excise Act.

24 Paragraph 50(1)(a) of the Excise Regulations.

25 Sub regulation 51(1) of the Excise Regulations.

26 Sub regulation 51(2) of the Excise Regulations.

27 Sub regulation 52(1) of the Excise Regulations.

28 Sub regulation 52(2) of the Excise Regulations.

29 Section 61A of the Excise Act.

30 Section 77D of the Excise Act

31 Regulations 51 & 52 of the Excise Regulations.

Chapter 7 - Spirits - Distilleries

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

AIG Alcohol Industry Group

CMP Continuing movement permission

EDN Export declaration number

ETI Excise tariff item

N.E.I Not elsewhere included

SMP Single movement permission

SVR Rectified grape spirit (spiritus vini rectificatus)

1.2 Appendices at the end of this chapter

Appendix: 7.1 The distillation process

Appendix: 7.2 Distillation flow chart

Appendix: 7.3 Pot brandy still

Appendix: 7.4 Pot rectifying still

Appendix: 7.5 Rectifying columns

Appendix: 7.6 Cross-section of rectifier column

Appendix: 7.7 Continuous still

Appendix: 7.8 Continuous still (double column)

Appendix: 7.9 Continuous still (single column)

Appendix: 7.10 Marc still

Appendix: 7.11 Spinning cone

Appendix: 7.12 Vacuum still

Appendix: 7.13 Reverse osmosis (osmotic distillation)

Appendix: 7.14 Controls and licensing requirements for the use of stills

Appendix: 7.15 Age certificates - imported spirit - approved authorities

Appendix: 7.16 Brandy certificates - imported brandy - approved authorities

Appendix: 7.17 Distillation efficiency guide

Appendix: 7.18 Glossary of distillation terms

Appendix: 7.19 Record keeping requirements for distilleries.

1.3 Foreword

If you want to know more about Excise go to our website at www.ato.gov.au.

Section 2 The Distillation Process

2.1 Overview

In the alcohol industry distillation is the separation or purification of mixtures of alcohol and water (for example in wine or fermented grain mash) by using the different evaporation rates or boiling points of the water and the alcohol. As alcohol evaporates at a lower temperature, it vaporises first and therefore its separation will start before the water evaporates. Distillation does not produce alcohol, it is merely a separating or refining process. Alcohol is created through fermentation. Therefore prior to distillation you must have a base product which already contains alcohol.

Alcohol is produced by the fermentation of sugars, for example grape juice, apple juice, or the starch in malt. This is brought about by the anaerobic change of the sugars by yeast to ethyl alcohol with the release of carbon dioxide.

The commercial distillation process covers three phases comprising raw materials preparation, fermentation and distillation. All of these are not always necessarily carried out at a distillery. For example brandy may be distilled from wine sourced from elsewhere and the first two stages will already have been completed.

When alcoholic base products are distilled to produce spirit, the spirit may contain a number of other components such as essential oils, esters, sulphur dioxide and other alcohols such as methyl, propyl, butyl and amyl. Some of these components are undesirable or undrinkable and must be cut from the mixture. This process involves dividing spirit into a number of parts depending on when that part is produced during the distillation process. These parts may be separated during the initial distillation process or during a redistillation of low wines (spirits from the first distillation run).

The first components that are produced during distillation are known as the heads. Heads are the highly volatile components with a lower boiling point than ethanol. The heads vaporise first and therefore condense first.

Heads consist mainly of low molecular weight material or highly volatile compounds. Heads may contain a number of poisonous components, including high levels of methanol which can be hazardous to health.

Usually the heads are not desired in the finished product and are run to a different receiver from the rest of the spirit. Once the heads have been produced they are followed by the heart.

The heart consists mainly of ethyl alcohol, some water, small amounts of heads, volatile components, acetate esters of fusel oils, and ethyl esters of fatty acids. This part of the spirit run is the most desirable part and is generally directed to a spirit receiver.

The final part of the spirit to come from the condenser is known as the tails.

The tails form the last part of the spirit run and comprise the least volatile compounds of higher molecular weight with a higher boiling point than ethanol. These compounds are undesirable in the finished spirit and are generally directed to a different receiver from the heart. The tails are made up of what are called fusel oils.

Fusel oils are heavier molecular weight compounds, a proportion of which are required to give spirit much of its flavour but are undesirable in excessive amounts. They generally comprise a mixture of isoamyl, butyl, propyl and heptyl alcohols that are produced as a by-product of fermentation.

The combination of the more undesirable parts of the heads and the tails is referred to as feints. Feints are collected in a feints receiver and may be re-distilled as they still contain some ethyl alcohol.

See Appendix: 7.1 for a brief explanation of the various stages of distillation.

The flow chart at Appendix: 7.2 summarises a typical distillation process.

Section 3 Legislation and Licences

3.1 Overview

The Excise Act and the Excise Regulations provide administrative provisions relating to excisable goods generally.

The Distillation Act and the Distillation Regulations provide administrative provisions relating to the production and control of excisable spirits:

• sections 12 to 24 of the Distillation Act deal with the licensing of distillers (the general licensing provisions of the Excise Act do not apply to distillation), and
• section 6 of the Distillation Act defines distiller, distillery and spirits.

Section 8 of the Distillation Act provides for parts of the Excise Act to be incorporated and read as one with the Distillation Act.

The Spirits Act and the Spirits Regulations deal with specific aspects of local and imported spirits, including maturation and methylation.

The Excise Tariff Act imposes duties of excise (section 5) and contains the Schedule of excisable goods and the rates of duty which apply.

The diagram at Appendix: 7.14 summarises registration and licensing requirements for the use of stills.

3.2 Requirements of the Acts and Regulations

(1) (a) Distillation Act
	s.8	provides for parts of the Excise Act to be incorporated and read as one with the Distillation Act
	s.12	person not to distil unless licensed
	s.13	descriptions of types of licences to distil
	s.17	applications for licences to be in prescribed form
	s.18	security to be given
	s.21	period of licence (calendar year)
	Part IV	regulation of distilleries (applies only to spirit makers)
	Part V	strength of spirits for duty purposes, call up of duty for deficiencies in quantity of spirit produced (spirit makers only)
	s.60	officers to have access to premises and records
	s.63	officer may take sample of wort and spirits
	s.83	enables the Governor-General to make regulations which are necessary or convenient for giving effect to this Act
(b) Distillation Regulations
	Regs 63-65	blending, clarification and reduction of spirits
	Reg 127	procedure for dealing with samples.
(2) Excise Act
	s.50	manufacturers to keep, retain and produce records as directed
(3) Spirits Act
	s.10	requirements for brandy delivered for human consumption
	s.11	imported brandy, whisky or rum to be matured
	s.12	Australian brandy, whisky or rum to be matured

3.3 Legal definitions

Feints means spirits received into the feints receiver (section 6 of the Distillation Act). They are the heads and tails, or the first and last parts of spirits distilled, and include methanol and fusel oils. It is normal practice for feints to be returned to the still for redistillation. They are dutiable because they are spirits, although they are of low quality.

Distiller means a person who holds a spirit makers licence issued pursuant to this Act (section 6 of the Distillation Act).

Distillery means the licensed premises of a distiller (section 6 of the Distillation Act).

Illicit spirits means spirits distilled, moved, altered or interfered with in contravention of this Act (section 6 of the Distillation Act).

Illicit still means a still made, removed, set up, erected, sold or otherwise disposed of, purchased or otherwise acquired, imported, or in the possession or custody, or under the control, of a person, in contravention of this Act (section 6 of the Distillation Act).

Low wines means spirits of the first extraction received into the low wines receiver (section 6 of the Distillation Act).

Spent wash means the liquor which remains after the spirits have been extracted by distillation' (section 6 of the Distillation Act).

Spirit means goods described in item 2 (other than sub-item 2H) of the Schedule to the Excise Tariff Act 1921 (section 4 of the Excise Act).

Spirits includes any liquor on which, under the name of spirits, any duty of excise is imposed by the Parliament, whether the liquor is distilled or made or in any stage of distillation or making (section 6 of the Distillation Act). When produced the spirits are placed in a vat or vessel known as a spirits receiver.

Standard temperature and pressure means a temperature of 20° centigrade and a pressure of one standard atmosphere (section 4 of the Excise Act).

Still means any apparatus for or capable of distilling spirits and any part thereof, and any apparatus connected or used in connexion therewith (section 6 of the Distillation Act).

Wash means the liquor from mashed material after it has commenced to ferment and before it has been distilled (section 6 of the Distillation Act).

A Glossary of Distillation Terms is at Appendix: 7.18.

3.4 Permissions regarding stills

The Distillation Act1 prohibits the manufacture, removal, setting up, sale, disposal, purchase and importation of stills without permission.

The Distillation Act2 prohibits the use of a still for a purpose other than the distillation of spirits unless appropriate notice has been given to the Tax Office.

The Distillation Act3 prohibits the distillation of spirits without a licence.

The Distillation Act4 specifies that the provisions of sections 10 and 11 do not apply to stills having a capacity not exceeding 5 litres. Such stills may be used for production of distilled water and essential oils but they may not be used under any circumstances by unlicensed persons to distil alcohol (section 12).

Stills forming an integral part of dry cleaning equipment are not regarded as stills requiring permission under sections 10 and 11.

Under section 11 of the Distillation Act, should a person wish to use a still (other than a still to which the provisions of section 10 do not apply) for a purpose other than the distillation of spirits, for example for the distillation of eucalyptus oil or other essential oils, that person is required to give appropriate notice to the Tax Office.

Details of all stills with a capacity exceeding 5 litres are recorded in a stills register maintained by the AIG.

3.5 Classes of licences

The Distillation Act⁵ divides the types of licences to distil as follows:

1. pirit makers licence:
   1. general licence authorising the licensee to distil spirits from any material
   2. wine distiller licence authorising the licensee to distil spirits from wine or lees of wine
2. vigneron licence authorising the licensee to distil spirits from wine or lees wine for the purpose of fortifying wine
3. experimenter licence authorising the licensee to distil spirits from any material for the purpose of research into the production or use of fuel ethanol, including
4. research relating to the development of technology for such production or use.

Section 4 Distillery Products

4.1 Definitions

Brandy, whisky and rum are defined in section 3 of the Spirits Act and in the preamble to The Schedule to the Excise Tariff Act. The definitions are the same in both Acts (see definitions in section 4.2 to section 4.8).

Other excisable beverage is defined in the Schedule to the Excise Tariff Act and means any beverage containing more than 1.15% alcohol by volume but does not include beer, brandy, fruit brandy, whisky, rum, liqueurs or wine subject to wine equalisation tax (WET). It includes what were formerly known as spirituous beverages, vodka, ouzo and gin and, following Tax Reform in July 2000, also includes any other alcoholic beverage, whether fermented or distilled or both. Other excisable beverages are classified either under Excise Tariff Item (ETI) 1D (alcoholic strength not exceeding 10% a/v) or ETI 2H (alcoholic strength exceeding 10% a/v).

4.2 Brandy

(1) ETI 2A

1. brandy is defined in the preamble to the Schedule to the Excise Tariff Act and means a spirit distilled from wine in such a manner that the spirit possesses the taste, aroma and other characteristics generally attributed to brandy, being a spirit that contains not less than 25% of spirit distilled at a strength of not more than 83% by volume of alcohol.
2. section 12 of the Spirits Act requires that brandy must be matured in wood for not less than 2 years.

4.3 Whisky

(2) ETI 2D

1. whisky is defined in the preamble to the Schedule to the Excise Tariff Act and means a spirit obtained by the distillation of a fermented liquor of a mash of cereal grain in such a manner that the spirit possesses the taste, aroma and other characteristics generally attributed to whisky.
2. section 12 of the Spirits Act requires that whisky must be matured in wood for not less than 2 years.

4.4 Rum

(3) ETI 2F

1. rum is defined in the preamble to the Schedule to the Excise Tariff Act and means a spirit obtained by the distillation of fermented liquor derived from the products of sugar cane, being distillation carried out in such a manner that the spirit possesses the taste, aroma and characteristics generally attributed to rum.
2. section 12 of the Spirits Act requires that rum must be matured in wood for not less than 2 years.

4.5 Gin, vodka and ouzo

Although these products can be, and often are manufactured in a distillery, they are classified within item 2H of the Schedule to the Excise Tariff Act as other excisable beverages. There is no requirement for these products to be aged in wood. They are dealt with in this manual in chapter 8, which deals with liqueurs and other excisable beverages.

4.6 Other spirits (excise tariff item 2 (O))

ETI 2 (O) is 'Spirits, n.e.i' (that is spirits not elsewhere included).

ETI 2 (O) may be applied when spirits approved for use under ETI 2M or 2N are used otherwise than in accordance with the regulations or when the permit holder cannot account to the satisfaction of the Tax Office for any shortages of such spirits.

4.7 Volumes for duty purposes

Volumes for duty purposes of spirit and other excisable beverages are dealt with in chapter 3 section 3.2.3 in this manual.

4.8 Spirits packaged in bulk containers

Spirits must not be entered for home consumption packaged in a bulk container without the written approval of the Tax Office (subsection 58(4) of the Excise Act).

A bulk container means a container that has the capacity to have packaged in it more than 2 litres of liquid (section 4 of the Excise Act).

4.9 Treatment of feints

Feints are low quality spirits, and may be subject to excise duty if a licensee does not adequately account for them. A licensee should also include feints in their distillation efficiency calculations (see guide at Appendix: 7.17) to obtain an accurate efficiency figure.

If a licensee does not redistil feints but runs them to waste, they would normally collect them over a period of time until they need to be disposed of. Regulation 51 of the Excise Regulations requires that the licensee must lodge an application with the Alcohol Industry Group (AIG) at the Tax Office for remission of duty and permission to destroy the feints. They must record details in their distillation records.

Where destruction of feints is an ongoing issue, a licensee may apply to the AIG for continuing approval for their disposal. The AIG is examining the possibility of conditioning relevant licences to include ongoing approval for the destruction of feints.

4.10 Imported spirits used in the manufacture of excisable goods

As stated in chapter 1, imported spirits may be brought within the ambit of the excise regime by being blended with excisable spirits in the manufacture of other excisable spirits or used in the manufacture of other excisable beverages⁶.

Imported spirits intended for blending with excisable spirits, or for use in the manufacture of other excisable beverages, are dealt with in the first instance under the Customs Act 1901 (Customs Act). Under the Customs Act imported bulk spirits are required to be warehoused in a licensed Customs warehouse. At the time of being used to manufacture excisable goods the imported spirits must be entered on a Customs Nature 30 Entry and any ad valorem duty differential (typically 5%) paid.

The imported spirits remain subject to Customs control until such time as they are blended with excisable spirits or used in the manufacture of other excisable beverages. Such blending or manufacture can only be carried out by a licensed excise manufacturer. Therefore the premises where the excise manufacture takes place, using excise equivalent goods (that is imported spirits in this case), must be licensed under both the Customs Act (as a Customs warehouse) and the Excise Act (for excise manufacture).

Prior to being used in excise manufacture, any losses of imported spirit are a Customs matter and remission can be sought from Customs for the ad valorem duty and the duty based on the volume of spirit losses.

Any losses occurring after excise manufacture are an excise matter and remission of the duty based on the volume of spirit losses can be sought from the Tax Office. The ad valorem duty will not be refunded.

Section 5 Flavouring, Colouring and Blending

5.1 Flavouring and colouring

The regulations relating to the addition of colouring materials and flavourings to spirits are regulated by Departments of Health in each State under the Food Standards Code (Standards 1.3.1 and 2.7.5).

5.2 Blending of spirits

(1) Blending of spirits is covered by section 24 of the Excise Act and regulation 2A of the Excise Regulations. Schedule 2 of the Excise Regulations sets out the cases and conditions as follows:

• item 7 imported spirits containing not less than 84% a/v used in the manufacture of other spirits
• item 9 imported brandy, fruit brandy, whisky or rum are used in the manufacture of other spirits.

Blending involves the mixing together of two or more different types of the same spirit and may only be carried out by a licensed distiller or excise manufacturer.

(2) The age of blended spirits is deemed to be the age in wood of the youngest spirit in the blend. Section 12 of the Spirits Act stipulates a period of not less than 2 years for the maturation of brandy, whisky or rum. Therefore, if any part of a blend is less than two years old, the blend as a whole could not be said to be of an age not less than 2 years.

Section 6 Certificates and Samples

6.1 Certificates - excisable spirit

• The Spirits Act7 authorises the Tax Office, at the request of a distiller or blender, to issue a certificate to the effect that excisable spirits are brandy, whisky or rum.
• To obtain such certification, a licensee is required to complete a Form 1 in accordance with the Schedule to the Spirits Regulations and forward it to the AIG for endorsement.
• The AIG will not endorse certificates for excisable spirits which have left Tax Office control.

6.2 Age certificates - imported spirit

The Spirits Act⁸ prohibits the delivery of imported brandy, whisky or rum from the control of Customs unless the Tax Office is satisfied that the spirit has been matured by storage in wood for not less than 2 years. Primary responsibility therefore rests with the Tax Office, although appropriate delegations have been given to certain Customs Officers.

This requirement may be satisfied by production of a certificate for brandy, whisky or rum, issued by an approved authority in the country of exportation or manufacture, to the effect that the spirit (or the youngest spirit in a blend) has been matured in wood for not less than two years (see section 6.3 for brandy certificates). Age certificates are to be produced to the Tax Office when imported spirits are to be blended with excisable spirits in accordance with Item 9 of Schedule 2 of the Excise Regulations.

Appendix: 7.15 lists the overseas authorities approved for the issue of age certificates.

6.3 Brandy certificates - imported brandy

The Spirits Act⁹ prohibits the delivery of imported brandy for human consumption until the Tax Office is satisfied by the production of an official certificate given in the country of origin that the spirit is distilled wholly from:

• grapes
• products derived solely from grapes, or
• both grapes and such products.

The word Collector has the same meaning in the Spirits Act as is given to it in the Excise Act¹⁰. Primary responsibility therefore rests with the Tax Office, although appropriate delegations have been given to certain Customs Officers.

This requirement may be satisfied by production of a certificate for brandy, issued by an approved authority in the country of exportation or manufacture, to the effect that the spirit (or the youngest spirit in a blend) has been matured in wood for not less than two years. When imported brandy is to be blended with excisable brandy in accordance with Item 9 of Schedule 2 of the Excise Regulations, age certificates are to be produced to the Tax Office.

Appendix: 7.16 lists the overseas authorities approved for the issue of brandy certificates.

6.4 Samples

6.4.1 Delivery of samples free of duty.

The Excise Act¹¹ states that small samples of goods which are subject to Tax Office control may, with Tax Office approval, be delivered for home consumption without entry for home consumption and without payment of duty.

Requests in writing for the delivery of samples into home consumption without payment of duty should be forwarded to the AIG for written approval. As section 64 applies to samples across the spectrum of excisable goods it is not practical to specify the size of samples which may be approved in all cases. Consequently the quantity of samples allowed will depend on an assessment by the AIG of the particulars of each request. The AIG will forward written approval to the licensee detailing the samples that may be delivered without entry. A licensee is required to retain the written approval as evidence of acquittal of the goods from Tax Office control.

Samples of imported spirit taken at the wharf by another government agency (for example the Australian Quarantine Inspection Service) fall within the authority of the Australian Customs Service.

6.4.2 Samples for strength testing

A tax officer conducting compliance activity may take samples for verification purposes¹².

Regulation 127 of the Distillation Regulations, regulation 83 of the Excise Regulations and regulation 54 of the Spirits Regulations deal with the handling of samples by tax officers.

The procedure is as follows:

• the licensee or their agent will be advised by the tax officer that samples are required
• samples should be drawn by the licensee or their agent under the supervision of the tax officer, but samples may be drawn by the tax officer
• the tax officer will divide each sample into three (3) equal parts and label or mark each part so as to be readily identifiable
• the tax officer will ensure that the samples are properly sealed
• one sample will be given to the licensee or their agent, and the other two parts retained by the tax officer
• the tax officer will record details of samples in a samples register
• when analysis is required, one sample is to be delivered to AGAL or another suitably qualified analyst, personally by a tax officer, by registered post or by another method approved by the Tax Office, and
• tax officers will observe proper procedures for maintaining security and accountability of samples.

Section 7 Spirit and Concentrated Flavourings Obtained from the Treatment of Wine

7.1 Overview

Concentrated wine flavours (or aromas) are flavourings obtained from the treatment of wine by an enhanced distillation process such as a spinning cone. Aromas are chemically similar to the highest alcohols and are distilled in the first 1-2% by volume of the spinning cone distillation process. Using grape wine as the feedstock the process results in two liquid streams:

• a low volume but high strength flavour stream, comprising concentrated wine flavourings, typically 50-60% a/v, and
• a high volume but lower strength stream comprising the remainder of the wine after the flavour, and with it a small amount of alcohol at high strength, has been removed. This stream is typically around 1% lower in alcohol content than the original wine.

Flavour is usually removed as a part of a process to produce low alcohol, de-alcoholised or reduced alcohol wine. Flavour removal is the first stage of the process. It is followed by the concentrated flavourings at 50-60% a/v being put back through the spinning cone to remove the alcohol which it contains. This produces two further liquid streams:

• a high strength spirit stream (typically 40-50% a/v), and
• the remainder which consists essentially of water.

The three wine components which are produced (flavour, spirit, remainder) can then be blended in the appropriate ratio to produce de-alcoholised, low alcohol or reduced alcohol wine.

7.2 Concentrated wine flavourings

7.2.1 General

These concentrated wine flavours are obtained from the treatment of wine by an enhanced distillation process (see section 7.1).

They normally represent only a very small portion of the overall quantity of treated wine.

The essential purpose of extracting the concentrate from the wine is to obtain its flavouring characteristics. It typically has an alcoholic strength of around 50% alcohol by volume as alcohol is the necessary carrying medium for the volatile flavours.

Concentrated wine flavourings produced from such enhanced distillation processes are distilled spirit and are subject to excise licensing, control, accounting and audit procedures.

7.2.2 Approved uses

For export

Where it is intended to export the concentrated wine flavours, the flavours may be moved under the authority of an export movement authority (Single Movement Permission (SMP) or Continuing Movement Permission (CMP)) issued by the Tax Office. An Export Declaration Number (EDN) issued by Customs will authorise export of the goods. Normal excise procedures apply relating to the storage, accounting and export of under bond goods.

For use in wine making

The use of concentrated wine flavouring within the Australian wine industry as part of the wine making process is permitted by the Australian Food Standards. The addition of the flavours to wine is for the purpose of enhancing existing wine flavours rather than for having any material effect on increasing the strength of the wine. As the strength of concentrated wine flavouring is below the strength of fortifying spirit specified in section 57B of the Distillation Act, its addition does not constitute fortification of the wine and as such, is not subject to the provisions of Part VIA of the Distillation Act. Flavours may also be used as described in the overview to this section in the production of de-alcoholised, low alcohol and reduced alcohol wines.

7.2.3 Excise control and accountability

The concentrated wine flavours are produced by distillation and are classified under ETI 2(O) as spirits n.e.i. until exported or used for concessional purposes.

Storage, movement, export and non-excisable end use of the concentrated wine flavourings are subject to normal excise control, accounting and audit procedures.

Where the concentrated wine flavours are used for blending with local wine (see section 7.1), the spirit is entered as concessional spirit under ETI 2M. This complies with Excise Regulation 142 (that is being for manufacturing purposes approved by the Tax Office) and regulation 153 (that is being at a strength approved by the Tax Office). A licensee is required to apply to the AIG for a permit for the addition of concentrated wine flavours to local wine.

Where the concentrated wine flavourings cannot be satisfactorily accounted for the amount of duty liability will be recovered using the rates in force under ETI 2(O)¹³.

7.3 Low strength spirit residue

7.3.1 General

Spirit residue is the low strength spirit obtained as a by-product of the treatment of wine by spinning cone flavour removal (de-aromatisation) process.

The essential characteristic of the low strength residue is that it is produced at strength less than the original strength of the wine used in the distillation.

7.3.2 Approved uses

For use in wine making

Low strength spirit residues may be reintroduced into the wine making process as an integral part of the process and are not designed to have any material effect on increasing the strength of the wine concerned. Used in this manner the addition of the spirit to the wine is not deemed to be fortification of the wine and is not subject to the provisions of Part VIA of the Distillation Act. Low strength spirit residue used in this manner is to be acquitted as concessional spirit under ETI 2M. This complies with Excise regulation 142 (that is being for manufacturing purposes approved by the Tax Office) and regulation 153 (that is being at a strength approved by the Tax Office).

7.3.3 Excise control and accountability

The low strength spirit residue is produced by distillation and is classified to ETI 2(O) as distilled spirit until dealt with in an approved manner.

Storage, movement and use of the low strength spirit residue is subject to normal excise control, accounting and audit procedures.

Where the low strength spirit residue cannot be satisfactorily accounted for, the amount of the duty liability will be recovered using the rates in force under ETI 2(O)¹⁴.

7.4 De-alcoholisation

7.4.1 General

Where a de-alcoholised, low alcohol or reduced alcohol wine is required, the low strength spirit residue produced from the de-aromatisation process is put back through the spinning cone as described in the overview at section 7.1. The result is a high strength spirit stream (de-alc spirit) and a de-alcoholised remainder.

7.4.2 Approved uses

For use in the fortification of grape wine

The spirit stream produced from the de-alcoholisation process is normally around 40-50% a/v. It is treated as a distilled spirit for excise purposes. Where the spirit has been produced from grape wine, it may be blended with high strength grape spirit (SVR - see glossary of distillation terms at Appendix: 7.18) and used for fortification subject to the provisions of section 57B of the Distillation Act, that is once blended it is spirit distilled from wine or other products of wine making containing not less than 74% by volume of alcohol. Anyone using such spirit for fortification is required to hold an appropriate concessional spirit permit.

7.4.3 Excise control and accountability

The spirit obtained from the de-alcoholisation process is produced by distillation and is classified to ETI 2(O) as distilled spirit until dealt with in an approved manner.

Storage, movement and use of high strength de-alcoholised spirit is subject to normal excise control, accounting and audit procedures.

Where high strength de-alcoholised spirit cannot be satisfactorily accounted for, the amount of duty liability will be recovered using the rates in force under ETI 2(O)¹⁵.

Section 8 Officer Role, Distillery Access and Records

8.1 Officer role, distillery access and records

The Distillation Act¹⁶ allows tax officers access to all distilleries or premises on which a still is kept, to carry out tests and examinations as necessary and to take copies of, or extracts from, all books and accounts required to be kept by the distiller in relation to the distillery or the making or sale of spirits.

The Distillation Act¹⁷ allows tax officers to require any charger or receiver to be emptied and cleaned and any quantity of the wash to be distilled and the produce to be conveyed into the charger or receiver.

The Distillation Act¹⁸ allows tax officers to take a sample of wort, wash, low wines, feints or spirits from any vessel. The strength of any sample so taken shall be deemed the strength of the whole of the contents of the vessel from which it is taken.

Before any such sample is taken a licensee may stir up and mix together all the liquor contained in the vessel from which the sample is to be taken.

The Excise Act¹⁹ requires a licensee to keep such records as the Tax Office directs. Part V of the Excise Act, including section 50, is incorporated with provisions of section 8 of the Distillation Act, and therefore applies to distillers.

Under the provisions of section 50 of the Excise Act, a distiller is required to maintain sufficient records to show that they are complying with their obligations under excise legislation as follows:

• keep excisable goods secure
• account for all excisable goods produced, and
• pay the correct amount of excise duty as and when it is due.

Comprehensive records also assist the licensee to track and account for stock for commercial purposes.

In most cases it is unnecessary for tax officers to use regulatory powers to gain access to premises or to inspect records. An informal request to the licensee usually results in the production of the desired information. Officers will inform the licensee that they are relying on their cooperation rather than use the access powers to enter premises, examine documents or take samples. However the formal powers can be used if necessary.

Field services officers intending to audit a licensee's business will firstly advise them in writing of the intended audit and arrange an entrance interview at which they will discuss access to premises and documents.

In the event that the licensee refuses to allow officers access to premises and records, the situation would be escalated to their manager or the National Director level for review.

8.2 Distillery records

Under the provisions of section 50 of the Excise Act a licensee is required to keep, retain and produce to an officer such records as the Tax Office directs. While the Tax Office does not normally give specific directions about which records must be maintained, most records which are required by tax officers to verify compliance are those that would normally be required to efficiently maintain the licensee's operation. If the records are found to be inappropriate or insufficient, the Tax Office may use the provisions of section 50 of the Excise Act to direct the licensee to maintain specific records.

A licensee must keep records to account for:

• still house production
• treatment of feints
• stock takes
• distillation efficiency
• spirit store movements
• receipt and delivery of bulk spirit
• bottling operations
• production and movement of packaged stock, and
• spirit warehouse movements.

A comprehensive list of distillery records is at Appendix: 7.19.

Section 9 Stills

9.1 Stills used in the distillation of spirits

9.1.1 What is a still for excise purposes?

A still is an apparatus for distilling spirits. Distillation is based on alcohol boiling at a lower temperature than water, with the result that when an alcoholic liquid is heated to a temperature between the two boiling points, the vapours that rise can be caught and condensed back to form a liquid with a higher alcoholic content. When heated to a temperature between the two boiling points, the vapour given off contains a portion of both alcohol and water, even though the temperature is below the boiling point of water. This is because liquids vaporise at lower temperatures than their actual boiling points (for example water vaporises from puddles without ever reaching 100°C).

Distillation can be done in a single-shot pot still or in a continuous feed unit.

A still consists essentially of the following components:

• the heat source - electricity, gas, wood, charcoal, heat beads or other heat source
• the still or retort - container such as a closed boiler for heating the liquid charge
• the condenser - unit for cooling the vapour from the heated liquid, and
• the receiver - unit for collecting the condensed vapour.

There are various types of stills including:

• pot stills
• pot rectifying stills
• continuous stills
• marc stills
• spinning cone column stills, and
• vacuum stills.

There are other methods of concentrating the percentage of alcohol within a liquid which are not distillation. For example reverse osmosis (osmotic distillation) and other more experimental methods. Reverse osmosis is discussed in section 10 of this chapter.

9.1.2 Pot still

(Appendix: 7.3)

The pot still, sometimes referred to as the brandy pot still, consists of a boiling pot and condenser which are connected by a hollow tube called a head. At the top of the head is the brandy ball, a water cooled section which provides some intermediate condensation and a limited amount of reflux (that is the vapour reverts to liquid and the liquid retreats back down the distillation column).

The size of pot stills in Australia varies between 1,500 and 23,000 litres. Current practice is to heat the charge (wash) using steam giving improved temperature control.

The strength of the spirit/water mix produced as a result of the first distillation run through a pot still is usually between 30% and 45% a/v. This contains most of the volatile products from fermentation (that is sulphur dioxide, esters, and many higher alcohols) and is known as low wine.

Often when a series of low wines have been produced through distillation, these will then be combined to form a charge to put through the pot still again. This is the stage where a greater amount of skill is required by the distiller as this is when a number of undesirable elements in the product need to be separated. This is also usually when cool water is passed through the intermediate cooler to provide a greater amount of reflux to make the process slower and allow greater control of the separation of the spirit components.

Low wines are a step in the process of producing spirit in saleable form. Some spirits must be double or triple distilled to achieve the final result.

When the spirit produced in a pot still is condensed and directed to the spirit receiver or to the low wines receiver, it passes through a glass chamber called a brandy safe through which condensed spirit flows. The brandy safe contains a hydrometer to measure the specific gravity of the spirit and allow the calculation of the alcoholic strength.

At the conclusion of a distillation run when the alcohol has been removed, there will be a mixture of water and other material (such as grape juice colourings, sugars, preservatives, or the remnants of starchy materials which were converted to sugars then fermented if a grain based wash was used) remaining in the pot section of the still. The leftover mixture is known as spent wash.

9.1.3 Pot rectifying still

(Appendix: 7.4)

A pot rectifying still is similar to a pot still but has a rectifying column rising from the pot and leading to a condenser, instead of a head tube connecting the pot to the condenser.

A rectifying column is divided into sections by a number of plates with numerous holes, promoting greater heat exchange between rising vapour and liquid which has already condensed, retreated, and lies on the plates.

There are three types of rectifying column:

• perforated plate column
• packed column, and
• bubble cap column.

Examples of the different types of rectifying columns are shown at Appendix: 7.5 and a cross-section of a rectifying column is at Appendix: 7.6.

Although the construction of the three types of rectifying column may vary in design, the operating principle remains the same for all three, that is, the promotion of the exchange of heat between rising vapours and descending condensate.

9.1.4 Continuous still

(Appendix: 7.7)

A continuous still is a more economical system which has a higher throughput and uses less energy. The continuous still employs the same operating principle as the pot rectifying still except that the continuous still uses a continual input of wash (or distillation wine), instead of a single charge in a single pot. A balance in the system must be maintained. This means that the input wash and steam (used for heating the wash) must equal output spirit, feints and spent wash.

The continuous still normally has two columns (Appendix: 7.8), although it can be arranged as a single column (Appendix: 7.9) or even broken down into three columns. The first column is known as an analyser (or stripping) column and removes most of the alcohol from the wash to produce a low wine of around 40% a/v. The second column is known as a rectifying column and is designed to separate the components and increase the purity of the spirit. If a third column is used it is known as a purifier column and is used to remove further impurities.

The higher the vapour rises up the column, the stronger it will be in alcoholic purity due to the interaction which has occurred between the rising vapour and the descending condensate. Therefore, the higher up the column the vapour condenses, the higher the strength of the condensate (spirit). Spirit is removed at different heights up the column depending on the required strength.

9.1.5 Marc still

(Appendix: 7.10)

The marc still is a unique style of still designed to recover alcohol from marc (the residue of grapes, that is seeds, skins, stalks and pulp, after the juice has been extracted). It has horizontally mounted revolving heaters into which marc is fed via an Archimedean screw. The screw acts as a self seal against steam and alcohol vapour loss. Steam is introduced into one end of the still and strips all volatile materials through a vapour pipe to a condenser. This produces a low wine of about 40% a/v. After removing some undesirable characteristics through an ionisation cleansing process, the low wine is then fed through a continuous still for rectification to produce a high strength spirit.

The low wine produced from a marc still is relatively impure and is commonly known as grappa. The final spirit produced from the marc still has a unique character (said to be peppery) and is used in fortifications with other spirits to give a special characteristic and flavour.

9.1.6 Spinning cone column still

(Appendix: 7.11)

The spinning cone column still process is used to evaporate volatile esters from a liquid stream. The apparatus comprises a series of inverted cones attached to a central shaft which is rotated between another series of inverted cones fixed to the wall of the vessel. On the bottom of the rotating cones are four tapered fins which induce a high gas flow across the liquid flowing down the underlying cone. The profile of these fins is such that they are parallel to the liquid profile beneath them ensuring maximum gas pumping efficiency. The effect of these fins is further enhanced by the ability to raise or lower the rotating plates such that the fins are in close proximity to the liquid surface. This causes volatile esters to evaporate and be subsequently carried out of the chamber through an inert gas stream. These gases then travel to a condenser where the alcohol is retrieved.

The spinning cone can also be used to strip aroma from a broad section of unfermented fruits and vegetables where no alcohol extraction is involved.

9.1.7 Vacuum still

(Appendix: 7.12)

Vacuum distillation is a process of distillation under reduced pressure. The distillation system operates at approximately half atmospheric pressure. This results in the boiling points of all components being reduced. It is a type of continuous still operation where the spirit is condensed at various stages, hence various strengths.

The vacuum still comprises an analyser column, a series of vacuum pots, a steam supply and condensers. Between each vacuum pot is a condenser which acts as a dephlegmator or reflux system. The processes of the vacuum still and continuous still are alike in that heads travel furthest up the column, followed by high strength SVR (grape spirit), lower strength brandy spirit, and fusel oil travelling the least distance up the column. That is the heads travel through the system to the final vacuum pot, high strength SVR is accumulated in the second pot, lower strength brandy spirit is accumulated in the first pot and fusel oil is taken off in the analyser column.

The process is said to give better quality brandy on initial distillation and the spent wash is ideal as a non-alcoholic wine base. The vacuum still can be used for redistillation, handling charge strengths of up to 45% a/v.

Vacuum stills do not include brandy safes as these are not feasible in the vacuum system. The distiller monitors strengths by adjusting pressures/temperatures at the analyser column by controlling the wine flow rate and testing the spirit from the vacuum pots.

Section 10 Alternative Technologies

10.1 Mobile still - description

A mobile still is a spinning cone column still (see section 9.1.6) which can be mounted on a truck for transport around wine producing areas. It is designed primarily to:

• collect aromas and flavours, and
• de-alcoholise wine.

A still is subject to the Distillation Act when used to de-aromatise, de-alcoholise or reduce the strength of wine or other alcoholic beverages as spirit is produced. Mobile stills are subject to the Distillation Act. The processes are described in section 7 of this chapter.

The mobile still is a transportable unit and can be assembled and made operational

in twelve hours.

The mobile still should have two flow meters as permanent attachments as follows:

• one meter to accurately measure throughput of wine taken into the mobile spinning cone, and
• one meter to accurately register take-off of spirit flavouring from the wine charge.

10.2 Mobile still - conditions for operation

If a person operates a mobile still, they must be licensed in accordance with section 12 of the Distillation Act (see section 9.1.1). The mobile still owner is required to:

• register the still with the AIG20, and
• obtain approval from the AIG to remove, set up or erect the still21.

The premises where excisable spirit is to be extracted must be covered by an excise

• storage licence or other appropriate licence (for example manufacturer licence) to
• enable the storage of the spirit at that premises. The owner of the premises where
• the distillation is to take place:
• must be a licensed distiller22 (at least for the duration of the distillation as distillation can only take place at a licensed premises23), and
• may revert to an excise storage licence if spirit remains at the premises when the mobile still has been removed.

As the owner of the mobile still the licensee is subject to subsection 10(b) of the

Distillation Act at each premises where they intend to operate, that is they require permission from the Tax Office to remove, set up, or erect the still. Either the mobile still owner or the owner of the premises will require a movement permission to move the spirit.

The owner of premises who de-alcoholises wine and retains the spirit for their own use must have a permit for the fortification of Australian wine (normal arrangements relating to fortifiers apply) or have an appropriate excise manufacturer licence to use the spirit for other purposes.

Fortifying spirit means²⁴:

• a spirit distilled from wine or other products of wine making, being a spirit that contains not less than 74% by volume of alcohol, or
• Australian brandy that has been matured by storage in wood for a period of 2 years or more, being brandy that contains not less than 57% by volume of alcohol plus flavouring and colouring matter (if any) approved by the Tax Office and which does not cause obscuration of the strength of the brandy exceeding 1.7%.

10.3 Mobile still - operational requirements

The licensee of the premises at which a mobile still (or spinning cone) operates must:

• record the type, quantity (in litres) and alcoholic strength of wine or other distillation material used in the process
• record details of tank numbers for the wine or other distillation material used in the process
• record the opening and closing readings of the two flow meters for all operations
• record the quantity (in litres and Lals) and alcoholic strength of spirit extracted from the wine or other distillation material
• record the quantity (in litres and Lals) of flavours and reduced alcohol wine extracted during the distillation process
• record the quantity (in litres and Lals) and strength of spirit retained at the premises where the distillation took place
• record details of tank numbers to which the treated product is returned, and
• ensure that a movement permission is in place for the removal of any spirit extracted during the distillation process.

10.4 Reverse osmosis filtration (Appendix: 7.13)

Reverse osmosis filtration is based on the use of semi-permeable membranes to separate the components of the feedstock at the molecular level (that is only small molecules pass through the membrane). It is used in water treatment, desalination, the pharmaceutical industry, as well as food, beverage and flavour technology.

Reverse osmosis is most commonly used in the wine industry to adjust alcohol and/or volatile acidity levels. For example where a wine may be excessively alcoholic at 15%, reverse osmosis is used to adjust alcohol content to a more palatable level such as 14%.

The purpose of reverse osmosis is to remove a stream of alcohol, water and some other chemical compounds from the wine without removing any of the flavour elements. The process operates by passing wine of strength of approximately 10% a/v under pressure against a membrane which allows only small molecules to pass through. The process results in two liquid streams:

• the permeate - the stream that passes through the membrane, comprising water, ethanol (typically 75% of the alcoholic strength of the original wine), acetic acid, and some other components, and
• the retentate - the portion that does not pass through the membrane, comprising the remainder of the wine (including the flavour components), typically at a slightly higher alcoholic strength than the original wine.

The process of reverse osmosis does not involve separation by means of vaporisation and subsequent condensation and is, therefore not regarded as distillation under the definition in section 5 of the Distillation Act.

Distillation involves a process of evaporation and condensation. Section 5 of the Distillation Act describes the 'present ordinary course of' distillation:

(iii) The wash is distilled in a still by heating to evaporation and condensing the vapour...

Consequently, the use of reverse osmosis equipment to process wine to this initial stage does not require the operator to be licensed under the Distillation Act. This is conditional upon the process not being repeated to concentrate alcohol in either stream. This latter process may be considered to be excise manufacture to be carried out only by a licensed manufacturer.

section 11 Goods Returned to Under Bond Stock After Removal or Delivery for Home Consumption

Goods falling within the following categories may be returned to under bond stock:

• incorrect stock selections, and
• over delivery.

Returns are subject to the following conditions:

• they must be accompanied by the original documentation, and
• they must be returned within 48 hours of delivery, or such further time as the Tax Office may allow if satisfied that the goods have been returned without delay.

Goods covered by a PSP may be returned to under bond stock within the week before the goods are to be entered on an Excise return and duty paid.

Breakages that occur after goods have left the Tax Office's control may not be returned to under bond stock.

Interpretative Decisions (ATO IDs) which provide examples of circumstances when goods may or may not be returned to under bond stock after removal or delivery may be found at ATO IDs.

APPENDIX: 7.1 The distillation process

(section 2.1 in this chapter)

Raw materials preparation

Raw materials that constitute the basic ingredients in the distillation process may be divided into two categories; sugars, and starches which can be easily converted to fermentable sugars. Sugars may come from grapes, sugar cane and fruits such as plums, peaches and apples. Starches may come from grains such as wheat, barley, rye, maize and rice or tubers such as potatoes.

All of these materials are initially processed to more fully expose their sugars or starches to facilitate subsequent treatment. Fruits are crushed while cereals and tubers are milled and mashed.

Milling breaks the outer protective cellulose wall around the kernel and exposes the starch to cooking and the conversion process. The resulting ground product is called grist.

Mashing is done in a mash tun and involves a cooking and conversion process where grist is steam cooked. Water and malted grain are added, and the combination is agitated, converting starches to fermentable sugars sufficiently concentrated to produce a fermented liquor of between 7% to 10% alcohol by volume. This sugary substance is called wort (pronounced wert).

Malting is the softening by steeping (soaking) of grain and allowing the grain to germinate. It is then heated sufficiently to kill any further growth. Malt can be produced from any cereal grain but the most commonly used grain is barley. Malting also assists in adding flavour characteristics.

Fermentation

Fermentation is a natural process by which living yeasts convert sugars into alcohol and carbon dioxide. The wort produced is fermented in a back. Fermentation ceases when all the sugars are converted or when the concentration of alcohol becomes too great and kills the yeast, whichever occurs first. This fermented alcohol base product is called wash.

Distillation

The wash, which contains alcohol and water, is distilled in a still by heating to evaporation and condensing the vapour. Distillation operates on the principle that alcohol vaporises at a lower temperature than water. It may be carried out by boiling or by reducing the atmospheric pressure in the vessel containing the liquids (vacuum or low pressure distillation). The liquor product is spirits and the residue of the wash is spent wash.

The liquor product passes into one of three receivers:

• low wines receiver for the receipt of low wines. These are spirits of the first extraction requiring further distillation
• feints receiver for the receipt of feints. These may include low wines and are spirits requiring further distillation, and
• spirits receiver for the receipt of spirits not requiring further distillation.

APPENDIX: 7.2 Distillation flow chart

(section 2.1 in this chapter)

APPENDIX: 7.3 Pot brandy still

(subsection 9.1.2 in this chapter)

APPENDIX: 7.4 Pot rectifying still

(subsection 9.1.3 in this chapter)

APPENDIX: 7.5 Rectifying columns

(subsection 9.1.3 this chapter)

APPENDIX: 7.6 Cross-section of rectifier column

(subsection 9.1.3 in this chapter)

APPENDIX: 7.7 Continuous still

(subsection 9.1.4 in this chapter)

APPENDIX: 7.8 Continuous still (double column)

(subsection 9.1.4 in this chapter)

APPENDIX: 7.9 Continuous still (single column)

(subsection 9.1.4 in this chapter)

APPENDIX: 7.10 Marc still

(subsection 9.1.5 in this chapter)

APPENDIX: 7.11 Spinning cone

(subsection 9.1.6 in this chapter)

APPENDIX: 7.12 Vacuum still

(subsection 9.1.7 in this chapter)

APPENDIX: 7.13 Reverse osmosis (osmotic distillation)

(subsection 9.1.1 and section 10.4 in this chapter)

APPENDIX: 7.14 Controls and licensing requirements for the use of stills

(section 3.1 in this chapter)

APPENDIX: 7.15 Age certificates - imported spirit - approved authorities

(section 6.2(3) in this chapter)

• The following are approved authorities:
• Austria (Brandy): Chambers of Commerce
• Antigua/Barbados (Rum): Comptroller of Customs and Excise
• Belize (Rum): Belize Customs and Excise Department
• Brazil (Whisky, Rum): Ministry for Agriculture, Supply and Agrarian Reform (Ministerio de Agricultura do Abastecimento e Reforma Agraria)
• Bulgaria (all spirits): any laboratory accredited by the Bulgarian Accreditation Service, Ministry of the Economy, Sofia
• Canada (Spirit): Revenue Canada (section of Customs, Excise & Taxation)
• Chile (Spirit): Agricultural and Livestock Service (Servico Agricola Y Gandero)
• China (Brandy): Chinese State Administration on Quality Supervision, Entry-Exit Inspection and Quarantine
• Colombia: INVIMA
• Croatia (Spirit): the exporting company (endorsed by Croatian Chamber of Commerce)
• Cuba (Whisky, Rum): Centro Nacional de Inspeccion de la Calidad (CENICA - National Centre for Quality Inspection)
• Cyprus (Spirit):
  • Ministry of Commerce and Industry; or
  • Ministry of Agriculture, Natural Resources and Environment; or
  • Department of Customs and Excise
• Czech Republic (Spirit): Economic Chamber of the Czech Republic
• Fiji (Spirit): Fiji Islands Customs Service (FICS)
• France (Brandy): Ministeres de L'Economie Nationale Finances et de L'Agriculture
• France (Calvados): Bureau National Interprofessionel du Calvados, du Pommeau et des Eaux-de-Vie de Cidre et de Poire (BNICPE)
• France (Rum): Conseil Interprofessionel du Rhum Traditionnel (CIRT-DOM)
• Germany (Brandy):
  • Chambers of Industry and Commerce (for certificates of origin)
  • Federal Ministry of Finance (for age certificates)
• Greece (Brandy): Ministry of Economy and of Finances, Directorate of Alcohol, Wines-Beers-Spirits
• Guyana (Spirit): Customs and Excise Department
• Haiti (Rum): Ministere du Commerce et de l'Industrie (Directeur de la Division Controle de la Qualite et Protection du Consommateur)
• India (Spirit): Customs and Excise Authority
• Ireland (Whiskey): Customs and Excise
• Italy (Brandy): (not including Trieste spirits): Officio Tecnico delle Imposte di Fabbricazione (Technical Office of Excise Duty) of the region of manufacture
  • Trieste (Brandy/Grappa):
    • Ente Autonomo del Porto di Trieste; or
    • Direzione della Circoscrizione Dogonale di Trieste
• Japan (Whisky): Local Tax Offices with jurisdiction over distilleries
• Macedonia (Spirit): University "Kiril i Metodij" W.O. Institute of Agriculture - Skopje
• Mexico (Spirit): Secretaria de Economia
• New Zealand (Spirit): New Zealand Customs
• Philippines (Spirit): Bureau of Internal Revenue - Excise Tax Division
• Poland (Spirit): Issued on demand by producer (Customs endorsed)
• Portugal:
  • (Brandy): Instituto do Vinho E da Vinha
  • (Whisky, Rum): Instituto de Proteccao da Producao Agro-Alimentar
• Puerto Rico (USA) (Spirit): Bureau of Alcoholic Beverages, Treasury Department (Departmento de Hacienda)
• Russia (Spirit): Russian Chamber of Commerce
• Slovak Republic (Spirit): Slovak Agriculture and Food Inspection
• South Africa: South African Revenue Service (SARS) - certificate of age and origin of spirits endorsed by Customs and Excise
• Spain (Spirit):
  • Consejo Regulador de la Denominacion de Origen Jerez-Sherry - for this particular spirit only.
  • There is not a Spanish authority for certifying the age of other spirits, such as rum and brandies different from Jerez-Sherry, as Spanish regulations don't control ageing time.
• St Kitts and Nevis (Spirit): Comptroller of Customs
• Sweden: Livsmedelverket, National Food Administration
• Trinidad & Tobago (Rum): Customs and Excise Division
• Thailand: Bureau of Tax Administration I, Excise Department (for verification of producers and raw materials used)
• Turkey: TEKEL Genel Murdulugulu
• UK (Spirit): H.M. Customs and Excise
• USA (Spirit): Bureau of Alcohol, Tobacco and Firearms
• Yugoslavia (Spirit): Jugoinspekt Beograd

Other countries (Spirit): Inquiries to the Customs and Excise Authority for that country.

APPENDIX: 7.16 Brandy certificates - imported brandy approved authorities

(subsection 6.3(4) in this chapter)

The following authorities have been approved:

• Austrian brandy: Austrian Chambers of Commerce
• Bulgarian brandy: any laboratory accredited by the Bulgarian Accreditation Service, Ministry of the Economy, Sofia
• Chinese brandy: China National Cereals, Oils and Foodstuffs Import and Export Corporation
• Chilean brandy: Agricultural and Livestock Service of Chile
• French cognac: Certificate of origin incorporates materials (yellow) Bureau National Interprofessionel du Cognac (BNIC)
• French Armagnac: Bureau National Interprofessionel de l'Armagnac
• French brandy: Age certificates are issued by French Customs
• Greek brandy: Ministry of Economy and of Finances, Directorate of Alcohol, Wines-Beers-Drinks
• Italian brandy (not including Trieste brandy): Officio Tecnico delle Imposte di Fabbricazione of the region of manufacture
• Portuguese brandy: Portuguese Ministry of Economy
• Spain (Jerez Brandy only): Consejo Regulador de la Denominacion Especifica Brandy de Jerez
• Trieste brandy: Ente Autonomo del Porto di Trieste Direzione della Circoscrizione Dogonale di Trieste

Other Countries: the Customs and Excise Authority for that country.

APPENDIX: 7.17 Distillation efficiency guide

(section 4.9 in this chapter)

Check on distillery's efficiency of production

To calculate the production efficiency of the distillery, a licensee should select the figures (in Lals) for the pumping of one week's production to vat storage and divide that figure by what should have been produced. That is the total volume of all fermenters distilled for that week multiplied by the strength of the distilled product.

Example:

A total of 120,000 litres of wash at a strength of 8.5% is transferred to the still. The still produces 10,000 Lals.

10,000	= 98.04% efficiency
120,000 x 8.5%

Production efficiency as calculated by the distiller = 98.5%.

Production efficiency as calculated by ATO = 98.04%.

Should production efficiency fall below historical performance it would be necessary to look for:

1. leaking still or leaking pipes
2. inaccurate recordings
3. bad security and pilfering, and
4. alcohol in the waste material.

APPENDIX: 7.18 General Excise glossary and industry glossary of distillation terms

(section 3.3 in this chapter)

Alcohol

For excise purposes alcohol means ethyl alcohol²⁵. Ethyl alcohol is a colourless, flammable liquid (C₂H₅OH), the intoxicating principal of fermented liquors, formed from certain sugars (especially glucose) by fermentation, usually prepared by treating grain with malt and adding yeast²⁶.

Anhydrous ethanol (absolute alcohol)

Defined as having less than 1 per cent water.

Azeotropes

The term used to describe a constant boiling mixture. It is a mixture of two (or more) components with a lower boiling point than either component alone. The vapour of the mixture has the same composition as the liquid and therefore no further concentration can be achieved by normal distillation.

An alcohol and water mixture is an azeotropic solution.

Azeotropic distillation

A distillation process in which a liquid compound (entrainer) is added to the mixture to be separated to form an azeotrope with one or more of the compounds. Normally the entrainer is easily separated from the component to be removed. Benzene and cyclohexane are examples of entrainers used in the dehydration of ethanol by azeotropic distillation. The term molecular sieve is frequently used to refer to the entire ethanol dehydration apparatus.

Back

A shallow vat in which wort is deposited for fermentation.

Boiling point

The temperature at which the transition from the liquid to the gaseous phase occurs in a pure substance at fixed pressure (liquids vaporise at lower temperatures than their actual boiling points. For example water evaporates from puddles after rain without ever reaching 100°C).

Bubble cap

A contacting device used on some distillation plates. It consists of a cylindrical chimney set in a hole in the plate and covered by a dome-shaped cap which deflects the vapours rising up the chimney to cause them to pass through the liquid layer on the plate.

Charge

Wash. The fermented material (for example distillation wine) used in a still and from which spirit is distilled.

Condenser

A heat exchange device connected to the vapour discharge pipe of a column to permit the vapour to be cooled and condensed to a liquid. Condensers are commonly cylindrical vessels containing tubes through which cooling water is passed.

Dephlegmator

Name commonly used for the first of two or more condensers attached to the overhead vapour line of a distillation column. It literally means an entrained liquid separator.

Distillation is:

• the separation or purification of mixtures by using different evaporation rates or boiling points of their components
• the separation by heating of ethyl alcohol from wine or other spirituous liquids
• involves the processes of vaporisation and condensation
• operates on the principle that alcohol vaporises at a lower temperature than water, and
• does not produce alcohol (alcohol is produced by fermentation); it is merely a refining process. Therefore it is necessary prior to distillation to have a base product which already contains alcohol.

Dunder

Sugar cane lees used to promote fermentation of rum. Dunder is the residue left in the still after distillation and is generally used in the processes of slow fermentation.

Ester

The product derived from the reaction of an acid with an alcohol or other organic compound having hydroxyl groups. For example ethyl acetate is an ester produced by reacting acetic acid with ethanol. Esters tend to accumulate in distillation in the heads at the top of the column.

Ethanol

A common term for ethyl alcohol. See Alcohol.

Feedstock

The raw material used in a process.

Feints

Feints are low quality spirits received into the feints receiver. They are the combination of the more undesirable parts of the heads and tails and may be re-distilled as they still contain some ethyl alcohol.

Fractional distillation

Fractional distillation is a method used to separate a mixture of volatile components of different boiling points. The mixture is distilled at the lowest boiling point and the distillate is collected as one fraction until the temperature of the vapour rises showing that the next highest boiling component of the mixture is beginning to distil. This component is then collected as a separate fraction.

Fusel Oils

Term used to describe the higher alcohols, generally the various forms of propanol, butanol and amyl alcohol. Fusel oils are heavier molecular weight compounds, a proportion of which are required to give spirit much of its flavour. However they are undesirable in excessive amounts. They are generally composed of a mixture of isoamyl, butyl, propyl and heptyl alcohols which are produced as a by-product of fermentation.

Hydrometer

A hydrometer is a direct reading instrument for indicating the density, specific gravity or other similar characteristics of liquids.

• a proof hydrometer measures the content of ethanol in a mixture with water.
• a Brix or balling hydrometer measures on a scale equivalent to the percentage of sugar by weight of an aqueous solution.

Low wines

Low wines are spirits of the first extraction (distillation run) received into the low wines receiver. Low wines are merely a step in the process of producing spirit in saleable form. For example Cognac must be double distilled, Irish whisky triple distilled and malt Scotch double distilled.

Methanol

Also known as methyl alcohol (CH₃OH). A colourless, poisonous liquid with essentially no odour and very little taste. It is the simplest alcohol. Having a lower boiling point than ethanol, it tends to be a major component of the heads stream on distillation. It was formerly derived from the destructive distillation of wood which caused it to be known as wood alcohol.

Miscible substances

These are substances which are capable of being mixed (for example water and alcohol). Distillation is a means of separating miscible substances.

Packed distillation column

A column filled with a packing of ceramic, metal or other material designed to increase the surface area for contact between liquids and vapours.

Pot still procedure

This example uses distillation wine as a charge for the eventual production of brandy:

• the pot is charged with distillation wine usually of 10-12% a/v with a low sulphur content
• steam is injected via an open coil to heat the distillation wine in the pot
• the distillation wine starts to boil
• volatiles vaporise and start to rise
• the brandy ball at the top of the column provides some intermediate reflux but generally, for the first run, no water is passed through the brandy ball. Therefore volatiles are distilled over with the lowest possible reflux
• the vapour which passes the brandy ball then goes through a condenser for cooling
• the vapour condenses into a spirit/water mix and is collected in a receiver
• distillation is continued with the steam coil closed until the hydrometer indicates that only pure water is being distilled over, and
• the spent charge in the pot (now with zero alcohol content) is discarded and a fresh charge introduced into the pot.

The strength of the spirit/water mix produced as a result of the first distillation run through a pot still is usually between 30 and 45% a/v, generally contains most of the volatile products from fermentation (that is sulphur dioxide, esters, many higher alcohols) and is referred to as low wine.

Receiver

A tank into which new distillates flow from the still.

Rectification

• rectification is distillation carried out in such a way that the vapour rising from a still comes in contact with a condensed portion of vapour previously evolved from the same still
• a transfer of material and an interchange of heat result from this contact thereby securing a greater enrichment of the vapour in the more volatile components than could be secured with a single distillation operation using the same amount of heat
• The condensed vapours which are returned to accomplish this object are reflux.

Reflux

The condensation that recedes back down a distillation column as a result of the condensation of alcohol vapours:

• the condensate at the bottom of the column will be stripped of all of its original volatiles.
• the vapours at the top of the column will be highly volatile vapours with very little water content.
• due to the range of boiling points of components within a wash, the components will condense at varying temperatures and, by tapping into the still at varying points, products of different strengths can be extracted.

Reverse osmosis

A technique used in water purification and waste water and stillage treatment in which pressure is applied to the liquid in a suitable apparatus to force pure water through a membrane that does not allow the passage of dissolved ions. Reverse osmosis is used to produce low alcohol wine.

Specific gravity (SG)

The ratio of the density of a material to the density of a standard reference material (water) at a specific temperature.

Stillage

The mixture of non-fermentable (or non-fermented) solids and water, which is the residue after removal of ethanol from a fermented beer by distillation.

SVR (spiritus vini rectificatus)

Grape spirit.

Vinasse

The term sometimes applied to the stillage of molasses, grape juice or other liquid ethanol feedstock.

Volatile

Readily converting to the vapour state.

Wash

The liquor from mashed material after it has commenced to ferment and before it has been distilled.

APPENDIX: 7.19 Record keeping requirements

(section 8.2 in this chapter)

Under the provisions of section 50 of the Excise Act a licensee is required to keep, retain and produce to a tax officer such records as the Tax Office directs. While the Tax Office does not normally give specific directions about which records must be maintained, most records which are required by tax officers to verify compliance are those that would normally be required to efficiently maintain the licensee's operation. If the records are found to be inappropriate or insufficient, the Tax Office may use the provisions of section 50 of the Excise Act to direct the licensee to maintain specific records.

Still house records

The still house is the production centre where fermented base distillation materials are input to the still and where distilled alcohol or spirit is produced.

Spirit may require further work within the still house before it is suitable for transfer to the spirit store. Losses incurred during still house operations are treated as production losses and a licensee is required to keep adequate records to account for them.

The main records which a licensee must keep in the still house are:

• notice book
• comparison account, and
• still house stock register.

Notice book

This is a record of all materials charged to the still. A licensee should:

• list consecutive numbers for each charge
• record the date each charge was made
• identify the type of charge material (for example, distillation wine)
• identify the charge vessel used (for example, WC #3)
• record results for each dip of the charge vessel (in centimetres) immediately prior to charging
• record corresponding volumes (in litres) of charge material in each charge vessel
• record the alcoholic strength of the charge material, as tested by laboratory analysis (for example, 12.5% alcohol by volume)
• record the total amount of alcohol in the charge in Lals (volume in litres multiplied by alcohol strength), and
• identify the still to which each charge was made (for example, pot #2).

Comparison account

This is a record of all spirits distilled from the still. A licensee should:

• record the relevant charge numbers from the notice book (in the case of a continuous still, this information may not be available)
• record the date the spirit was produced
• record the type of spirit produced (for example, cane spirit or rectified grape spirit)
• identify the still from which the spirit was produced
• identify each receiving vessel (for example, feints to FR4, SVR to SR1)
• record results for each dip of all receiving vessels (in centimetres)
• record the temperature of the spirit at time of dipping
• record corresponding volumes (in litres) of all spirits received into the receiving vessels, and
• record the alcoholic strength of all spirit produced at 20°C, including feints, as tested by laboratory analysis.
• A comparison account can be maintained as a separate record or the above details can be incorporated into a combined notice book/comparison account record.

Still house stock register

This is a record of all still house spirit vessels (including feints receivers) and their alcohol contents. A licensee should:

• identify the vessel number
• record stock survey details before and after each operation including
  • the date
  • dip result (in centimetres)
  • volume (in litres)
  • the strength at a temperature of 20°C, and
  • the volume in Lals, and
• record the operational loss or gain in Lals for each operation, calculated as the difference between the pre and post operation Lals
• record all spirit movements into and out of each still house vessel in the still house stock register.

Other Still House Records

In addition to the notice book, comparison account and still house stock register, a licensee needs to keep records of operations within the still house such as recycling and cleaning up of spirit (for example, ion exchange).

Some losses will normally occur during these operations. While still house production losses are not normally subject to call up of duty, a licensee must keep adequate records to account for these losses.

Alcohol strength analysis

A licensee should maintain a separate record of analysis for spirit store and warehouse stock where charge material, spirit or waste from the still is tested for alcoholic strength. This record must include:

• the date of the test
• vessel identification number
• dip result (in centimetres)
• details of material tested, and
• alcoholic strength of the sample at 20°C.

This record may be in the form of a still house test book or laboratory analysis record.

Spirit runnings

When the spirit has been re-worked and no further cleaning up is required, it is run from the still house stock into the bonded stock. All losses and gains must be calculated.

A licensee must keep a record of all stock run from the still house into bonded stock.

For the originating still house vessel, distillery records should include:

• the date of the spirit run
• details of the vessel from which the spirit was run
• the type of spirit
• the pre-operation dip result (in centimetres) and the post-operation dip result (in centimetres)
• the volume transferred (in litres)
• the temperature of the spirit
• the alcoholic strength of the spirit at 20°C, and
• the volume transferred in Lals.

For the receiving bond vessel distillery records should include:

• details of the vessel to which spirit was run
• the type of spirit
• the pre-operation dip result (in centimetres) and the post-operation dip result (in centimetres)
• the volume received in litres
• the temperature of the spirit
• the alcoholic strength of the spirit at 20°C
• the volume received in Lals, and
• the operational loss or gain in Lals.

For the purpose of accounting for stock, there should be no physical movement from the still house into bonded stocks unless it is recorded as a spirit running.

The spirit may remain in the same multipurpose vessel - when holding still house stock the vessel is shown as a still house vessel and when holding bonded spirit store stock it is shown as a spirit store vessel.

Stocktakes and distillation efficiency

Normally every month, or every three months at the most, a licensee should conduct a stocktake of all stock including Still House stock and feints.

A licensee should measure bulk stock in tanks and vats by dipping, testing strength (if not tested within the previous month) and recording stock details, noting losses

and gains in the relevant stock records. They should record still house stock in the still house stock register.

They should calculate still efficiency on a regular basis to ensure that all available alcohol in charge material is being recovered at an acceptable rate. Efficiency is expressed as a percentage of the total Lals available. The formula is:

closing stock + total spirit run to bond + feints destroyed x 100

opening stock + total Lals charged to still.

Spirit store records

The spirit store is that part of the distillery where spirit is held that has been worked in the still house to the point where no further distillation or cleaning up is required. Any bulk spirit received from an external supplier is also received into the spirit store. Bulk spirit store storage vessels include wooden vats, stainless steel tanks and either plastic or steel drums.

Spirit is normally held in the spirit store for the following reasons:

• for further production during which the following operations are permitted:
  • blending
  • reducing
  • clarifying
  • bottling
  • casking (warehousing)
  • methylating
  • colouring, and
  • flavouring.
• for spirits required to be matured in wood (brandy, whisky and rum):
  • prior to movement into the spirit warehouse (cask storage)
  • after maturation in casks in the spirit warehouse has been completed and the cask stock has been revatted back into the spirit store, and
• for storage before delivery for home consumption.

Vat register

This is the record of all spirit store vessels and the volume of spirit in those vessels. A licensee should maintain a separate record similar to the still house stock register for each storage vessel. Each vessel should be surveyed before and after each operation to determine contents in Lals and to measure temperatures. In certain spirit store operations volumes must be corrected to 20°C.

A licensee should record the following details in the vat register:

• identification number of the vessel
• stock survey details before and after each operation, including the date, dip result (in centimetres), volume (in litres), strength at 20°C, temperature and volume in Lals, and
• details of operational loss or gain in Lals for each operation, calculated as the difference between the Lals before and after each operation.

A licensee should record losses and gains against the receiving vessel.

The vat register is a record of:

• all spirit movements into and out of each vat in the spirit store
• all spirit operations in the store, and
• all stocks held in the store.

A licensee should verify the details in the vat register periodically (normally monthly, but at least quarterly) by stock take.

For bulk stock in the spirit store, the same principles apply as for a still house stock take (for example, dipping and strength testing).

Operations notices

Operations notices provide distillery staff with written directions of the work that is to be done.

A licensee may use operations notices to direct how much spirit is required for a particular operation and from which vat it is to be drawn, which vessels are to be used and the nature of the operation. Distillery staff should use operations notices to record details such as dips and temperatures for transfer into the vat register or cask account.

Receipts and deliveries of bulk spirit

Receipts

Before accepting a delivery of bulk spirit and updating the distillery stock records (for example the vat register) a licensee should check the goods received.

When receiving spirit by road tanker, a licensee should:

• check that seals are intact
• check the dip compartments and record the measurement (converted to litres) by referring to the relevant dip charts
• record temperature readings for each compartment
• correct litre volumes to 20°C
• draw samples from each compartment, measure and record alcohol strengths
• correct strengths to 20°C and calculate and record the actual Lals received
• record any difference between the surveyed quantity (in Lals) and the supplier's details on the delivery document. The licensee should advise the Tax Office of any abnormal losses at this point.
• record details of the actual Lals received
• re-measure the quantity received after the spirit has been transferred into distillery receiving vessels, and
• record the transfer loss or gain in the stock records against the receiving vessel. This figure is the difference between the quantity signed for as received and the quantity measured in the receiving vat.

When receiving spirit in drums a licensee should:

• check that seals are intact
• record the weight of the drums and establish gross weights
• deduct tare weights to establish net weights of spirit contents
• draw samples and test strength, corrected to 20°C
• calculate and record contents (in litres) by referring to density tables (using apparent strength as tested)
• calculate and record contents in Lals (add obscuration if required)
• record transit loss or gain on the delivery document (the Tax Office should be advised of any abnormal loss at this point), and
• record the actual quantity received in stock records.

Delivery notes

A licensee must maintain a record of the following details about deliveries of spirit from the spirit store:

• name and address of the supplier
• name and address of the consignee
• date of delivery from the distillery
• type of delivery vessel (for example, drums, bulk tanker, bottles)
• volume in litres (corrected to 20°C for bulk tankers), alcohol strength, quantity in Lals, and
• type of spirit.

Bottling operations records

Under bond excisable spirit may only be packaged at licensed premises.

Bulk stock (that is, stock in a container or vessel greater than two litres) can not be entered for home consumption before packaging²⁷.

After maturation (following blending, clarifying, colouring or flavouring), the volume of spirit in the bottling tank must be corrected to 20°C before commencing the bottling process²⁸.

Alcoholic strength of the spirit should be determined and recorded either at the header tank before bottling or by sampling the packages from the bottling line.

A licensee should include the following details in bottling operations records:

• quantity in litres (at 20°C) and Lals of spirit delivered from the header tank
• strength of the spirit in the header tank
• number and size of bottles or cans
• total litres, strength and Lals of packaged product
• total litres, strength and Lals of catchings, and
• reconciliation between Lals delivered from the header tank and Lals packaged, showing any losses.

Packaged stock records

Packaged stock records commonly referred to as the case account, are records of all packaged stock held. Quantities are normally recorded to show the number of cartons.

A licensee should record the following details:

• product line identification, total quantity, package size and number per carton for each packaged goods line
• receipts of packaged stock from bottling or of under bond stock from other licensees into the case account
• under bond deliveries from the case account to other licensees for duty payment or for export
• dates when stock is received or delivered, and
• stocktake details.

Spirit warehouse records

Certain spirits (brandy, whisky and rum) are required to be matured in wood for a minimum period of two years²⁹. The maturation area of a distillery is referred to as the spirit warehouse.

Storage in wood can be either in large wooden vats or in wooden casks and barrels. A licensee must record the date the spirit is put into wood, taking into account any period when the spirit is temporarily held in non-wooden vessels. Failure to maintain accurate records may mean that the date when the spirit has reached the required maturation age cannot be properly calculated.

Usually maturing spirit is held in wooden casks to impart greater wood character. The transfer of the spirit from vats to casks storage for an extended period and its subsequent return back into vats (called revattal) all incur losses. A licensee is therefore required to maintain detailed records of quantities delivered from vats, plus quantities received into casks within the warehousing operations, and vice-versa for revattal.

The principal records for the spirit warehouse are the warehousing book which records details of all transfers from vats to cask storage and the revattal book, which records details of all spirit transferred from casks back to vat storage.

Cask storage methods and recording

There are three acceptable methods by which spirit may be held in casks. They are the conventional method, the in situ method and the batching method. In each case a measured quantity is withdrawn from the full cask measure to allow for possible expansion. Once the spirit has been sent to cask storage it should remain untouched until revattal.

Contrary to other distillery operations, a licensee should record losses or gains, incurred in warehousing operations when spirit is transferred from vat to cask storage, against the delivery vessel, unless a separate cask account (the cask equivalent of the vat register) is maintained.

Regardless of which method is used, the date of the warehousing operation and the date of the revattal operation should be recorded. The acceptability of cask storage losses is determined from these dates.

Procedures for the conventional method

Warehousing

A licensee should:

• measure the quantity in litres and Lals from the delivering vat and record it in the vat register
• number each cask consecutively
• if the casks' contents are to be measured by weight, a licensee should
  • weigh the casks empty
  • fill and weigh the casks and mark tare and gross weights on each cask, and
  • measure and record fill contents in litres and Lals for each cask.
• if the casks' contents are not measured by weight, a licensee should measure the cask contents by flowmeter, and
• record the details of each casks' contents and the date in the warehousing book. Reconcile the total quantity (in Lals) warehoused in casks against the total quantity delivered from vats and calculate the operational gain or loss then record this against the delivery vat.

Revattal

A licensee should:

• draw a sample of the casks' contents and test for strength, noting variations
• survey the receiving vat prior to operation to establish litre and Lals contents
• pump the contents of casks which are to be revatted into a receiving vat
• survey receiving vat again to establish total Lals quantity received from casks, noting also dip, temperature and litre volume
• reconcile revatted Lals quantity against the warehoused Lals quantity
• record details of casks revatted and note the date in the revattal book and the vat register, and
• calculate the loss resulting from the revattal and record details in the revattal book and the vat register against the receiving vat.

The advantage of this method is that each cask can be treated as a separate entity for storage purposes, however it is labour intensive and not commonly used.

Procedures for the in situ method

Warehousing

A licensee should:

• measure the quantity in litres and Lals from the delivering vat and record details in the vat register
• measure the capacity of individual casks (normally by flowmeter)
• number the casks consecutively, mark the capacity on each cask and fill the casks
• record the details of each cask, contents and date in the warehousing book, and
• reconcile the total quantity (in Lals) warehoused in casks, against the total quantity delivered from vats and calculate the operational gain or loss.
• Each stack is filled as a complete entity. A licensee should survey the delivery vat for each stack. The advantage of this method is that once cask capacities have been established the licensee can use this information for all subsequent warehousing operations for which those casks are used. The casks can be left stacked up without the need to take down the stack each time the casks are filled. As individual cask contents are known, the licensee may treat each cask as a separate entity for storage purposes if required.

Revattal

The revattal procedure is the same as that outlined for the conventional method.

Procedures for the batching method

Warehousing

A licensee should:

• measure the quantity in litres and Lals from the delivering vat and record details in the vat register
• accept this quantity as the total quantity delivered into the casks
• divide the total quantity by the number of casks to calculate an average fill
• record the average fill in warehousing records as the contents of each cask in the batch and note the date, and
• identify batches and casks by sequential numbering systems.

Revattal

The revattal procedure is the same as outlined under the conventional method. However each batch must be revatted as a whole.

This is the simplest and least labour intensive cask storage methods. However the use of this method is subject to written approval from the Tax Office. As with the

in situ method, casks can be left stacked between fills. Each batch is treated as a separate entity for storage purposes and as such must be revatted as a whole.

Operational losses and gains

A licensee should record losses and gains incurred in still house and spirit store operations. When product is moved from one bulk storage vessel to another, it must be recorded against the receiving vessel. The only exception is when spirit is transferred to a vessel that is outside the spirit store, such as:

• warehousing into casks
• deliveries to other licensees or premises, or
• transfers to packaging.

In each of the above cases, a licensee should record operational losses or gains against the delivery vessel.

Abnormal Losses

A licensee is required to advise the Tax Office as soon as practicable when they incur operational losses that are outside normal parameters for any operation. They should collect evidence such as broken bottle necks or caps, photographs, or police/insurance reports that may substantiate the losses and present such evidence to the Tax Office if requested.

Stock takes

A licensee should carry out stock takes on a regular basis to establish the accuracy of their stock records, to detect omissions or errors in stock records, and to identify security issues such as theft, plant and equipment problems.

Bulk storage vessels should be dipped, temperatures noted and volumes in litres and Lals established. When alcohol strength has not been checked within the preceding three months, they should re-test and record alcohol strength. They should then update stock records such as the still house and vat registers.

A licensee is required to advise the Tax Office as soon as practicable of any discrepancies in bulk spirit stocks beyond normal loss parameters. The Tax Office will advise if any further action is to be taken. Cumulative loss or gain figures for each bulk storage vessel in stock records need to be reset to zero after the stock take.

A licensee should carry out stock takes on packaged product on a floor-to-book basis. They should check packaged stock and reconcile against the case account. A licensee will be required to pay duty on packaged stock that cannot be accounted for.

In some circumstances stock take gains may be offset against unaccounted shortages when calculating duty payable on packaged stock losses. In these

circumstances, the licensee should refer the matter to the Tax Office for advice or further action.

A licensee is responsible for the safe-keeping of under bond excisable goods in their possession, custody or control. A licensee is accountable for any duty which would have been payable on stock that has been stolen. Any theft should be reported to the Tax Office who will advise what action is required.

1 Section 10 of the Distillation Act

2 Section 11 of the Distillation Act

3 Section 12 of the Distillation Act

4 Section 11A of the Distillation Act

5 Section 13 of the Distillation Act

6 Section 24 of the Excise Act and regulation 2A of the Excise Regulations.

7 Section 7 of the Spirits Act

8 Section 11 of the Spirits Act

9 Section 10 of the Spirits Act

10 Section 3 of the Spirits Act

11 Section 64 of the Excise Act

12 Sections 106 and 107 of the Excise Act, sections 63 and 71 of the Distillation Act and section 22 of the Spirit Act.

13 Regulation 149 of the Excise Regulations and Section 60 of the Excise Act.

14 Regulation 149 of the Excise Regulations and Section 60 of the Excise Act.

15 Regulation 149 of the Excise Regulations and Section 60 of the Excise Act.

16 Section 60 of the Distillation Act

17 Section 62 of the Distillation Act

18 Section 63 of the Distillation Act

19 Section 50 of the Excise Act

20 Section 10 of the Distillation Act.

21 Subsection 10(b) of the Distillation Act.

22 Section 12 of the Distillation Act.

23 Section 34 of the Distillation Act.

24 Section 57B of the Distillation Act.

25 See the definition of `Alcohol' in Section 6 of the Distillation Act. See also the preamble to the Schedule to the Excise Tariff Act which states in part, `A reference to alcohol is taken to be a reference to ethyl alcohol.'

26 The Macquarie Dictionary, 2001, rev. 3^rd edn, The Macquarie Library Pty Ltd, NSW.

27 Section 4 and subsection 58(5) of the Excise Act.

28 Subsection 6(2) of the Distillation Act and the preamble to the Schedule of the Excise Tariff Act.

29 Section 12 of the Spirits Act.

Chapter 8 - Liqueurs and Other Excisable Beverages

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

ETI Excise tariff item

NEI Not elsewhere included

PSP Periodic settlement permission

RTD Ready-to-drink beverage.

1.2 Foreword

If you want to know more about Excise go to our website at www.ato.gov.au.

Section 2 Overview

2.1 Liqueurs

Liqueur is defined in the Schedule to the Excise Tariff Act as the product obtained by mixing or by distillation of spirit with or over, fruits, flowers, leaves or other vegetable substances or their juices either singly or in combination with extracts derived by distillation, infusion, percolation or maceration of such vegetable substances, and containing no less than 25 grams per litre of sugars and not less than 17% alcohol by volume.

In general terms liqueurs may be regarded as strongly spirituous and sweetened compounds, flavoured with aromatic herbs, essences, essential oils, vegetable and fruit extracts, and sometimes with added colouring.

2.2 Other excisable beverages

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, (b) brandy, (c) fruit brandy, (d) whisky, (e) rum, (f) liqueurs or (g) wine as defined in Subdivision 31-A of the A New Tax System (Wine Equalisation Tax) Act 1999. Two duty rates apply depending on strength. The Excise Tariff Item (ETI) 1D rate applies to other excisable beverages not exceeding 10% a/v while the ETI 2H rate (equivalent to the general spirits rate) applies to those over 10% a/v.

Ready-to-drink (RTD) beverages (pre-mixed alcoholic drinks) are classified as other excisable beverages and have become an integral part of the liquor market. RTDs are manufactured from either a distilled spirit or a fermented/brewed alcohol base.

Special consideration needs to be given to RTDs made from a grape wine base and whether such RTDs are subject to wine equalisation tax (WET) legislation or to Excise legislation (see also section 4(6) in this chapter). Appendix: 10.1 in chapter 10 of this manual provides that grape wine products that are subject to WET must contain at least 70% by volume of grape wine and have a minimum strength of 8% by volume of alcohol. As most RTDs do not meet these requirements, they are excisable products. If uncertain full details should be forwarded to the AIG for decision.

In February 2002 a change in Customs/Tax Office administrative arrangements resulted in the complete incorporation within the excise regime of imported spirit intended for use in the manufacture of RTDs. Item 10 of schedule 2 of the Excise Regulations prescribes the conditions for the use of imported spirit to be used in the manufacture of other excisable beverages, namely:

• the manufacturer of the resulting beverage must be the holder of
  • a licence under the Excise Act to manufacture the other excisable beverage, or
  • a spirit makers licence under the Distillation Act
• the resulting beverage must be an other excisable beverage.

RTDs already mixed prior to importation are dealt with under the Customs regime.

2.3 Measurement of alcoholic strength

Details of the equipment and methods approved for the measurements of alcoholic strength of liqueurs or other excisable beverages are included in Excise Act (Alcoholic strength of ready to drink beverages and liqueurs) Determination No. ED 2003/3¹.

The processes are as follows:

• by the use of gas chromatography
• by the use of near infra red spectrometry, or
• by distillation followed by the gravimetric measurement of the distillate or by measurement in a density meter.

A licensee should measure the alcoholic strength of other excisable beverages and liqueurs after they have been manufactured to their final strengths. Measurement must be done only with approved calibrated equipment.

2.4 Volumes for duty purposes

Volumes for duty purposes of spirit and other excisable beverages are dealt with in chapter 3 section 3.3 of this manual (liqueurs are included in the definition of spirit in section 4 of the Excise Act).

Section 3 Legislation

Liqueurs and other excisable beverages are excisable goods. The manufacture of liqueurs and other excisable beverages is subject to the provisions of the Excise Act and the Excise Regulations. The applicable duties of excise are listed in the Schedule to the Excise Tariff Act.

Section 4 History

• Prior to 4 October 1948, provision existed under ETI 2 (I) and related by-laws, for the use of spirit in the manufacture of liqueurs outside Customs control.
• With the increase of liqueur production, certain undesirable features arose in connection with the production and marketing of liqueurs. Under the 1948 conditions then existing, Customs had no control over labelling and had no guarantee that manufacture was being carried out in accordance with approved formulae. As manufacture was carried out outside Customs supervision there was the danger that spirit entered under other concessional rates would be used for liqueur production.
• With a view mainly to protecting the revenue and ensuring that the quality of liqueurs produced in the Commonwealth was maintained at a reasonable standard, ETI.5 (Liqueurs) was introduced on 4 October 1948 and manufacturing became subject to the Excise Act and Regulations.
• On 23 May 1985, ETI.5 was abolished and liqueurs became classified under ETI 2Gl and 2G2 and spirituous beverages (such as vodka and ouzo) under ETI 2Hl and 2H2 to conform to a review of legislation conducted through the National Health and Medical Research Council.
• Effective from 3 February 1997, the requirement for and duty advantage of an approved formula was removed in respect of both liqueurs and spirituous beverages. ETI 2G1 and 2G2 became 2G, and 2H1 and 2H2 became 2H. The description attached to 2H was changed from spirituous beverages to beverages (other than beverages comprised solely of fortified wine) containing distilled alcohol, not elsewhere included. This result was mainly due to the AAT decision in Re: Carlton & United Breweries Ltd & Chief Executive Officer of Customs² which defined spirituous as containing much [sic] spirit and as such alienated beverages with lower alcoholic strengths, such as 6% distilled alcoholic mixer drinks.
• Concurrent with the Tax Reform provisions effective from 1 July 2000 the Schedule to the Excise Tariff Act was restructured such that all alcoholic beverages, other than wine covered by the WET legislation³, became subject to excise. This resulted in the creation of a new ETI 1D which covered all alcoholic beverages not exceeding 10% strength by volume that were not already covered elsewhere, for example beer. There was also a change to the wording of ETI 2H to cover all excisable beverages, with a strength greater than 10% by volume not already covered.

Tariff History - Liqueurs
To 2/2/1997	2G1	Liqueurs as prescribed by by-law	approved formula distinguished between these
To 2/2/1997	2G2	Liqueurs, other
3/2/1997	2G	Liqueurs	approved formula No longer required
1/7/2000	2G	Liqueurs	Neither ETI nor description changed for Tax Reform
Tariff History - Other Excisable Beverages exceeding 10% alcohol by volume
To 2/2/1997	2H1	Spirituous beverages as prescribed by by-law	approved formula distinguished between these
To 2/2/1997	2H2	Spirituous beverages, other
3/2/1997	2H	Beverages (other than beverages comprised solely of fortified wine) containing distilled alcohol, n.e.i (not elsewhere included).	approved formula no longer required, and change of wording.
1/7/2000	2H	Other excisable beverages, exceeding 10%	Change of wording as a consequence of Tax Reform (compare with new ETI 1D covering the same when not exceeding 10%).
Tariff History - Other Excisable Beverages 10% a/v or less
1/7/2000	1D	Other excisable beverages not exceeding 10%	First appearance of this item. All alcoholic beverages, not subject to WET, are now excisable.

Section 5 Packaging

5.1 Packaged in bulk containers

Liqueurs or other excisable beverages must not be entered for home consumption packaged in a bulk container without the written approval of the Tax Office (subsection 58(4) of the Excise Act).

5.2 Packing and labelling

The packing and labelling of liqueurs or other excisable beverages is covered by regulation 234D of the Excise Regulations as follows:

where bottles or flasks are packed in cases:

• each case is to contain only the one type of liqueur or other excisable beverage
• the same number of bottles or flasks are to be packed in each case, and
• each case containing a particular type of bottle or flask is to contain the same number of that type of bottle or flask.

The liquid quantity of liqueur or other excisable beverage in a case or bottle is to be measured as directed by the Tax Office.

The manufacturer of liqueurs or other excisable beverages is required to label each bottle or flask of liqueurs or other excisable beverages with the following details:

• either the name of the manufacturer and the address of the factory at which the liqueur or other excisable beverage was made, or the excise number of both the factory and the State in which the liqueur or other excisable beverage was made, and
• the words 'made in Australia' or words approved by the Tax Office indicating that the liqueur or other excisable beverage was made in Australia, and
• the name, type or brand of liqueur or other excisable beverage
• the quantity of liqueur or other excisable beverage contained in the bottle or flask, and
• any additional markings approved by the Tax Office.

If the manufacturer packs bottles or flasks of liqueur or other excisable beverage in a case they are required to paint or brand the following particulars on the case:

• either the name of the manufacturer and the address of the factory at which the liqueur or other excisable beverage was made, or the excise number of both the factory and the State in which the liqueur or other excisable beverage was made, and
• the words 'made in Australia' or words approved by the Tax Office indicating that the liqueur or other excisable beverage was made in Australia.

All particulars required to be included on a label or to be painted or branded on a case, must be easily readable.

Section 6 Records

The Excise Act requires a licensee to account for all excisable goods in their possession, custody or control and to correctly pay any excise liability⁴. The maintenance of adequate records is an important step towards meeting these obligations. Section 50 of the Excise Act requires a licensed manufacturer to record and retain such information as the Tax Office directs, and to produce that information to the Tax Office when requested. Under these provisions, a manufacturer of liqueurs or other excisable beverages will be directed to record each stage of production from the receipt of raw materials through to the delivery of the finished product. They must maintain the following minimum records:

Spirit account:

• quantity in litres of spirit received
• date spirit received
• strength of spirit received
• type of spirit received
• quantity in litres of spirit transferred to the manufacturing account, and
• date of transfer of spirit to the manufacturing account.

Manufacturing account:

• batch number
• date
• quantity and strength of spirit transferred from the spirit account
• details of ingredients (as per approved formula). Details must be sufficient to identify the excise tariff classification of the product
• quantity in litres and strength of product manufactured
• quantity in litres transferred to the case account, and
• details of any losses/gains.

Case account:

• quantity in litres received from the manufacturing account
• quantity in litres bottled (number of cases, number and size of bottles per case)
• bottling run number and date
• details of any losses or gains
• details of delivery document (excise return, single movement permission, continuing movement permission or export declaration number), and
• date of delivery.

Section 7 Goods Returned to Under Bond Stock After Removal or Delivery for Home Consumption

Goods falling within the following categories may be returned to under bond stock:

• incorrect stock selections, and
• over delivery.

Returns are subject to the following conditions:

• they must be accompanied by the original documentation, and
• they must be returned within 48 hours of delivery, or such further time as the Tax Office may allow if satisfied that the goods have been returned without delay.

Breakages that occur after goods have left Tax Office control may not be returned to under bond stock.

Interpretative Decisions (ATO IDs) which provide examples of circumstances where goods may or may not be returned to under bond stock after removal or delivery may be found at www.ato.gov.au.

Section 8 Allowance for Waste

Regulation 234B of the Excise Regulations states:

The Collector may make such allowances for waste as the Collector considers reasonable in respect of:

• the storage of spirit intended for use in the manufacture of liqueurs or other excisable beverages; and
• losses arising out of the manufacture, storage or bottling of liqueurs or other excisable beverages.

All loss or wastage of alcohol must be fully recorded by the manufacturer.

1 A determination made under section 77FB of the Excise Act.

2 Re: Carlton & United Breweries Ltd & Chief Executive Officer of Customs (1996) 42 ALD 321; (1996) 23 AAR 220.

3 See subdivision 31-A of the A New Tax System (Wine Equalisation Tax) Act 1999 for the definition of wine.

4 Sections 50, 53 and 60 of the Excise Act.

Chapter 9 - Concessional Spirit

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

ACS Australian Customs Service

AGAL Australian Government Analytical Laboratories

AIG Alcohol Industry Group

CEO Chief Executive Officer (the Commissioner of Taxation)

ETI Excise tariff Item

IMS Industrial methylated spirits

N.E.I Not elsewhere included

RTD Ready-to-drink beverage

SMS Specially methylated spirits

TGA Therapeutic Goods Administration

WET Wine equalisation tax

1.2 Appendices at the end of this chapter

Appendix: 9.1 Undenatured spirits - Approved uses of ETI 2M

Appendix: 9.2 Index of approved purposes for 2M concessional spirit

Appendix: 9.3 Undenatured spirits - approved uses of ETI 2J

Appendix: 9.4 Schedule of approved formulae for specially methylated spirits

Appendix: 9.5 Example of fortifier records - account of fortifying spirit

Appendix: 9.6 Example of fortifier records - fortifying spirit register

Appendix: 9.7 Terms of agreement to govern the manufacture and distribution of spirit-based food essences and flavourings free from excise duty

Appendix: 9.8 Form 21 (regulation 148)

Appendix: 9.9 Exemptions from the concessional spirits permit process.

1.3 Foreword

If you want to know more about Excise go to our website at www.ato.gov.au

Section 2 Overview

2.1 Preliminary

Alcohol, that is ethyl alcohol or ethanol manufactured and used in Australia, other than alcohol subject to wine equalisation tax (WET), is generally subject to high rates of excise duty. However there are three specific categories of spirit which may be purchased at a free concessional rate of duty. The alcohol in two of these three categories is denatured by making it unfit for human consumption by the addition of denaturants (methylating substances). The other is for manufacture of products for human consumption and to which no denaturants are added.

The three categories are:

• fully denatured spirit
  • known as industrial methylated spirit (IMS) and is of the type available from hardware stores and supermarkets. This spirit is unfit for human consumption due to the addition of denaturants as specified in sub-regulation 17(1) of the Spirits Regulations
• partially denatured spirit
  • known as specially methylated spirit (SMS). This spirit is made to meet specific end use requirements. It is unfit for human consumption due to the addition of denaturants as specified by the Tax Office under regulation 19 of the Spirits Regulations
• undenatured spirit
  • spirit which is potable (drinkable) and is supplied for approved purposes. For example for the manufacture of foodstuffs, internal medicines or for the fortification of non-grape wine.

An excise permit is required for the use of undenatured spirit and specially methylated spirit. No permit is required for the use of industrial methylated spirit.

The Alcohol Industry Group (AIG) is responsible for the administration of the concessional spirit scheme and for issuing permits.

The AIG will issue a permit only when the application to take delivery of spirit for approved purposes is complete and all requirements have been met.

Sub-section 6 (2) of the Distillation Act, sub-section 3 (2) of the Spirits Act and The Schedule to the Excise Tariff Act all require that the volume of alcohol in spirits is to be taken as the volume measured at 20°C. Accordingly, prior to packaging or delivering bulk concessional spirits, distillers are required to correct and record spirit volumes to 20°C. Resellers are required to correct and record bulk volumes to 20°C prior to repackaging or delivery.

2.2 Use of imported spirits

In compliance with Item 7 of Schedule 2 of the Excise regulations, imported spirit containing not less than 84% a/v may be used in the manufacture of other spirits subject to the following conditions:

• the manufacturer must hold a customs warehouse licence and either a spirit makers licence issued under the Distillation Act (see Chapter 2) or a licence to make methylated spirits issued under the Spirits Act
• the Tax Office has given approval for the manufacturer to blend spirits at the warehouse, distillery or methylator's premises to which the relevant licence refers
• the imported spirits must be blended with spirits distilled in Australia and containing not less than 84% a/v, and
• the spirits manufactured from the imported spirits are intended for use for industrial, manufacturing, scientific, educational or medical purposes.

Section 3 Legislative References

Excise Tariff Act 1921

The Schedule

The volume of alcohol contained in goods 'is taken to be the volume that would be the volume of that alcohol if the alcohol were measured at a temperature of 20°C.

Item 2J	Spirit for fortifying Australian wine or for fortifying Australian grape must subject to regulations
Item 2M	Spirit for industrial or scientific purposes, n.e.i., subject to regulations
Item 2N	Methylated spirits subject to regulations
Item 2P	Spirit for scientific or educational purposes subject to regulations-
Item 2P1	For use in universities
Item 2P2	For use in approved technical colleges or other educational institutions prescribed by by-law
Item 2Q	Spirit for use in public hospitals or for use in the manufacture of medicinal preparations for use in public hospitals and universities, subject to regulations
Item 11K	Denatured ethanol for use as fuel in an internal combustion engine (subject to excise duty with an equal amount of production subsidy. Payable to the local ethanol producer).

Concessional spirit is often referred to by the relevant Excise Tariff Item (ETI) under which the spirit is classified. For example 2M spirit (undenatured), 2N spirit (denatured) and 2J spirit (undenatured grape/marc spirit used for fortifying grape wine¹).

Permits for undenatured spirit are issued for spirit classified to ETI 2J or ETI 2M. Permits are no longer issued for ETI 2P, 2P1, 2P2 or 2Q - see sections 6 and section 7 of this chapter.

Permits for denatured spirit (including SMS) are issued for spirit classified to ETI 2N.

Spirits Act 1906
Sections 14-26	methylation of spirit
Spirits Regulations 1926
Regulations 10 - 17	methylated spirits
Regulations 19 - 30F	methylated spirits for special manufacture or special purpose
Regulations 31 - 37	methylated spirits for scientific investigation
Regulations 39 - 64	methylated spirits generally
Excise Regulations 1925
Regulation 83	method of taking samples
Regulations 83A - 92	use of fortifying spirit (2J) + Excise by-law No.98
Regulations 96 - 116	use of 2M spirit (vinegar manufacture)
Regulations 117-125G	use of 2Q spirit (for use in public hospitals and for the manufacture of medicinal preparations)
Regulations 142-151	use of 2M spirit (other industrial or scientific purposes)
Regulations 152-160A	use of 2P spirit (scientific or educational purposes)*
	* Excise by-law number 47
Distillation Act 1901
Section 9	parts IV and V apply to spirit makers only
Section 37	distiller may methylate spirits
Sections 57A - 59	fortification of Australian wines (2J)

Section 4 Excise Tariff Item 2m - Spirit for Industrial or Scientific Purposes, Subject to Regulations

4.1 Overview

The Excise Regulations² provide that the Tax Office may give approval for the delivery of spirit for industrial or manufacturing purposes approved by the Tax Office.

The Excise Regulations³ require that all spirit delivered under regulation 142 must remain subject to Tax Office control until used for an approved purpose. In order to account for the use of such concessional spirit the end user is required to record full details of the quantity of spirit received, corrected to 20°C⁴. Details of the quantity of spirit in litres and the actual (or true) strength, that is corrected to the standard 20°C⁵, should be shown by the distiller or reseller on delivery documents.

The Excise Regulations⁶ require that spirits for industrial or scientific purposes or educational institutions must contain at least 94% by volume of alcohol, unless the Tax Office approves otherwise.

ETI 2M reads 'spirit for industrial or scientific purposes, n.e.i.⁷, subject to regulations'.

Purposes approved by the Tax Office are listed at Appendix: 9.1.

Spirit cleared under ETI 2M is undenatured spirit. It may be distilled from a number of raw materials including grapes (grape spirit is often referred to as SVR), sugar cane (cane spirit) or grain (grain spirit). ETI 2M spirit is generally very high strength immature spirit. It is usually supplied at a strength of approximately 96% a/v. Spirit distilled from the various raw materials will have their own specific characteristics but will generally be of a fairly neutral nature.

ETI 2M spirit does not have any denaturants or methylating substances added to it.

Mature spirit may be cleared under ETI 2M as long as it is used for an approved purpose such as the manufacture of foodstuffs. Mature spirit means whisky, rum or brandy which has been aged in wood for at least two years. Such spirit has to be excisable to be delivered duty free under ETI 2M as the Excise Tariff Act applies only to goods manufactured in Australia⁸.

Further details of approved end-uses of ETI 2M are set out in Appendix: 9.1.

4.2 Policy for the granting of a permit for access to undenatured spirit where the spirit is to be consumed

With the exception of the approved use of undenatured spirit for the fortification of non-grape wine, the policy for the granting of a permit for access to spirit classified to ETI 2M is intended to ensure that such spirit is not used for the manufacture of alcoholic beverages or non-beverage products for which the purpose of the product is to be a source of alcohol for consumption as such (that is as an alcoholic product), irrespective of the description or labelling of the product.

The use of ETI 2M spirit for the manufacture of non-beverage products (such as foodstuffs) that are not intended as a source of alcohol for consumption, may be approved.

4.2.1 Application of policy - uses other than essences

Where spirit is to be used for the manufacture of vinegar, internal medicines and mouthwashes, or for other approved scientific or industrial purposes, (that is the purpose of the product is not to be a source of alcohol for consumption), approval may be granted subject to conditions including limits on quantity, determined by the Tax Office.

4.2.2 Application of policy - essences, flavours and other like products

Where 2M spirit is to be used for the manufacture of essences, flavours or other like products that are to be ultimately consumed, eligibility for access to 2M spirit will be assessed at the time of application. Access to 2M spirit will not be made available where the purpose of the product is to be a source of alcohol for consumption as such, irrespective of the description or labelling of the product.

Approval may be granted where it can be clearly demonstrated that the essence is for culinary purposes (for example in baking or as an additive to solid foods including liqueur chocolates where the purpose of the alcohol is not for consumption) or for use in small proportions to flavour non-alcoholic or non-excisable alcoholic beverages (for example soft drinks, cordials or where elsewhere allowable under the Excise Tariff Act). When applying for approval the applicant will need to demonstrate that the essence/flavouring will not be used as a direct substitute for the original spirit and that it is a concentrated flavour.

Approval may also be granted in circumstances where the essence will contribute to the alcohol content of a beverage, where the alcohol content contributed by the essence will be subject to excise liability as part of the total alcohol content of the product. In these circumstances the manufacturer of the product must be the holder of an excise manufacturer licence⁹.

Essences may also be used in the manufacture of products subject to wine equalisation tax (WET) legislation as long as the provisions of the WET legislation are met.

The overriding principle is where the product is sold or marketed as a source of alcohol for consumption, then approval for a permit for access to 2M spirit will not be granted.

For products described as essences, flavourings or other like products, where any of the considerations listed below apply, then the use of the product will not qualify as an approved purpose and access to concessional spirit will not be granted.

Considerations include where the product is:

• marketed in packaging that resembles packaging for an alcoholic beverage
• packaged in six packs or similar multiple packaging types
• required by state legislation to be sold through licensed liquor outlets or is subject to state liquor licensing laws
• marketed with instructions regarding how it can be converted to an alcoholic beverage
• packaged for retail sale (irrespective of who in the marketing chain does the packaging) in sizes greater than 50ml (or 100 ml for vanilla essence), or
• sold in package sizes greater than 50ml with no demonstrated culinary use.

The National Director, AIG has the delegation under regulation 142 of the Excise Regulations for approving permits for access to 2M spirit where the stated purpose is the manufacture of essences, flavours and like products.

Where approval is given to use 2M spirit for the manufacture of essences, the Tax Office will give due consideration to the taking of a security. An agreement covering the manufacture and distribution of spirit-based food essences and flavourings is required (Appendix: 9.6).

4.3 Excise Regulations specific to clearances under ETI 2M

Regulations 142 to 160A of the Excise Regulations deal with spirits used for industrial or scientific purposes or educational institutions.

Regulation 148 of the Excise Regulations provides that if a person receives spirit in pursuance of regulation 142, in quantities exceeding 25 litres per month, they must maintain records in accordance with form 21 (Appendix: 9.7) of the receipt and disposal of the spirit. Regulation 148 does not exempt a person from keeping records if they receive quantities that do not exceed 25 litres per month.

Universities, technical colleges and other educational institutions are required to keep records in accordance with regulation 158, and not under regulation 148¹⁰. Regulation 158 does not require a form 21.

section 5 Excise Tariff Item 2n - Methylated Spirits, Subject to Regulations

5.1 Overview

Methylated spirits are spirits to which a denaturant or methylating substance has been added to make them unpalatable. The methylating substance is usually highly volatile, which makes separation from the ethyl alcohol difficult.

Spirits methylated to an approved formula are cleared under ETI 2N.

5.2 Methylated versus denatured

The terms methylated spirits and denatured spirits are not interchangeable.

The Spirits Act and Spirits Regulations contain provisions for the control of methylated spirits.

The word denatured does not appear in the Spirits Act or Regulations or in other Excise legislation. Although the word denatured appears in the Customs Act it is not separately defined for the purposes of the Customs Act. The term denatured therefore takes on its natural or ordinary meaning. The Macquarie Dictionary¹¹ defines denature to mean:

to render alcohol unfit for drinking or eating by adding a poisonous substance without altering the usefulness for other purposes.

The Customs Tariff Act has a separate classification and concessional rate of import duty (5% ad valorem) for denatured alcohol. There is no reference to methylated alcohol in the Customs Tariff Act.

Methylated spirits, methylating substance and methylated are defined in section 3 of the Spirits Act as follows.

Methylated Spirits means any spirits, whether imported or made in Australia, which have been methylated either before or after the commencement of this Act, and whether the methylating substance or any fractional part or ingredient thereof has afterwards been removed from the spirit or not, and includes all spirit, whether imported or made in Australia, which has been entered for home consumption as methylated spirit.

Methylating substance means any substance required by any regulation to be mixed with spirits in order to make methylated spirits, and includes any fractional part or ingredient of any such substance, and particularly any such fractional part or ingredient as may serve to aid detection by means of chemical analysis of the presence in any article of food or drink or any medicines of a methylating substance.

Methylated means mixed with any prescribed methylating substance in the prescribed quantity, and in the prescribed manner.

The Spirits Regulations¹² set out the standards for methylated spirits and list the types and proportions of the ingredients that must be contained in industrial and mineralised spirits.

The Spirits Regulations¹³ prescribe that a person may methylate spirits for special manufacture or special purpose if the spirits contain at least 94% by volume of alcohol (or a lower percentage if approved by the Tax Office), and the methylation is done by adding methyl alcohol or any other substance as directed by the Tax Office.

In order for methylated spirits to be classified as industrial or mineralised spirits, they must meet the standards prescribed in sub regulations 17(1) and 17(2) of the Spirits Regulations.

The Spirits Act¹⁴ provides that spirits for special manufacture or for any special purpose must be methylated as prescribed and only used under Tax Office control and in accordance with the regulations. Subsection 14(5) provides that methylated spirits for use in scientific investigation are also required to be dealt with as prescribed.

However the above standards/requirements do not apply in respect of denatured spirits that are not methylated spirits (both are classified to ETI 2N). Section 14 of the Spirits Act provides that there shall be four classes of methylated spirits and that each can be used for specified purposes. However it does not limit use for specified purposes only to methylated spirits. For example, a denatured spirit, other than methylated spirits, could be used for lighting, heating and power purposes.

Methylated spirits are a sub-set of denatured spirits. Imported denatured spirits do not need to fit the standards for methylated spirits prescribed in Regulation 17 of the Spirits Regulations. Imported denatured or methylated spirits are not subject to the concessional spirit permit regime because the Excise Act does not apply. This creates a situation where the locally produced product is subject to the Spirits Act but an identical imported product is not.

5.3 Methylated spirits

Section 14 of the Spirits Act states:

1. Spirits distilled in Australia and imported spirits may be methylated in accordance with this Act and the regulations.
2. There shall be four classes of methylated spirits as follows:
   1. Industrial spirits for use in the arts and manufactures (other than the manufacture of articles of food or drink, essences, tinctures, or medicines);
   2. Mineralized spirits for lighting, heating and power purposes;
   3. Spirits for special manufactures or special purposes;
   4. Spirits to be used for purposes of scientific investigation in connexion with Universities or Public Institutions.
4. Spirits for any special manufacture or for any special purpose shall be methylated as prescribed and shall only be used under the CEO's control and in accordance with the regulations.
5. Spirits for use in scientific investigation shall be treated and dealt with in manner prescribed.
6. No methylated spirits shall be used in the manufacture or preparation of any articles of food or drink, or of any essences, tinctures, or medicines.

Both industrial and mineralised methylated spirits are fully denatured spirits. They are no longer subject to excise control once the methylating substances have been added as prescribed and the product is cleared by the manufacturer for home consumption under ETI 2N.

5.3.1 Industrial methylated spirits (IMS)

The Spirits Regulations¹⁵ provide that the standard for the class of methylated spirits called industrial spirits is that, before methylation, the spirit is to contain not less than 94% by volume of alcohol and is to be methylated by the addition of:

• 0.25 per centum of wood naphtha or methyl alcohol, 0.5 per centum of pyridine and 0.5 per centum of any one of the following substances, namely, petrol, gasoline, petroleum benzine, petroleum naphtha, coal tar naphtha or shale naphtha, or
• 0.25 per centum of wood naphtha or methyl alcohol, 0.125 per centum of pyridine and 1 per centum of any one of the following substances, namely petrol, gasoline, petroleum benzine, petroleum naphtha, coal tar naphtha or shale naphtha, or
• 6.6 parts per million by weight of bitrex, 0.25 per centum by weight of methyl-isobutyl-ketone and 1 part per million by weight of fluorescein.

Once methylated in accordance with the regulation and entered into home consumption under ETI 2N, IMS are no longer subject to excise control. A concessional spirits permit is not required to use IMS.

IMS are used in the manufacture of solvents, extractants, antifreezes and as intermediates in the synthesis of innumerable organic chemicals, or in the arts. They must not be used in the manufacture of food or drink, essences, tinctures or medicines. A tincture is an alcoholic solution of some principle (usually vegetable) used in medicine.

5.3.2 Mineralised methylated spirits

The Spirits Regulations¹⁶ specify that the standard for the class of methylated spirits called mineralised spirits is that before methylation, the spirit is to contain not less than 94% by volume of alcohol and is to be methylated by the addition of:

• 0.25% of wood naphtha or methyl alcohol, 0.05% of pyridine and not less than 2% of any one of the following substances, namely, petrol, gasoline, petroleum benzine, petroleum naphtha, coal tar naphtha, shale naphtha, benzol or a like substance, or
• 6.6 parts per million by weight of bitrex, 0.25% by weight of methyl-isobutyl-ketone and 1 part per million by weight of fluorescein.

Once methylated in accordance with the regulation and entered into home consumption under ETI 2N, mineralised methylated spirits are no longer subject to excise control. That is, they are not subject to the concessional spirits permit regime and a permit is not required.

Mineralised spirits are used for purposes such as lighting, heating, or power.

5.3.3 Special manufacture or special purpose methylated spirits

Methylated spirits classified as being for special manufacture or special purpose are spirits which fall under ETI 2N, and are referred to as specially methylated spirits (SMS) or partially denatured spirits.

This category of spirits is governed by the Spirits Regulations and is subject to the concessional spirits permit regime.

The Spirits Regulations¹⁷ specify that spirits which are to be methylated for special purposes must contain at least 94% by volume of alcohol or a lower percentage if approved by the Tax Office, and it is done by adding methylating substances in proportion and as directed by the Tax Office.

The minimum strength of 94% a/v is required prior to methylation.

It is common commercial practice for resellers and end users to later add water to the methylated spirits to arrive at an optimal strength for the intended application. For example, SMS Formula 3 is often reduced to 70% a/v for use as a sterilising agent in hospitals.

Appendix: 9.3 shows the schedule of approved formulas for SMS for any manufacture or purpose in which the use of IMS would be unsuitable or detrimental. This schedule provides details of the approved uses for SMS.

All applications to vary the proportion of methylating substances, or vary the pre-methylation strength to less than 94% by volume of alcohol, should be directed to the National Director, AIG with details as to whether:

• the quantities of methylating substances to be added render the product non-potable, or
• the methylating substances cannot be easily extracted.

If the National Director is not satisfied that both criteria have been met, a sample of the proposed formula will be analysed by the Australian Government Analytical Laboratories (AGAL) at Tax Office expense.

The AIG maintains a register of approved formulas, updates of which will be published in this guide.

5.4 Methylated spirits prohibitions

The Spirits Act¹⁸ prohibits the use of methylated spirits in the manufacture or preparation of any articles of food or drink, or of any essences, tinctures or medicines.

Sub section 15(1) of the Spirits Act provides that a person shall not:

• abstract any methylating substance or any fractional part or ingredient thereof from any methylated spirits, or
• refine or distil any methylated spirits, or
• treat, deal with or use any methylated spirits or spirits containing any fractional part or ingredient of a methylating substance in contravention of this Act or the regulations.

Sub section 16(1) of the Spirits Act provides that a person shall not:

1. sell or have in his possession any illicit methylated spirits, or
2. sell or have in his or her possession any article of food or drink, or any scent¹⁹, essence, tincture or medicine, containing any methylated spirits or methylating substance or any fractional part or ingredient thereof.

In a prosecution for an offence against paragraph 16(1)(b) of the Spirits Act, it is a defence if the defendant proves that they did not knowingly sell or have in their possession the goods forming the subject of the prosecution²⁰.

In March 2002, the Tax Office revised its policy to allow for the use of certified organic undenatured ethanol in the manufacture of certain certified organic personal care products where it can be clearly demonstrated that this is necessary to meet the requirements of organic certification. These products include cosmetics and toiletries.

5.4.1 Implications for pharmaceutical manufacture

The Spirits Act²¹ provides, in part that no methylated spirits shall be used in the manufacture of medicines.

The Therapeutic Goods Administration (TGA) have stated that subsection 14(6) is too restrictive and have argued that this subsection should be administered to allow for common practice manufacturing processes where the end products are free from methylating substances as in the following examples:

• the methylated spirit used in the manufacture of tablets is used as a granulating solvent. Granulation is the process whereby crystalline powders are mixed with certain solvents to form granules prior to compression into tablets. The methylated alcohol and other solvents are fully removed by evaporation in the drying process, leaving undetectable amounts of methylating substances in the finished products
• methylated spirit is also commonly used worldwide in the pharmaceutical industry in the film-coating of tablets or as a solvent during the manufacture of pharmaceutical chemicals. The drug safety and evaluation branch of the TGA regularly approves applications where this is done.

5.5 Recovery of methylated spirits

The Spirits Regulations²² specifies that methylated spirits used in manufacturing operations can only be recovered by a licensed distiller at a licensed premises and under conditions approved by the Tax Office. The recovered spirits must be re-mixed with methylating substances as directed by the Tax Office.

Section 6 Excise Tariff Item 2J - Spirit for Fortifying Australian Grape Wine or Australian Grape Must Subject to Regulations

Spirit for fortifying Australian grape wine or Australian grape must²³ is classified under ETI 2J. As the result of a change in policy in 2001, fortifying spirit, previously only available as an under bond product, was transferred to the concessional spirit permit regime. Appendix: 9.2 lists approved uses for ETI 2J spirit.

ETI 2J is a classification for the purposes of the Excise Tariff Act and covers the end use and duty status of undenatured grape spirit.

ETI 2J spirit is not available for fortifying non-grape wines, for example fruit or vegetable wines. This use is dealt with under the provisions for ETI 2M spirit.

6.1 Spirit eligible for use in fortification

Spirit for use in the fortification of Australian grape wine must comply with the requirements of Section 57B of the Distillation Act which provides that fortifying spirit means:

• spirit distilled from wine or other products of wine making and containing not less than 74% by volume of alcohol, or
• Australian brandy that has been matured by storage in wood for a period of not less than 2 years, being brandy that contains not less than 57% by volume of alcohol, containing flavouring and colouring matter (if any) which are of kinds approved by the Collector for the purposes of this definition and do not cause obscuration of the strength of the brandy exceeding 1.7%.

Brandy mixed with sugar which is used to sweeten champagne is classified under ETI 2J.

6.2 Strength of fortified wine

Sub section 59(1) of the Distillation Act specifies that Australian wine shall not be fortified:

• so as to contain more than 23% by volume of alcohol, or
• with any spirit other than fortifying spirit.

Australian wine that is intended for export may, with the written approval of the Tax Office given before the wine is fortified, contain more than 23% by volume of alcohol.

Standard 4.1.1 of the Food Standards Code, which is administered by State Departments of Health requires that fortified wine must contain not more than 22% by volume of ethanol at 20°C.

A minimum strength for fortified wine is not prescribed in any excise legislation. However standard 4.1.1of the Food Standards Code states that fortified wine must contain at least 15% by volume of ethanol at 20°C.

6.3 Permission to use

The Excise Regulations24 specify that a person shall obtain the approval of the Tax Office before using Australian spirit for fortifying Australian wine or Australian grape must.

Tax Office approval is given by way of a concessional spirit permit specifying ETI 2J spirit for fortifying Australian grape wine and Australian grape must.

6.4 Record keeping

A permit holder is required to record details of all receipts, storage and usage of fortifying spirit and retain those records as evidence that all accountable spirit has been used in accordance with the permit. They are required to make their records available to the Tax Office on request²⁵.

The Tax Office does not require the creation of additional records for excise purposes providing that necessary details are recorded in the permit holder's normal commercial documentation see section 6.7 (Use of spirit). Inadequate records may mean that all spirit may not be accounted for and call up of duty may be considered at the ETI 2H rate²⁶.

6.5 Receipt of spirit

A permit holder is required to record all spirit receipts. They should retain the supplier delivery documents (consignment note, delivery docket and so on) as part of their permanent record of receipts. The fortifying spirit register form (Appendix: 9.5) is a suitable format for spirit records.

6.6 Storage of spirit

A permit holder is accountable for all spirit received into stock.

The Excise Regulations²⁷ requires that spirit delivered under regulation 142 for approved industrial or manufacturing purposes must be kept separate from other goods on the premises and, if required by the Tax Office, be kept in a secure and safe room.

The fortifying spirit register form (Appendix: 9.5) is suitable for recording spirit storage. Working documents such as operations and cellar notes also form part of the permanent record and are to be retained and produced when requested by the Tax Office.

6.7 Use of spirit

A fortifier is required to record the following details for each fortification:

• date and fortification identification number
• operations/cellar note number (this may not be used in smaller wineries)
• wine details including
  • litres of wine
  • baumé of grape must
  • baumé of fermented wine, and
  • alcoholic strength of wine
• spirit usage details including
  • litres of spirit used
  • alcoholic strength of spirit used, and
• fortified wine details, including
  • litres of fortified wine produced
  • alcoholic strength of fortified wine, and
  • baumé of fortified wine.

The Schedule: account of fortifying spirit usage form (Appendix: 9.4) is a suitable format for use by permit holders.

6.8 Clearance of spirit

ETI 2J fortifying spirit is required to be cleared on an excise return (usually lodged with the Tax Office by the spirit distiller). The spirit can then only be delivered to holders of appropriate concessional spirit permits.

Section 7 EXCISE TARIFF ITEM 2P - SPIRIT FOR SCIENTIFIC OR EDUCATIONAL PURPOSES, SUBJECT TO REGULATIONS

Although ETI 2P appears in the Schedule to the Excise Tariff Act, current Tax Office policy is to approve all such concessional spirit deliveries as ETI 2M or ETI 2N. This will not adversely affect the permit holder but will allow the AIG to get an accurate picture of the split between undenatured and denatured spirit clearances. With regard to Universities, Technical Colleges and other educational institutions, it also allows the AIG to overcome the outdated and restrictive list of educational institutions covered by Excise By-Law No. 47.

ETI 2P is covered by regulations 152 - 160A of the Excise Regulations. Those regulations are not relevant to the tariff items under which the permissions for spirit use fall.

Section 8 EXCISE TARIFF ITEM 2Q - SPIRIT FOR USE IN PUBLIC HOSPITALS, OR FOR USE IN THE MANUFACTURE OF MEDICINAL PREPARATIONS FOR USE IN PUBLIC HOPITALS AND UNIVERSITIES, SUBJECT TO REGULATIONS

Although ETI 2Q appear in the Schedule to the Excise Tariff Act, current Tax Office policy is to approve all such concessional spirit deliveries as ETI 2M or ETI 2N. This will not adversely affect the permit holder but will allow the AIG to get an accurate picture of the split between undenatured and denatured spirit clearances. With regard to Universities, Technical Colleges and other educational institutions, it also allows the AIG to overcome the outdated and restrictive list of educational institutions covered by Excise By-Law No. 47.

ETI 2Q is covered by regulations 117 - 125 and 125A - 125G of the Excise Regulations. Those regulations are not relevant to the tariff items under which the permissions for spirit use fall.

Section 9 EXCISE TARIFF ITEM 11K - DENATURED ETHANOL FOR USE AS FUEL IN AN INTERNAL COMBUSTION ENGINE

On 13 September 2002, the Government announced its intention to remove the fuel tax exemption on ethanol and provide domestic ethanol producers with a 12-month producer subsidy (subsequently extended until June 2011).

Consequently on 18 September 2002, ETI 2R (denatured ethanol for use as a fuel in internal combustion engines, as prescribed by by-law) was repealed and replaced by ETI 11K (denatured ethanol for use as fuel in an internal combustion engine). The change meant that excise duty and a related Customs duty (on imported product) were imposed on ethanol used in fuel for internal combustion engines at the current rate of 38.143 cents per litre. A production subsidy of 38.143 cents per litre was provided to Australian ethanol producers for ethanol used in such fuel. The administration of the subsidy is handled by the Department of Industry, Tourism and Resources.

If petroleum and ethanol blends (for example, blends containing 10% ethanol) are manufactured at a licensed distillery, an excise manufacturer's licence is required in addition to a distiller's licence (see last paragraph of section 2.4 distillers' licences in chapter 2 of this guide). The blending of petroleum and ethanol in a one-step process is then permitted. This is because the ethanol remains under bond and therefore poses minimal compliance risk.

Any ethanol to be blended outside the distillery needs to be denatured first at the distillery then a second blending process undertaken by the licensed excise manufacturer to make the petroleum blend.

The volume of ethanol is required to be corrected to 20°C in accordance with the preamble to The Schedule to the Excise Tariff Act. Fuel ethanol is required to be corrected to the industry standard of 15°C.

Ethanol used in the manufacture of biodiesel is an approved industrial use for concessional purposes. The ethanol is expended during the manufacturing process and the final biodiesel product contains no ethanol. Although the biodiesel is used as an automotive fuel, no ethanol is consumed in internal combustion engines. Therefore there is no liability to pay excise duty under ETI 11K.

Fuel ethanol, being ethanol blended with a minimum of 1% petroleum, does not fall to ETI 11K unless it is intended for use in an internal combustion engine. Where fuel ethanol is not intended for use in an internal combustion engine, ETI 2N is appropriate. A concessional spirit permit is required.

Section 10 CONCESSIONAL SPIRIT DISTRIBUTION NETWORK

This network comprises spirits manufacturers, distillers, other entities holding the appropriate excise permits and approved concessional spirits resellers.

10.1 Concessional spirit manufacturers (distillers)

The manufacturers of concessional spirit in Australia are companies licensed under the Excise Acts. In accordance with subsection 20(1) of the Spirits Act, provided they hold a spirit maker's general licence under the Distillation Act, they may make and sell methylated spirits subject to the regulations without any further licence.

It is the responsibility of the distiller to lodge an excise return to clear concessional spirit for home consumption²⁸.

There is also a small number of non-distillery clients who import ethanol for blending with Australian spirit. These require an excise manufacturer licence.

10.2 Concessional spirit resellers

Concessional spirit resellers obtain concessional spirit under a resellers permit and on-sell the product to approved end use permit holders.

Resellers operate in one of two ways:

• they receive packaged product and on-sell that packaged product in the same container without altering the product (that is product in/product out), and/or
• they receive bulk product then break bulk (unpack), repack and sell the repackaged product.

Resellers who repack product must have that part of their operations approved on their permit. For example repack and resell to approved end users.

Resellers approved to repack must record repacking losses and gains.

As with end users, resellers are required to maintain accurate records of the receipt and disposal of spirit. These records can be in the form of standard commercial documentation.

Resellers should ensure that their records include details of quantities, strengths and grades of spirit delivered, including the following individual transaction details:

• name and address of purchaser
• permit number, practitioner registration number, school details or TGA certificate number
• quantity, strength and grade of spirit sold, and
• stock-on-hand and strength of that stock.

10.3 Concessional spirit end-users

Concessional spirit end-users must be either permit holders²⁹ or be included in the exempt categories listed in section 11.1.

Section 11 CONCESSIONAL SPIRIT PERMIT PROCESS

11.1 Exemptions

As a long-standing administrative practice, certain concessional spirit end users do not require permits provided they are in an exempt category. Details are as follows:

Health care practitioners (60 litres per year without a permit) including:
	Traditional
	chiropractor, doctor, dentist, osteopath, physiotherapist, podiatrist, registered nurse and veterinary surgeon. The practitioner's certificate number should be quoted to the supplier and should appear on the sales/delivery records
	Alternative
	acupuncturist, herbalist, homeopath, naturopath. A copy of the Therapeutic Goods Act (TGA) certificate of exemption should be provided to the supplier. The TGA number is to appear on the sales/delivery records
Pharmacists (120 litres per year without a permit).
	required to quote/show their practitioner's certificate number which is to appear on the sales docket
Educational Institutions (5 litres per year without a permit) including:
	universities, secondary schools, colleges, institutes of technology, institutes of TAFE, agricultural institutes and technical colleges.

Any person in the above categories who requires more than the exempt limits must apply for a concessional spirit permit.

Sea-going vessels (refer to Appendix: 9.8).

Overseas clients (refer to Appendix: 9.8).

These exemptions were introduced to reduce administrative and compliance costs to small volume/low risk users. An application for use of concessional spirit is required from all other intending users.

11.2 Applications

The AIG has national responsibility for the issue of permits for the use of concessional spirit.

11.2.1 Risk assessment

Regulation 30A of the Spirits Regulations requires applicants who apply for SMS for a specific end use to first justify why they cannot use IMS, which is not subject to the CEO's control.

Once an applicant has satisfied this requirement, they may be issued with a permit to receive one of the approved SMS formulas listed in Appendix: 9.3.

If an applicant wishes to receive ETI 2M undenatured spirit they must first justify why they could not use IMS or SMS (ETI 2N) spirit instead.

Undenatured spirit represents the greatest risk of being diverted to the production of alcoholic beverages. SMS formulations represent a lesser risk to varying degrees, and IMS are sufficiently denatured to minimise the risk of diversion.

11.2.2 Permit validity

First time applicants for permits are generally issued a permit with a validity period of one year from the date of issue.

On renewal, permits are valid for five years from the date on which they are renewed.

In the case of permits which are valid for more than one year, the annual spirit allowance will be shown on each permit.

A permit for a once only allowance may be issued in response to a specific application. For example because an applicant requires concessional spirit for an approved purpose which will be undertaken once only. Once only permits are valid for a period of six weeks from the date of issue. The permit holder should take delivery of the approved quantity in one delivery only within that six week period.

The AIG sends to each approved supplier nominated by the applicant details of each permit number, permit holder's name, quantity and type of spirit approved, and delivery address. The nominated supplier is not given any other information dealing with the application or the permit (for example, specific end-use details) which may be commercially sensitive.

Regulations 117A (spirit for use in public hospitals - related to ETI 2Q) and 153 (spirit for industrial or scientific purposes or educational institutions - related to ETI 2P) of the Excise Regulations and regulation 19 (spirit for special manufacture or special purpose) of the Spirits Regulations specify that spirit for these purposes may not be delivered at an alcoholic strength less than 94% by volume of alcohol without Tax Office permission. Current policy is to allow delivery under ETI 2M or ETI 2N rather than ETI 2P or ETI 2Q at less than that strength to fit in with the requirements of applicants. See Section 7.

11.3 Documentary security/cash surety

The Tax Office has the right to require a security³⁰.

If the Tax Office assesses that an applicant presents sufficient risk to warrant the taking of a security, a submission to this effect will to be submitted to the National Director, AIG. The assessment is carried out according to a risk matrix which evaluates the likelihood of the applicant complying with excise requirements and the possible risk to the revenue.

Should a security be considered necessary, the amount involved is calculated on the estimated average monthly excise which would apply to the goods if excise duty were payable. This amount is calculated at the ETI 2H duty rate.

Section 20 of the Excise Act allows for the taking of a fresh security when it is considered to be necessary. There is no limit to the amount of a fresh security.

11.4 Essence agreement

If an applicant requests approval to use concessional spirit to manufacture essences and flavourings for the food industry, they will be required to enter into an agreement with the Tax Office that they will comply with all requirements relating to the production, marketing and sale of these products.

The relevant agreement is the 'Terms of Agreement to Govern the Manufacture and Distribution of Spirit Based Food Essences and Flavourings Free from Excise Duty' (Appendix 9.6).

11.5 Record keeping

The Tax Office has control of spirit delivered for approved industrial or manufacturing purposes until the spirit is used for the approved purposes³¹.

Under subsection 60(1) of the Excise Act, goods under Tax Office control are required to be accounted for to the satisfaction of a collector.

All permit holders are required to maintain records that satisfactorily account for the use of concessional spirit in accordance with the approved purpose. Records must be kept for a period of five years.

Concessional spirit resellers are not required to keep records other than normal commercial documentation provided that the records include:

• quantity, strength and grade of spirit received
• individual sales showing
  • name and address of purchaser
  • purchaser's permit number, practitioner's certificate registration number or TGA certificate of exemption number or educational institution name, and
  • quantity, strength and grade of spirits sold
• quantity and alcoholic strength of stock on hand
• details of all spirit from the time of receipt, through break bulk to final repackaging (for resellers who repack spirit received in bulk containers), and
• details of all losses or gains relating to repacking operations plus the final number and size of the repackaged product.

Permit holders should carry out and record regular stocktakes (at least monthly).

Manufacturers and end-users are also not required to maintain any prescribed recording system provided that their records enable them to fully account for the disposal of the spirit in accordance with the approved purpose.

The responsibility for the final accounting of spirit rests with the end-user. The Tax Office may require an end-user to keep records additional to normal commercial records if they have insufficient internal stock controls in place or the records which they keep are not detailed enough to properly account for the use and disposal of spirit.

11.6 Physical security

A permit holder is required to keep concessional spirit securely.

Storage of concessional spirit should ideally be under locked security. It is normal industry practice that transport by bulk carrier is under locked security and on arrival the spirits are transferred to secure vats or tanks.

A permit holder is responsible for the control and safe keeping of concessional spirit once the spirit has been received into their stock. The Tax Office does not normally insist on any particular security arrangements other than normal good commercial practice³².

11.7 Excise returns

Previously excisable goods were cleared on Nature 40 entry for home consumption forms which were forwarded to the Australian Customs Service (ACS) at regional offices in each State where they were processed on behalf of the Tax Office. From 1 July 2003 the Tax Office assumed full responsibility for the processing of excise return forms which replaced Nature 40 forms for the clearance of excisable goods.

11.7.1 Excise returns - industrial and mineralised methylated spirits

All licensed methylators and distillers who methylate spirits to industrial methylated spirits specifications or mineralised methylated spirits specifications are required to include aggregated quantities on their periodic excise return. ETI 2N applies.

11.7.2 Excise returns - undenatured and specially methylated spirits

Distillers, excise storage licensees, excise manufacturers or methylators who sell spirits to concessional spirit permit holders (resellers and/or end-users) are required to include aggregated quantities on their periodic returns under ETI 2M or ETI 2N.

11.8 Unaccountable losses

Distillers, re-sellers, manufacturers and end-users must keep sufficiently detailed records to fully account for concessional spirit.

Failure to account to the satisfaction of the Tax Office for undenatured spirit, (ETI 2M) or SMS (ETI 2N), may result in a call up of excise duty under section 60 of the Excise Act.

Where concessional spirit is used as a beverage, the call up of excise duty will be at the rate which applies to ETI 2H, unless the spirits are brandy, whisky, rum or liqueurs which are classified to their own ETI.

Unaccountable losses of ETI 2N spirit, or diversions for use for a non-approved purpose, may be called up at the relevant rate which applies to the end use of the spirit. For example if denatured spirit is diverted for use as a fuel in an internal combustion engine the call up of duty would be at the ETI 11K rate.

Licensee and permit holders are required to inform the Tax Office whenever spirit cannot be accounted for. For example, due to leakage, spillage, theft or other manufacturing or delivery loss. The Tax Office will advise what action needs to be taken.

Due to the vagaries of the industry and the variety of end-uses, processes and manufacturers involved, it is not possible to be prescriptive about what percentage or volume of spirit loss would be acceptable in all cases. The Tax Office will examine each loss on its merits to determine the acceptability or otherwise of the spirit loss.

11.9 Tolerances on quantities delivered/received

Tax Office policy used to allow manufacturers and resellers of concessional spirit to supply approved clients with a maximum of the quantity approved on their permit. There was no tolerance for supplying in excess of the approved quantities. For example a breach of the permit would occur if a manufacturer added, say, 5 litres of methylating substance to a drum containing 200 litres of ethanol to produce the required denatured spirit and thereby supplied 205 litres instead of the 200 litres of denatured spirit approved on the permit.

In acknowledging that having to apply for minor adjustments to the approved quantities shown on permits was inconvenient to manufacturers, resellers, their clients and the Tax Office, the Tax Office introduced the following policy change effective from 1 April 2003:

• all clients may receive a maximum of 105% of the quantity of spirit approved on their current permit without the need for adjustment to that permit. For example a permit for 200 litres will now allow the delivery of up to 210 litres without further approval from the AIG
• the manufacturer or reseller of concessional spirit, is to enter the full amount delivered on the delivery documents and maintain a cumulative total of the quantities delivered to the client, and
• the manufacturer or reseller is to ensure that the extended limit is not exceeded.
• The policy change is intended to:
• simplify administration for spirit manufacturers, resellers and the Tax Office, and
• reduce compliance costs for spirit manufacturers, resellers and end-users.

APPENDIX: 9.1 Index of approved purposes for 2M concessional spirit (subsection 4.1 in this chapter)

A

Abalone production

Aerosol breath spray

Agricultural laboratory use

Alcohol standards

Anaesthetic mixes

Analysis of free fatty acid

Analytical chemistry

Analytical laboratory procedures

Analytical medical research

Analytical reagent

Animal liquid supplements

Animal medicines

Aquarium tablets

Aromatherapy products

Art conservation/restoration

Artificial insemination

Aviation fuel testing laboratory use

B

Bacteriological analysis

Bio pharmaceutical manufacture

Biochemical manufacturing

Biochemistry laboratory use

Biological laboratory use

Biological products for medical and diagnostic purposes

Biology classes

Biomedical research

Blood analysis

Botanical essences

Brine refrigerant

Bush flower essences

C

Cake manufacturing and decorating

Calibration of laboratory instruments

Calibration of medical equipment

Calibration standards for instruments

Cattle food supplement

Ceramic fuel cells

Chemical bonding process of automotive electronic products

Chemical disposition of silver

Chemical experiments

Chemical laboratory use

Chemical research

Chemical standards

Chemical synthesis

Chemical testing

Chemistry classes

Chemistry experiments

Chemistry purposes

Cider vinegar

Cleaning and restoring artwork

Cleaning and sterilising food making machinery

Cleaning and sterilising laboratory equipment

Cleaning and sterilising manufacturing equipment for medical products

Cleaning and sterilising pharmaceutical manufacturing equipment

Cleaning and sterilising surfaces in contact with food manufacture

Cleaning and treatment of museum objects

Cleaning composite aircraft structures prior to adhesive bonding

Cleaning microbiological laboratory

Cleaning of aircraft fuel quality control instruments

Cleaning of bottling machine

Cleaning of breathing apparatus, cylinders and associated equipment

Cleaning of diagnostic equipment

Cleaning of equine artificial insemination equipment

Cleaning of glazed ceramics prior to the application of gold

Cleaning of hearing aids

Cleaning of high vacuum equipment

Cleaning of hospital equipment

Cleaning of laboratory equipment

Cleaning of laser window in rapid prototyping system

Cleaning of medical equipment

Cleaning of meteorological equipment

Cleaning of optical components used in precision instruments

Cleaning of optical equipment

Cleaning of optical fibre connectors and cable

Cleaning of pharmaceutical packaging machinery

Cleaning of photographic equipment and components

Cleaning of research equipment

Cleaning of scientific apparatus

Cleaning of sensitive electronic equipment

Cleaning of surgical instruments

Clinical pathology laboratory use

Conservation and restoration of sculpture, furniture, ceramics and antiques

Conservation and restoration of archaeological artefacts

Conservation of archives material

Conservation of cultural artefacts such as cleaning photographs, works of art and paper documents, metals and textiles.

Copper bromide laser systems

Cough mixture

Cough preparation for horses

Culinary essences

D

Decontamination of laboratory equipment

Deer antler/velvet products

Defat protein

Dentistry

Determination of grape maturity

Diagnostic and research purposes

Diagnostic reagents

Dilution in flux bath of wave soldering machine

Dilution of paint in a non-destructive tyre inspection machine

Disinfection of dental equipment

Disinfection of equipment and preservative for preparation of oral products

Disinfection of hospital equipment

Disinfection of laboratory equipment

Disinfection of medical equipment

DNA extraction

Drug analysis

Dye dilution in manufacture of soft contact lenses

Dye sensitive solar cells

E

Echinacea root tincture

Educational and research purposes

Educational laboratory use

Electroplating solutions

Embalming and preserving human cadaveric material

Entomological research laboratory use

Epoxy floor coating

Essence manufacture

Essential oil extraction

Essential oil products. For example skin sprays, healing creams, ointments

Ethanol standards

Exported under a valid ECN for medical purposes

Exposition liqueur added to sparkling wine

Extractive solutions

F

Fat analysis

Fertile egg vaccination processes

Filling ion exchange columns and preserving resin between production runs

Filling nautical compasses

Fine metal casting processes

Fingerprint development

Fish attractants

Fish food additive

Fish oil

Fishery research

Flavours and extracts

Flower essences

Foam and bacteria control in the manufacture of fertiliser

Food additives

Food colour

Food supplements

Forensic analysis/testing

Fortification of apple cider

Fortification of berry wines

Fortification of fruit wines

Fortification of mead

Fortification of non grape wine

Free fatty acid analysis

Fruit dewaxing solutions

Fruit fly bait

Fruit fly traps

G

Gargles

Gemstone enhancement

General hospital use

General laboratory use

General pharmaceutical use

General research use

Gold galvaniser metal protectant

Grape colour analysis

Gum resins for artistic purposes

H

Hair medicaments

Hair care products

Health food products

Herbal creams

Herbal extracts

Herbal liniments

Herbal liquid extracts

Herbal medicines, extracts, mixtures, preparations, remedies and tinctures

Herbal tablets

Herbal therapeutic substances

Histology laboratory use

Histopathological procedures

Homoeopathic creams

Homoeopathic preparations, remedies, medicines

Horticultural laboratory use

Hospital pharmacy

Hospital sterilisation

Hospital use

I

Ice sculptures, where contact with foodstuffs

Indicator solutions for laboratory purposes

Internal medicines

In-vitro diagnostic kits

L

Laboratory reagents

Laboratory use

Lip balms

M

Maceration of herbs

Marine research

Materials conservation work in museum collection

Meat marking dye

Medical pathology

Medical research purposes

Medicaments

Medicinal compounds

Medicinal essences

Medicines

Metallurgical laboratory use

Metal alkoxide solutions

Microbiological laboratory use

Mineral dietary supplements

Mouthwash

Museum operations

N

Naturopathic medicines

Nuclear medicine laboratory use

Nutritional supplements

O

Optical fibres

Oral care products

Oral pharmaceutical preparations

Oral veterinary products

Organic cosmetics

Organic fragrances

Organic perfumery

Organic personal care products

Organic soap

Organic toiletries

P

Pain relief products

Paper conservation

Pathology laboratory procedures

Pharmaceutical applications.

Pharmaceutical manufacture

Pharmaceutical medicines

Pharmaceutical preparations

Pharmaceutical products

Pharmacological research

Pharmacy use

Photopolymer stamps

Plant growth hormone solution

Plant propagation

Podiatry clinic use

Polyethylene and polypropylene plastics sheets for food contact

Preservation insect specimens

Preservation of anatomical specimens

Preservation of animal specimens

Preservation of aquatic flora and fauna samples

Preservation of archives material

Preservation of aromas

Preservation of biological specimens

Preservation of insect specimens

Preservation of invertebrates

Preservation of malt extracts

Preservation of natural history specimens

Preservation of plant specimens

Preservation of wildlife specimens

Preservation of zoological specimens

Printing ink for foodstuffs

Propellants within the defence industry

Q

Quality control laboratory use

R

Radiopharmaceutical tests

Radiopharmaceutical use

Reagents

Recovered wine flavour

Refrigeration brine

Remedial wine processing

Repackaging on behalf of supplier

Repair and service aircraft components

Repair of compasses

Replacement of fluid in the seal chambers of winery submersible pumps

Resale to approved end users

Research and development (in relation to other approved uses)

Research laboratory work

Restoration of antique frames, prints and paintings

Restoration of artwork

Restoration of paintings

Restoration of paper

S

Science teaching/educational purposes

Scientific experiments

Scientific laboratory use

Scientific purposes

Scientific research

Scuba equipment testing

Secondary brine refrigerant

Silvering mirrors

Skin care products

Skin preparations

Soil chemical testing

Solvents, proprietary, where formulas are approved

Specimen fixation and staining procedures

Specimen preservation for scientific purposes

Spectacle cleaning agent

Spraying grape vines to enhance quality in wine

Spraying grapes to enhance grape colour

Spraying on vines to increase berry colour

Sterilisation of 23ct Gold Flakes for use in winemaking

Sterilisation of acupuncture equipment

Sterilisation of bottling equipment

Sterilisation of corks and corking machines

Sterilisation of dental equipment

Sterilisation of fermentation and freeze drying equipment

Sterilisation of food processing machinery

Sterilisation of hospital equipment

Sterilisation of laboratory equipment

Sterilisation of medical equipment

Sterilisation of oak barrels

Sterilisation of skin for example acupuncture, tattooing, body piercing

Sterilisation of surfaces in a beverage manufacturing area

Sterilisation of surfaces in a food manufacturing area

Sterilisation of surfaces in a medical equipment manufacturing area

Sterilisation of surfaces in a pharmaceutical manufacturing area

Sterilisation of surgical instruments

Sterilisation of tissue culture

Sterilisation of veterinary equipment

Sterilisation of water filters and glass packaging

Sterilisation within dental surgeries

Sterilisation within wineries

Sterilising agent in aquaculture

Sterilising agent in plant tissue culture

Sterilising of poultry vaccinating equipment

Storage and preservation of aquatic insect specimens

Storage and preservation of biological specimens

Storage and preservation of cadavers

Storage of collection of natural history specimens

Storage of membrane filter cartridges

Storage of scientific samples

Storage of wine filter cartridges and membranes

Surgical applications

Surgical procedures

T

Tablet manufacture

Tannin solutions for wine

Teaching and research purposes

Testing of food products

Testing of paint systems applied over ABS plastic car components

Testing of security dyes in sensitised cheque papers

Tetanus antigen

Therapeutic goods

Tirage liqueur added to sparkling wine

Tissue processing

Tobacco manufacture

Traditional Chinese medical procedures

Traditional Chinese medicines

Treatment of cultural heritage items

Treatment of motion picture film

Tree breeding research

V

Vanilla fridge wipes

Vapour pressure systems

Varnish or polish for musical instruments

Vegetable oil

Veterinary medicine, preparations, procedures and products

Vinegar manufacture

W

Water quality analysis

Wine colour extraction

Wool testing

APPENDIX: 9.2 Undenatured Spirits - Approved uses of ETI 2J

(section 6 in this Chapter)

Approved uses of ETI 2J inlcude:

For use in the manufacture of:

• sparkling grape wine
• fortified grape wine
• mistelle

Spirit for fortifying Australian wine or Australian sparkling wine or for fortifying Australian grape must (mistelle) subject to regulations is classified under ETI 2J.

Sparkling grape wine means wine that, by complete or partial fermentation of contained sugars, has become surcharged with carbon dioxide. Sparkling wine must contain at least 8% a/v of ethanol at 20°C. Sparkling wine may also contain:

• grape spirit containing not less than 74% a/v of ethanol at 20°C, or
• brandy containing not less than 57.1% a/v of ethanol at 20°C. It must also contain no less than 5g/L of carbon dioxide at 20°C (Food Standards Code, Standard 4.1.1).

Fortified grape wine means Australian wine to which has been added grape spirit, brandy or both. Fortified wine must contain at least 15% a/v and not more than 22% a/v of ethanol at 20°C (Food Standards Code 4.1.1). Types of fortified wines include port, sherry, muscat.

Mistelle means grape must or grape juice prepared from fresh grapes to which grape spirit has been added to arrest fermentation and which has an ethanol content between 12% a/v and 15% a/v at 20°C (Food Standards Code 4.1.1).

Spirits for use in the fortification of wine must comply with the requirements of section 57B of the Distillation Act. Fortifying spirit must be either:

• a spirit distilled from wine or other products of wine making, being a spirit that contains not less than 74% by volume of alcohol, or
• Australian brandy that has been matured by storage in wood for a period of not less than 2 years, being brandy that contains not less than 57% by volume of alcohol plus flavouring and colouring matter (if any) approved by the Collector and which do not cause obscuration of the strength of the brandy exceeding 1.7%.

Note: For the purposes of (b) above, brandy mixed with sugar, which is used to sweeten champagne, should be entered under ETI 2J.

Although Australian Food Standard 2.7.4 allows the addition of non-grape spirit to grape wine, this is not allowed under excise legislation (see the requirements for fortifying spirit above).

Prior to 1 July 2000, the Tax Office was not concerned with small strengthening top-ups of the kind mentioned above because the activity involved strengthening Australian wine and/or grape must. As there may be a revenue risk involved this is being factored into Tax Office future planning and treatment strategies.

APPENDIX: 9.3 Schedule of approved formulae for special methylated spirits

(subsection 11.2.1 in this chapter)

Schedule of approved formulae for special methylated spirits for any manufacture or purpose in which the use of industrial or mineralised spirits would be unsuitable or detrimental.

Formula number	Minimum quantity of methylating substance	For use in the manufacture of, or for the purpose of:
F1	0.5% methanol plus 2.0% benzol, toluol or petrol	For all purposes except those prohibited by the Spirits Act Note: The Spirits Act, section.14 (6) prescribes that no methylated spirits shall be used in the manufacture or preparation of any articles of food or drink, or of any essences, tinctures, or medicines.
F2	0.5% diethyl phthalate	Scents and toilet preparations; deodorisers; products packed in aerosol form.
F3	2.0% methanol	For all purposes except those prohibited by the Spirits Act Note: The Spirits Act section14 (6) prescribes that no methylated spirits shall be used in the manufacture or preparation of any articles of food or drink, or of any essences, tinctures, or medicines.
F4	0.25% tertiary butyl alcohol	Scents and toilet preparations; deodorisers; products packed in aerosol form.
F5	90 gm brucine sulphate or alkaloid per 1,000 litres of spirits	Scents and toilet preparations; deodorisers; products packed in aerosol form.
F6	16 gm bitrex per 1,000 litres of spirits	Scents and toilet preparations; deodorisers; products packed in aerosol form.
F7	1 kg sucrose octa acetate per 1,000 litres of spirit	Scents and toilet preparations; deodorisers; products packed in aerosol form.
F8	90 gm quassin per 1,000 litres of spirit	Scents and toilet preparations; deodorisers; products packed in aerosol form.
F9	0.2% acetaldehyde	Acetic acid; acetone; ethyl acetate; diethyl phthalate.
F10	10.0% acetone	Branding ink for meat producers
F11	5.0% ethyl ether	Branding ink for meat producers
F12	2.0% by weight ethylene glycol mono-ethyl ether	Mono- and di- ethylene glycol ethers
F13	0.5% methyl ethyl ketone	Cleaning solution for photocopying systems; industrial felts for paper and printing industry.
F14	5.0% butyric acid	Butyric esters.
F15	0.5% methanol plus 2.0% oil of thyme	Sausage seasoning (the finished product is to be free from methylating substance).
F16	0.75% methyl ethyl ketone plus 1.0% dioxitol	Solvent used in office duplicating process.
F17	5.0% benzol of toluol	Narcotics from opium alkaloids.
F18	5.0% sulphuric ether	Diethyl ether (anaesthetic ether).
F19	sulphur dioxide (resulting percentage of sulphur dioxide in the spirit to be no less than 0.5%w/v)	Sterilising wine bottles.
F20	1.0% carbolic crystals and 0.5% methanol	Antiseptics and germicides.
F21	1.0% petrol	Power alcohol or blending with petrol.
F22	1.25 litres t-butyl alcohol and 4.70 grams bitrex per 1,000 litres of spirit	Scents and toilet preparations; deodorisers; products packed in aerosol form.
F23	7% PEOPS 93% ethanol PEOPS(TM) - polyethylene oxide/styrene copolymer mixed with xylene added to ethanol	Manufacture of 'diesohol'
F24	83.5% ethanol, 16.5% dieselaid D and morpholine 500 ppm.	Biofuel (fuel ethanol)
F25	0.125% tertiary butyl alcohol and 0.014% brucine sulphate in absolute alcohol	Cosmetics

APPENDIX: 9.4 Examples of fortifier records - account of fortifying spirit

(subsection 6.7 in this chapter)

Schedule: account of fortifying spirit

WINE TO BE FORTIFIED

FORTIFYING SPIRIT

FORTIFIED WINE

Date

Fort no.

Ops/ cellar note no.

Litres

Baume grape must

Baume fermented wine

% Natural alcohol

Litres used

% Str. alc/vol

Lals used

Litres

% Str. alc/Vol

Baume

Wine type

APPENDIX: 9.5 Example of fortifier records - fortifying spirit register

(subsections 6.5, 6.6 and 11.4 in this chapter)

Fortifying spirit register
	RECEIPTS	DELIVERIES	SPIRIT DETAILS			SPIRITS ON HAND
Date	Consignment note no.	Fort. no.	Litres	% Str alc/vol	Lals	Vessel	Dip	Litres	% Str alc/vol	Lals	Loss/Gain

APPENDIX: 9.6 Terms of agreement to govern the manufacture and distribution of spirit based food essences and flavourings free from excise duty

(subsection 4.2.2 in this chapter)

BETWEEN:	(Name of client) Of : (Address)
AND	THE COMMISSIONER OF TAXATION of 91 Waymouth Street, Adelaide in the State of South Australia.

RECITALS

A.	The parties have reached agreement in respect of the circumstances in which THE COMMISSIONER may approve the delivery of spirits free of Excise Duty
B.	The parties wish to set out the terms of their agreement and the actions which are required to be undertaken by each of them in this agreement.

OPERATIVE PART

1. DEFINITIONS AND INTERPRETATION

1.1 In this document,

"Act"	means The Excise Tariff Act 1921 (as amended) and includes regulations made pursuant to the Act, and any related legislation;
"THE COMMISSIONER"	means THE COMMISSIONER OF TAXATION for the Commonwealth of Australia and as required, his successors or assigns and any delegate or authorised representative acting on his behalf
"party" or "parties"	Means   (name of client)   and/or THE COMMISSIONER OF TAXATION for the Commonwealth of Australia.
"person"	means any natural person and includes a firm, corporation, body corporate, unincorporated association or any governmental authority.
'restaurant'	means an entity or establishment whose principal and predominant activity is the preparation and serving of meals for consumption on the premises.

1.2 In this document, unless the contrary intention appears:

1.2.1 A reference to this document means this agreement, and references to clauses and schedules are references to clauses and schedules of this agreement;

1.2.2 Any word, term or expression for which a particular or special meaning has been attributed or ascribed it by the Act, shall be given that particular or special meaning in this agreement;

1.2.3 Singular includes the plural and vice versa;

1.2.4 A reference to any one gender includes each other gender (as the case may require);

1.2.5 A reference to a person includes that person's executors, administrators, legal personal representatives, successors and permitted assigns; and

1.2.6 An agreement on the part, or in favour of, two or more persons binds them or any one of them jointly and severally.

1.3 All headings in this agreement have been inserted for the purpose of ease of reference only and do not affect the meaning or interpretation of this agreement.

2. GENERAL

2.1 That   (name of client)   is the manufacturer of spirit based food essences and flavourings.

2.2 That   (name of client)   manufactures spirit based essences and flavourings which are intended for culinary purposes.

2.3 That   (name of client)   manufactures spirit based essences and flavourings for sale directly to commercial end users and to distributors whose customers are commercial end users.

2.4 That   (name of client)   does not manufacture spirit based essences or flavourings for retail sale nor for direct consumption as an alcoholic beverage.

2.5 That THE COMMISSIONER may approve the delivery of spirits free from Excise duty for manufacturing purposes which are approved purposes in accordance with Excise Regulation 142.

2.6 That THE COMMISSIONER by way of guidelines and policy has stated that the manufacture of essences which are clearly intended for culinary purposes, is an approved purpose.

2.7 That THE COMMISSIONER has approved the delivery of Excise Duty free spirits to   (name of client)   for the purpose of manufacturing spirit based food essences and flavourings.

3. THE MANUFACTURER'S UNDERTAKING AND ACKNOWLEDGEMENTS

3.1    (name of client)   acknowledges that to continue to receive Excise Duty free spirit for the manufacture of spirit based essences and flavourings they must meet the terms of this agreement and, where appropriate, they must obtain undertakings from distributors and end users.

3.2 Accordingly,    (name of client)   covenant and agree to do the following:

3.2.1 To make available to THE COMMISSIONER, within 14 days of his request, all sales data, including cash sales, relating to the sale of spirit based food essences and flavourings to commercial end users and distributors. Such data will include details of individual sales and the name, address and Australian Business Number (when available) of the purchaser and where required, a copy of the relevant undertaking.

SALES TO END USERS

3.2.2    (name of client)   may sell spirit based food essences and flavourings to end users in the business of commercial food manufacture including but not restricted to bakeries, patisseries, confectionery and ice-cream manufacturers without the imposition of further controls.

3.2.3 In the event that    (name of client)   wishes to sell spirit based food essences and flavourings to a commercial end user which is a restaurant, they may only do so after obtaining from the owner of the restaurant business undertakings and acknowledgment that:

1. the essences and flavourings purchased are only to be used in the restaurant kitchen for the manufacture of food and are not to be diverted for use in the restaurant bar.
2. the owner ensures that the manager of the kitchen is aware of the prohibition against spirit based essences and flavourings being diverted for use in the restaurant bar and that the manager of the kitchen undertakes to control and oversee the use of such essences and flavourings strictly for culinary purposes.
3. both the owner and the manager of the kitchen undertake to ensure that the essences and flavourings not be converted to or consumed as an alcoholic beverage.
4. the spirit based food essences and flavourings will not be on sold to other establishments or persons.
5.    (name of client)   has absolute discretion and the power and ability to cease to supply essences and flavourings if either they or THE COMMISSIONER suspect that the essences and flavourings are being sold or used contrary to the terms of this agreement

3.2.4 That they will not sell their spirit based food essences and flavourings directly to any other end user, including but not limited to licensed hotels and clubs without the express written permission of THE COMMISSIONER.

3.2.5 The form of undertaking to be obtained by   (name of client)   for the purposes of clause 3.2.2 shall be in accordance with Schedule I.

SALES TO DISTRIBUTORS

Obtain from the distributor undertakings and agreement that;

3.2.6 The distributor may sell, without further controls,    (name of clients)   spirit based food essences and flavourings to end users in the business of commercial food manufacture including but not restricted to bakeries, patisseries, confectionery and ice-cream manufacturers.

3.2.7 In the event that the distributor wishes to sell   (name of clients)   spirit based food essences directly to a commercial end user which is a restaurant it may only do so after obtaining from the owner of the restaurant business an undertaking and acknowledgment that:

1. the essences and flavourings purchased are only to be used in the restaurant kitchen for the manufacture of food and are not to be diverted for use in the restaurant bar.
2. the owner ensures that the manager of the kitchen is aware of the prohibition against spirit based essences and flavourings being diverted for use in the restaurant bar and that the manager of the kitchen undertakes to control and oversee the use of such essences strictly for culinary purposes.
3. both the owner and the manager of the kitchen undertake to ensure that the essences and flavourings not be converted to or consumed as an alcoholic beverage.
4. the food essences and flavourings will not be on sold to other establishments or persons.
5.    (name of client)   or his distributors has absolute discretion, the power and ability to cease to supply essences and flavourings if either (name of client) ,the distributor or THE COMMISSIONER suspect that the essences and flavourings are being sold or used contrary to the terms of this agreement.

3.2.8 The distributor will not sell   (name of clients)   spirit based food essences and flavourings directly to any other end user, including but not limited to licensed hotels or clubs, without the express written permission of THE COMMISSIONER.

3.2.9 The distributor will make available to THE COMMISSIONER, within 14 days of his request, all sales data, including cash sales, relating to the sale of spirit based food essences and flavourings to commercial end users. Such data will include details of individual sales and the name, address and Australian Business Number (when available) of the purchaser and where required, a copy of the relevant undertaking.

3.2.10    (name of client)   has, in his absolute discretion, the power and ability to cease to supply the distributor with their spirit based food essences and flavourings if either   (name of client)   or THE COMMISSIONER suspect that the essences and flavourings are being sold or used contrary to the terms of this agreement.

3.2.11 The form of undertaking to be obtained by   (name of client)   from the distributor for the purposes of clause 3.2.6 to 3.2.10 will be in accordance with Schedule II.

The form of undertaking to be obtained by the distributor for the purposes of clause 3.2.7 will be in accordance with Schedule I.

4. CONFIDENTIALITY

4.1 This agreement is confidential to the parties hereto and may not be disclosed by either party to any person except:

4.1.1 to employees, legal advisers and other consultants of the parties requiring information for the purposes of implementing the terms of this Agreement;

4.1.2 with the consent of each other;

4.1.3 if required by law;

4.1.4 if required in connection with legal proceedings relating to this agreement.

5. DEFAULT CLAUSE

5.1 If THE COMMISSIONER becomes aware of a breach of any of the terms contained in this Agreement he may serve a written notice under Regulation 151 of the Excise Regulations on   (name of client)   revoking their approval for delivery of spirit free from Excise duty.

5.2 If the Act or any regulations made pursuant to the Act or the guidelines and/or policy of THE COMMISSIONER concerning the granting or permitting of access to concessional spirit is amended or varied then THE COMMISSIONER may in his absolute discretion terminate this agreement.

EXECUTED as a Deed

Signed by ........................................................................

Position (......................................)

at ................................................................................

on this ......day

of ..............200 .

in the presence of

Name in Full : ........................................................................

Signature ........................................................................

Date ........................................................................

                                                                   

SIGNED for and on behalf of

THE COMMISSIONER OF TAXATION FOR

THE COMMONWEALTH OF AUSTRALIA

by ........................................................................

Assistant Director Policy - AIG Excise

at Adelaide.

This .......................... day of .............................. 200 .

in the presence of :

Name in Full : ........................................................................

Signature ........................................................................

Date ........................................................................

This is the Schedule I referred to in the Agreement dated .......... between ............... and THE COMMISSIONER

SCHEDULE 1

USER AGREEMENT

BETWEEN:	..................................................................   ('MANUFACTURER')
	OR
	..................................................................   ('DISTRIBUTOR')
AND	..................................................................   ('END USER')

RECITALS

A.	(The Manufacturer / Distributor) agrees to supply a range of spirit based food essences and flavourings to (The End User).
B.	The parties wish to set out the terms of their agreement and the actions which are required to be taken by each of them in this Agreement.

THIS AGREEMENT WITNESSES:

1. (The Manufacturer / Distributor) has supplied (The End User) with spirit based food essences and flavourings.

2. (The End User) is the owner of and operates a restaurant business.

3. (The End User) undertakes and acknowledges that:

3.1 The essences and flavourings purchased are only to be used in the restaurant kitchen for the manufacture of food and are not to be diverted for use in the restaurant bar.

3.2 The manager of the kitchen is aware of the prohibition against spirit based essences and flavourings being diverted for use in the restaurant bar and that the manager of the kitchen undertakes to control and oversee the use of such essences strictly for culinary purposes.

3.3 Both the owner and the manager of the kitchen undertake to ensure that the essences and flavourings not be converted to, or consumed as, an alcoholic beverage.

3.4 The food essences and flavourings will not be on sold to other establishments or persons.

3.5 The Manufacturer or its distributors have in their absolute discretion the power and ability to cease to supply essences and flavourings if either The Manufacturer, the distributor or THE COMMISSIONER suspect that the essences and flavourings are being sold or used contrary to the terms of this agreement.

.............................. Manufacturer/Distributor	................................. End User
(Date)	(Date)

This is the Schedule II referred to in the Agreement dated .............. between ............... and THE COMMISSIONER

SCHEDULE 2

DISTRIBUTION AGREEMENT

BETWEEN:	..................................................................   ('MANUFACTURER')
AND	..................................................................   ('DISTRIBUTOR')

RECITALS

A.	(The Manufacturer) agrees to supply a range of spirit based food essences and flavourings to (The Distributor).
B.	The parties wish to set out the terms of their agreement and the actions which are required to be taken by each of them in this Agreement.

THIS AGREEMENT WITNESSES:

1. (The Manufacturer) has supplied (The Distributor) with spirit based food essences and flavourings.

2. (The Distributor) sells these spirit based food essences and flavourings to end users in the business of commercial food manufacture including but not restricted to bakeries, patisseries, confectionery and ice-cream manufacturers.

3. (The Distributor) may sell spirit based food essences and flavourings to restaurants but may only do so after obtaining from the owner of the restaurant business the following undertakings and acknowledgments:

3.1 The essences and flavourings purchased are only to be used in the restaurant kitchen for the manufacture of food and are not to be diverted for use in the restaurant bar.

3.2 The owner ensures that the manager of the kitchen is aware of the prohibition against spirit based essences and flavourings being diverted for use in the restaurant bar and that the manager of the kitchen undertakes to control and oversee the use of such essences strictly for culinary purposes.

3.3 Both the owner and the manager of the kitchen undertake to ensure that the essences and flavourings not be converted to, or consumed as, an alcoholic beverage.

3.4 The food essences and flavourings will not be on sold to other establishments or persons.

3.5 (The Manufacturer) or its distributors have in their absolute discretion the power and ability to cease to supply essences and flavourings if either (The Manufacturer), (The Distributor) or THE COMMISSIONER suspect that the essences and flavourings are being sold or used contrary to the terms of this agreement.

4. (Name of Distributor) will not sell spirit based food essences and flavourings directly to any other end user, including but not limited to licensed hotels or clubs without the express written permission of THE COMMISSIONER.

5. (Name of Distributor) will make available to THE COMMISSIONER, within 14 days of his request, all sales data, including cash sales, relating to the sale of spirit based food essences and flavourings to commercial end users. Such data will include details of individual sales and the name, address and Australian Business Number (when available) of the purchaser and where required, a copy of the relevant undertaking.

.............................. Manufacturer	................................. Distributor
(Date)	(Date)

APPENDIX: 9.7 FORM 21 (REGULATION 148)

(subsection 4.3 in this chapter)

APPENDIX: 9.8 Exemptions from the concessional spirits permit process.

(subsection 11.1 in this chapter)

Sea-going vessels: 3 litres of undenatured ethanol per ship per year for first aid purposes without a permit, subject to the following guidelines:

• ship's agent must supply the concessional spirit reseller/pharmacy with an order signed by the ship's captain and quoting Australian Marine Safety Marine Order No. 1
• order documentation must contain:
  • name of the ship and Lloyds number
  • voyage number and date, and
  • captain name.
• reseller/pharmacy is to record the details of the order in their register and provide the agent with a delivery advice.
• agent to sign for receipt of the spirit.
• agent to deliver the spirit to the captain on board the ship.
• captain to sign the delivery advice for receipt of the spirit.
• agent to return the signed delivery advice to the reseller/pharmacy.
• reseller/pharmacy to retain the signed delivery advice.

Overseas clients: 20 litres on a once only basis without a permit. The following conditions must be met:

• request is for a once only approval
• supplier is an approved supplier under the concessional spirits permit scheme
• quantity does not exceed 20 litres, and
• indicated use is an approved use under the concessional spirits permit scheme.

1 Section 57B of the Distillation Act

2 Regulation 142 of the Excise Regulations

3 Regulation 149 of the Excise Regulations

4 Sub-section 6 (2) of the Distillation Act, sub-section 3 (2) of the Spirits Act and the Schedule to the Excise Tariff Act

5 Sub-section 6 (2) of the Distillation Act, sub-section 3 (2) of the Spirits Act and the Schedule to the Excise Tariff Act

6 Regulation 153 of the Excise Regulations

7 Not elsewhere included (in the Schedule to the Excise Tariff Act).

8 Subsection 5(1) of the Excise Tariff Act.

9 Section 25 of the Excise Act 1901

10 Regulation 160A provides that a reference to universities in regulation 158 includes technical colleges and other educational institutions.

11 The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW

12 Regulation 17 of the Spirits Regulations

13 Subregulation 19(1) of the Spirits Regulations

14 Subsection 14(4) of the Spirits Act

15 Regulation 17(1) of the Spirits Regulations.

16 Subregulation 17(2) of the Spirits Regulations.

17 Regulation 19 of the Spirits Regulations.

18 Subsection 14(6) of the Spirits Act.

19 As a long-standing administrative practice, the Tax Office recommends SMS for the manufacture of scents, perfumes and toiletries. Methylation formulas approved specifically for the manufacture of these products are included in the schedule of approved methylating formulas at Appendix 9:4.

20 Subsection 16(2) of the Spirits Act.

21 Subsection 14(6) of the Spirits Act.

22 Regulation 28 of the Spirits Regulations.

23 Unfermented juice as pressed from the grape.

24 Regulation 86 of the Excise Regulations.

25 Section 60 of the Distillation Act.

26 Section 60 of the Excise Act.

27 Regulation 149 of the Excise Regulations.

28 Sections 58 and 61C of the Excise Act.

29 Regulation 142 of the Excise Regulations 1925.

30 Section 16 of the Excise Act.

31 Regulation 149 of the Excise Regulations

32 Regulation 149 of the Excise Regulations requires that spirits delivered under regulation 142 for approved industrial or manufacturing purposes must be kept separate from other goods on the premises and, if required by the Tax Office, must be kept in a secure and safe room.

Chapter 10 - Wine

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

GST Goods and Services Tax

RTD Ready-to-drink beverage

WET Wine equalisation tax

1.2 Appendices at the end of this chapter

Appendix: 10.1 WET product definitions

1.3 Foreword

If you want to know more about Excise, go to our website at www.ato.gov.au.

Section 2 Overview

The WET Act introduced a tax on assessable dealings and importations of wine made on or after 1 July 2000. The tax on wine is referred to as the wine tax or the wine equalisation tax (WET). The wine tax replaced the wholesale sales tax that applied to wine and similar alcoholic beverages prior to 1 July 2000 and was intended to keep the price of wine stable following the introduction of the goods and services tax (GST)¹.

Fact sheets dealing with WET may be found on the Excise website.

The wine equalisation tax ruling WETR 2004/1 explains how the wine tax operates and which alcoholic products are covered by WET.

Locally produced alcoholic products with an alcohol content of more than 1.15% by volume of ethyl alcohol which do not meet the WET definitions are subject to excise duty. Locally produced designer drinks and pre-mixed alcoholic products commonly referred to as ready-to-drink (RTD) products do not usually fall within the definition of WET products and as such, are subject to excise duty.

WET product definitions are shown at Appendix: 10.1.

APPENDIX: 10.1 WET product definitions

Wine equalisation tax

Set out below are the definitions of alcoholic products for the purposes of the WET Act. The definitions incorporate the requirements of the regulations set out in the A New Tax System (Wine Equalisation Tax) Regulations 2000. The wine equalisation tax applies to alcoholic products which satisfy the definitions and contain more than 1.15% by volume of ethyl alcohol². Some examples of products that satisfy the various definitions, and products that do not, are provided. The examples are only covered by the definitions where they meet the requirements in the column on the left. Alcoholic products containing more than 1.15% by volume of ethyl alcohol not covered by the wine equalisation tax are subject to the excise duty regime.

Definitions	Examples
Grape wine Grape wine is a beverage that: is the product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes; and does not contain more than 22% of ethyl alcohol by volume. NB. A beverage does not cease to be the product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes merely because grape spirit, brandy, or both grape spirit and brandy have been added to it.	Grape wine includes: table wines (red, white and rose); sparkling wines; fortified wines; and dessert wines.
Grape wine products A grape wine product is a beverage that: contains at least 70% grape wine; has not had added any ethyl alcohol from any other source, except grape spirit or alcohol used in preparing vegetable extracts (including spices, herbs and grasses) e.g. in producing vermouth; and contains between 8% and 22% (inclusive) of ethyl alcohol by volume.	Grape wine products are generally traditional products that have been produced by the wine industry for many years. They include: vermouth; marsala; green ginger wine (except green ginger wine with spirits such as scotch added); wine based cocktails and creams that satisfy the requirements in the column on the left; and imitation spirits (wine based). Grape wine products do not include: wine coolers (unless they satisfy the requirements in the column on the left); ready to drink (RTDs) or designer drinks that contain a wine base (unless they satisfy the requirements in the column on the left); RTDs or designer drinks that contain spirits (other than grape spirit). RTDs or designer drinks containing grape spirit must also satisfy the requirements in the column on the left in order to be included; and spirit based (other than grape spirit) cocktails, creams and liqueurs.
Fruit or vegetable wine Fruit or vegetable wine is a beverage that: is the product of the complete or partial fermentation of the juice or must of fruit or vegetables, or products derived solely from fruit or vegetables; has not had added any ethyl alcohol from any other source except grape spirit or neutral spirit; has not had added any liquor or substance that gives colour or flavour (other than grape spirit or neutral spirit); and contains between 8% and 22% (inclusive) of ethyl alcohol by volume or if grape spirit or neutral spirit has been added contains between 15% and 22% (inclusive) of ethyl alcohol by volume (NB grape spirit or neutral spirit can only be added if the beverage meets the definition of fruit or vegetable wine before the spirit is added).	Fruit or vegetable wines include: table wine; sparkling wine; and fortified wine. Fruit or vegetable wines do not include: ready to drink (RTDs) or designer drinks that may contain alcohol fermented from fruits such as lemons, oranges etc. (unless they satisfy the requirements in the column on the left).
Cider and Perry Cider or Perry is a beverage that: is the product of the complete or partial fermentation of the juice or must of apples or pears; has not had added any ethyl alcohol from any other source; and has not had added any liquor or substance (other than water or the juice or must of apples or pears) that gives colour or flavour.	Cider and Perry include: traditional cider and perry; draught cider and perry; dry cider and perry; and sweet cider and perry. Cider and perry do not include: cider or perry that has had lemon, black currant or other fruit flavourings added; and cider or perry that has had cola or other flavourings added.
Mead Up to and including 8 June 2005, mead is defined for WET purposes as a beverage that: is the product of the complete or partial fermentation of honey; has not had added any ethyl alcohol from any other source, except grape spirit or neutral spirit; has not had added any liquor or substance (other than honey, grape spirit or neutral spirit) that gives colour or flavour; and if grape spirit or neutral spirit has been added contains between 15% and 22% (inclusive) of ethyl alcohol by volume.	Mead includes: honey mead; fortified mead; and liqueur mead.
Mead From 9 June 2005, mead is defined for WET purposes as a beverage that: is the product of the complete or partial fermentation of honey; has not had added any ethyl alcohol from any other source, except grape spirit or neutral spirit; has not had added any liquor or substance that gives colour or flavour other than: grape spirit or neutral spirit; honey, herbs and spices, all of which can be added at any time; caramel, provided it is added after the fermentation process is complete; fruit or product derived entirely from fruit, provided: the fruit or product has not been fermented; the fruit or product is added to the mead before fermentation of the mead; after the addition of the fruit or product and before fermentation the mead contains not less than 14% by volume of honey and not more than 30% by volume of the fruit or product; if fruit or product is added the mead contains between 8% and 22% (inclusive) of ethyl alcohol by volume; and if grape spirit or neutral spirit has been added contains between 15% and 22% (inclusive) of ethyl alcohol by volume. However, grape spirit or neutral spirit can only be added if the beverage meets the definition of mead before the grape spirit or neutral spirit is added. Note If fruit or product derived from fruit is added and it contains concentrated fruit juice or fruit pulp, the proportion of fruit or product in the mead is worked out by assuming that it has been reconstituted according to the recommendations of the manufacturer of the concentrated fruit juice or pulp.	Mead includes: honey mead; fortified mead; liqueur mead; and spiced mead.
Sake Sake is a beverage that: is the product of the complete or partial fermentation of rice; has not had added any ethyl alcohol from any other source; and has not had added any liquor or substance that gives colour or flavour.	Sake includes: fermented sake; and rice wine. Distilled sake does not satisfy the definition and is not included.

1 Explanatory memorandum to A New Tax System (wine equalisation tax) Bill 1999 at page 1.

2 Subdivision 31-A WET Act.

3 Section 31-2 WET Act

4 Regulation 31-2.01 WET Regulations

5 Section 31-3 WET Act

6 Section 31-4 WET Act

7 Regulation 31-4.01 WET Regulations

8 Regulation 31-4.01 WET Regulations

9 Regulation 31-4.01 WET Regulations

10 Section 31-5 WET Act

11 Section 31-6 WET Act

12 Regulation 31-6.01 WET Regulations

13 Section 31-7 WET Act

Chapter 11 - Measuring Strength and Volume of Alcoholic Beverages

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

NATA National Association of Testing Authorities

NSC National Standards Commission

1.2 Appendices at the end of this chapter

Appendix 11.1 Alcoholometer illustrated

Appendix 11.2 Use of alcoholometer

Appendix 11.3 Measuring the contents of bulk vessels and containers (including vats, tankers, casks, barrels and drums)

Appendix 11.4 Determination of quantity by weight

Appendix 11.5 Drum calibration charts.

1.3 Foreword

If you want to know more about Excise go to our website at www.ato.gov.au.

Section 2 Legislation and General

2.1 Overview

The rates of duty which apply to alcoholic beverages (beer, spirits, and other excisable beverages, including vodka, ouzo and gin) are shown in the Schedule to the Excise Tariff Act as fixed dollar ($) amounts per litre of alcohol (Lal). For entry and record keeping purposes, a licensee must measure and record the correct volume and strength of alcoholic beverages. The licence holder is required to record the receipt of such goods from an outside source as soon as practicable after receipt and details of the goods before each subsequent operation or movement¹.

Accurate measurement and recording of alcoholic beverage quantities and strengths is critical for the correct calculation of duty liability and for the assessment of any losses sustained during any stage of production, transit, storage or subsequent operations. This ensures that a licensee is able to account for all quantities of such goods.

Sub section 6(2) of the Distillation Act, sub section 3(2) of the Spirits Act and the preamble to the Schedule to the Excise Tariff Act state, respectively, that the volume of alcohol contained in any liquor or other substance, spirits or goods shall be taken to be the volume that would be the volume of that alcohol if the alcohol were measured at a temperature of 20°C. Those provisions also specify that the specific gravity of alcohol in relation to water is 0.79067. All quantities relating to external deliveries and receipts are required to be corrected to 20°C to correctly assess any duty liability in accordance with the Excise Tariff Act.

These corrected measurements are also required for alcoholic beverages in the header tank or bottling vat immediately prior to bottling.

In all other instances of internal movement of alcohol it is not necessary to correct to standard volumes at 20°C. However in these instances, ambient temperatures should be recorded.

Section 3 INSTRUMENTS FOR CALCULATING ALCOHOLIC STRENGTH

3.1 Introduction

There are a number of instruments which can be used to calculate the alcoholic strength of beverages with acceptable levels of accuracy. Gas chromatography, while very accurate, is also expensive. For reasons of accuracy, cost and convenience of use, the instrument most widely used by clients is the alcoholometer (metric hydrometer). Alcoholometers are further discussed at section 3.2 and are illustrated at Appendix: 11.1.

Section 77FB of the Excise Act provides that the Tax Office may determine rules for working out the strength of alcoholic beverages.

The following determinations were made under the provisions of Section77FB of the Excise Act. They specify the methods to be used to ascertain the strength of alcoholic beverages:

Determination No. ED 2003/1 - Beer (access through determination)

• by the use of gas chromatography
• by the use of near infra red spectrometry, or
• by distillation followed by the gravimetric measurement of the distillate or by measurement in a density meter.

If the brewery manufactures fewer than 100,000 litres of beer in a financial year, a hydrometer and a formula approved by the CEO may, with permission, be used to measure the alcoholic strength of beer. See chapter 6 section 1.7.

Determination No. ED 2003/2 - Spirits (access through determination)

• by the use of hydrometer
• by the use of pycnometer
• by the use of gas chromatography
• by the use of near infra red spectrometry, or
• by distillation followed by the gravimetric measurement of the distillate or by measurement in a density meter.

Determination No. ED 2003/3 - Ready-to-drink beverages and liqueurs (access through determination)

• by the use of gas chromatography
• by the use of near infra red spectrometry, or
• by distillation followed by the gravimetric measurement of the distillate or by measurement in a density meter.

The above determinations may be subject to change, for example to include alternative, acceptable methods of measurement.

A licensee is required to ensure that the accuracy of the approved measuring instruments is calibrated at intervals of one year or less against standard instruments certified by an independent authority approved by the National Association of Testing Authorities (NATA). The standard instruments must be calibrated by an independent NATA approved authority at intervals of not more than five years.

Descriptions of the approved equipment are contained in the glossary at chapter 13 of this manual.

3.2 Hydrometers

A hydrometer is an instrument for measuring the density or specific gravity of a liquid.

A metric hydrometer, or alcoholometer as it is commonly known, is used for measuring excisable alcoholic beverages.

Alcoholometers are to be used in conjunction with a thermometer and the Practical Alcohol Tables to convert indicated strength and indicated temperature to the industry standard temperature of 20°C.

The use of alcoholometers is described at Appendix:11.2.

3.3 Instrument certification

• The Tax Office may require evidence of the accuracy of instruments used to determine the strength of dutiable spirit.
• Determinations numbers. ED 2003/1, ED 2003/2 and ED 2003/3, issued for the benefit of licensees, state:

'You must calibrate the accuracy of the measuring instruments (e.g. volumetric glassware, hydrometer, pycnometer, thermometer) at intervals of one year or less against standard instruments that have been certified by an independent authority approved by the National Association of Testing Authorities (NATA). The standard instruments must be calibrated by an independent NATA approved authority at intervals of five years or less'.

Alcoholometers and thermometers may have an inherent inaccuracy in their readings. During calibration, therefore, a correction factor must be calculated for each instrument.

3.4 Weights and scales

One method of determining the volume of liquid in a container is to measure its weight

The Excise Act² requires that a licensed manufacturer shall at their own expense provide sufficient lights, correct weights and scales, and all labour necessary for weighing material and excisable goods received into, manufactured and stored in their factory.

On receipt of casks, barrels and drums, a licensee is required to record details of their gross weight in their bond records, hence the reason for including scales in plant and equipment.

A licensee can use scales for determining the quantities of alcohol contained in casks, barrels and drums (the procedure for determining quantity by weight is described at Appendix: 11.4).

If a licensee chooses not to independently weigh casks, barrels and drums on receipt to verify the volume of alcohol received, but to accept the supplier's invoiced quantities without verification, they will not be given any consideration for transit losses and will be held accountable for any shortfalls in the volume of alcohol.

Section 6 in this chapter deals with measuring the contents of casks and drums.

Scales are subject to periodic inspection and certification by State Government authorities under the various States' Trade Measurement Acts. It is a legal requirement in every State and Territory that scales used for trade must be certified by an inspector or authorised licensee. A valid certificate of accuracy must be held for all scales and weight measuring equipment.

Distillers and manufacturers who receive alcohol in tankers may also have access to weighbridges. Otherwise volumes delivered by tanker may be measured by flow meter.

Section 4 in this chapter deals with measuring the contents of bulk vessels (including vats and tankers).

Section 4: CALIBRATION OF VESSELS

4.1 Overview

Licensees are required to account for all alcohol and alcoholic products under their control. They are required to account for:

• all excisable product manufactured and all under bond excisable product received
• all excisable product that has been delivered for home consumption and whether the correct amount of duty has been paid, and
• all excisable product on hand so that excise liability can be calculated.

Accounting for excisable product starts from the time when excisable goods are produced:

• for fermentable products - from the time fermentation begins
• for distilled products - from the time of distillation, and
• for received excisable products - from the time of receipt.

In order to meet this requirement, licensees must be able to accurately measure the quantity of excisable product involved through the various stages of manufacture and storage. Historically this has been done by using calibrated tanks.

Tank calibration involves significant cost especially for the micro market segment of the alcohol industry. When assessing the degree of accuracy required for a given excise liability the Tax Office takes into consideration:

• the scale of the excise operations involved
• practical limitations to calibrating certain vessels, and
• alternative methods available.

There are practical issues to be considered when assessing the need for calibration of tanks for the various types of alcoholic products. These issues include:

Beer

Standard production

practical limitations to the calibration of fermenting vessels include

• dip sticks require top access to the tank and opening the top hatch on the fermenter may lead to contamination of the product, and
• sight glasses are difficult to clean and may cause contamination.

In the traditional method of brewing matured, carbonated and filtered beer is stored in bright beer tanks but the final volume for home consumption is measured at the packaging stage.

Naturally conditioned beers

The fermented beer is stored to allow secondary fermentation to take place in the container.

Although the final strength of naturally conditioned beers is measured after packaging the final volume is measured at the packaging stage.

Delivery from the fermenter directly to the bar

Some licensees use multi-purpose tanks, that is the product is fermented and stored in the same tank. The beer is drawn from the top of the tank and delivered directly to the bar.

Apart from the practical limitations discussed above regarding the calibration of fermenters, dipping of such tanks may be impractical due to the waste dregs which settle on the bottom of the tank and make up between 3.5% and 7% of the apparent volume.

Other excisable beverages

Fermented beverages

The practical limitations discussed regarding the calibration of fermentation vessels for beer apply for all fermented beverages.

Spirit based beverages

There do not appear to be any practical limitations regarding the calibration of storage tanks for other excisable beverages which are spirit based.

Spirits

There do not appear to be any practical limitations regarding the calibration of storage tanks for spirits.

Liqueurs

There do not appear to be any practical limitations regarding the calibration of storage tanks for liqueurs.

Alternative method for measuring volume

Flow meters may not meet accuracy requirements for excise purposes due to physical factors (for example worn blades and build-up of deposit on blades) and process factors (for example flow-rate and viscosity). Periodic recalibration of flow meters is essential for maintaining high accuracy over time. Flow meters, as with other measuring equipment, should have valid certification and, when readings become doubtful, should be recalibrated.

Following consideration of all of the above the Tax Office has adopted a tailored policy regarding the need for calibration of tanks within the various sectors of the alcohol industry.

Taking into account the realities of each sector and their critical points of measurement each sector will have to satisfy the Tax Office that their measurement systems are defensible and accurate and pose no threat to the revenue.

The following subsections apply where calibration of tanks is required. Use of the words vessel, or spirit vessel in any reference in this section, means any vat, tank or other bulk container used at any stage for storage, holding transfer, temporary holding or blending of spirits.

4.2 National Measurement Act

The National Measurement Act 1960 is administered by the National Standards Commission (NSC) and sets certain standards for measuring instruments for example flow meters, dipsticks.

The National Measurement Act requires measuring instruments to be 'pattern approved' as suitable for use in trade.

The NSC or its delegate, is responsible for approving the patterns of instruments and issuing verification certificates. Details of the approval number may then be endorsed on the relevant instrument.

Whether an instrument is pattern approved may be verified by examining the outer surface of the instrument and checking for a nameplate which carries details relevant to that instrument. The instrument should have an NSC mark as follows:

NSC   :   5/6B/...

Or

NSC   :   S

The NSC/5/6B/ mark relates to the actual instrument. For example a meter such as the Oil Impianti SBM 75 meter used by some companies for tank calibration may have an NSC Approval no. 5/6B/71A.

The NSC : S mark relates to auxiliary equipment attached to the instrument. For example temperature compensators or flow controllers which control the calibration factor.

The Tax Office does not have a role in the actual authentication of measuring devices such as meters or dipsticks, or in the actual calibration of tanks and vats.

4.3 Exceptions to the National Measurement Act

There are several types of equipment which the NSC does not yet control by pattern approval. Where such equipment is used in conjunction with the calibration of a spirit vessel, the calibration equipment should have a current certificate of approval (that is less than two years old) issued by a NATA registered authority.

4.4 Pattern approval of spirit vessels

The pattern approved requirements of the National Measurement Act do not extend to the actual calibration of the spirit vessels themselves. Operation of that Act is confined to the measuring devices used in the calibration of the vessels.

The measuring equipment used in association with spirit vessels must therefore be NSC or NATA approved (see section 4.2).

If the calibration of vessels is carried out by a NATA approved authority, the Tax Office will assume that the calibration equipment used is compliant with NSC or NATA standards. The Tax Office only needs to check the currency of calibration equipment if the vessels are being calibrated by an entity not approved by NATA.

4.5 Spirit vessels requiring calibration

New vessels:

All new vessels which are to be used in any stage of spirit operations (storage, holding transfer, temporary holding, blending and so on) are required to be calibrated before they can be accepted for use in such spirit operations.

Existing vessels:

Existing vessels which have previously been calibrated only require re-calibration in the event of:

• damage (bumps, dents, bulges and the like) where such damage is sufficient to create doubt as to whether the original calibrations remain accurate, and
• variations in measured volumes which indicate a systemic error over an extended period of time where this is sufficient to give concern about the accuracy of declared production or duty liability.

Vessels moved from one site to another:

• where fixed vessels (for example vats which are bolted or concreted in one place) are moved from one site to another, whether or not the sites are within the same premises, the re-sited vessels will be treated as new vessels and are required to be re-calibrated before they can be accepted for use in spirit operations
• mobile vats, by their very nature, are designed and intended to be moved from one site to another. Tax Office policy is that mobile vats only need to be recalibrated when they have been altered, modified or damaged to an extent that the previous calibrations are brought into question.

Vessels subject to alteration, modification or substantial repair:

Where vessels are altered, modified or repaired to an extent that is likely to affect the accuracy of the original calibration, the tanks are to be treated as new tanks and are to be re-calibrated before they can be accepted for further use in alcohol operations.

4.6 Calibration to be carried out by recognised experts

Calibration is to be carried out by persons with recognised expertise (for example a NATA approved entity). If a licensee has the necessary expertise within their own business to undertake the calibration of their spirit vessels, and they can satisfy the Tax Office regarding the level of that expertise, that calibration will be recognised by the Tax Office subject to the licensee providing a certificate of calibration as follows:

• certifying that the equipment used in the calibration complies with NSC pattern approval or NATA certification, and
• certifying the accuracy of the calibration and calibration charts prepared in relation to the calibrated vessel.

4.7 Calibration charts

A licensee is required to retain calibration charts and make them available for inspection by the Tax Office as required. Calibration charts will enable the licensee to convert the measurement of the depth of spirit in a container to the volume of spirit in that container.

4.8 Standard drums

For convenience, calibration charts have been produced for standard 200 litre stainless steel drums and standard 200 litre plastic drums (Appendix: 11.5) and may be used with suitably calibrated dip sticks.

These charts are to be used only for standard drums. A number of steel drums contain a poly liner within the steel casing. The calibration chart is not to be used for those drums.

4.9 Expression of calibrated quantities

The calibration of vessels is expressed in the number of litres per millimetre.

Dip sticks or tapes which are used to measure the volume of alcoholic product in a vessel, are to be marked in millimetres so that the vessel can be dipped, the reading in millimetres compared with the calibration chart and the quantity in litres determined.

Some vats may be fitted with a sight glass for a direct level reading. Sight glasses usually consist of a clear tube running vertically the full height of the vat. They are marked with calibrated gradations expressed in litres. Care must be taken when reading a sight glass as the level in the tube may be affected by:

• air in the glass tube
• surface tension being sufficient to hold the level too high, and
• capillary action resulting in the level climbing.

Often sight glasses will have a drain valve and where possible, the contents of the sight glass should be drained and allowed to refill to a current accurate level before taking a reading.

In some instances, the glass may have been broken and replaced by plastic tubing. In such cases the plastic tubing must be securely attached to the vessel to avoid tampering and the calibrated gradations must be clearly marked.

4.10 Care and keeping of equipment

It is a licensee's responsibility to maintain measuring instruments safely and in good order and condition.

Section 5 MEASURING THE CONTENTS OF BULK VESSELS

(INCLUDING VATS AND TANKERS)

A licensee is required to record the following data:

• dip stick or sight glass measurement both in millimetres and in litres from the calibration chart
• temperature of sample and, if possible, temperature in the centre of the tank, and
• alcoholometer indication and apparent strength determined from the Practical Alcohol Tables.

Volume at 20°C calculated where applicable using the temperature correction tables contained in the Practical Alcohol Tables.

Procedures for measuring the contents of bulk vessels are detailed at Appendix: 11.3.

Section 6 MEASURING THE CONTENTS OF CASKS,

BARRELS AND DRUMS

Casks barrels and drums are containers that are often irregular in shape. Therefore, the method used to calculate contents must be based on weight.

A licensee is required to record the following data:

• gross weight of the cask, barrel or drum, using certified scales (tare weight of the cask, barrel or drum to be deducted to give net weight of spirit in kilograms), and temperature of the sample drawn from the vessel.
• alcoholometer indication and apparent strength determined from Practical Alcohol Tables.

Using the tables in Volume 2, Practical Alcohol Tables, where applicable the following is required to be determined and recorded:

• strength at 20°C, and
• density per litre at 20°C.

Procedures for measuring the contents of casks, barrels and drums are detailed at Appendix: 11.4. Drum calibration charts are shown at Appendix: 11.5.

Drum calibration charts may be used with suitably calibrated dip sticks, for calculating the contents of standard 200 litre drums of spirit if scales are not available for weighing the drums.

Section 7 QUANTITIES FOR DUTY CALCULATION

For goods cleared on a prepayment excise return in compliance with section 58 of the Excise Act all quantity calculations are to be performed to at least two decimal places of a litre of product or of a litre of alcohol (Lal) as the case may be. The final quantity for duty may be truncated to one decimal place.

For goods cleared on a periodic settlement excise return in compliance with section 61C of the Excise Act, truncation to a single decimal place of the final quantity for duty (at the classification and statistical level) applies to the total deliveries during an accounting period.

APPENDIX 11.1 Alcoholometer illustrated

(section 3 in this chapter)

APPENDIX 11.2 Use of alcoholometer

(section 3.2 in this chapter)

Alcoholometers which comply with Australian Standard 2371/1980 have been approved for the purposes of the Distillation Act. This standard relates to the glass alcoholometer (metric hydrometer) used for the determination of alcoholic strength.

Australian Standard 1006/1995 applies to solid stem general purpose thermometers which are used in conjunction with hydrometers.

Prior to each use, the alcoholometer and thermometer should be inspected to ensure that they are free from damage and are thoroughly clean and dry.

It is particularly important that the alcoholometer and thermometer should be thoroughly cleaned after each use. The alcoholometer and thermometer should be washed in clean water and dried by gentle wiping with a clean cloth.

Detergents must not be used and the alcoholometer must not be rubbed vigorously with the cloth, otherwise static electricity may be generated and affect the accuracy of readings.

A Thorpe's Still may also be required to extract the alcohol from the sample being tested where the specific gravity of the sample is affected by obscuration.

Strength testing steps

• Pour the alcohol sample into a glass hydrometer jar or similar glass test cylinder. The sample should be poured down the side of the jar so as to reduce agitation and the formation of air bubbles.
• Stir the sample thoroughly to disperse all bubbles. Do not use the thermometer to stir the sample.
• Select the alcoholometer with the highest % a/v readings.
• Gently lower the alcoholometer into the sample until it feels in equilibrium, and release with a slight spin. The spin is intended to remove any air bubbles sticking to the side of the alcoholometer.

Reading alcoholometer and thermometer scales

• The reading is where the surface line intersects the alcoholometer.
• Look at the alcoholometer scale from below the surface of the sample and gradually bring your eye level up to just below the surface.
• When reading an alcoholometer, always read down to the nearest 0.2 % graduation on the scale (that is if you can't see the next graduation, read down to the previous value), for example 37.3% becomes 37.2% and 37.4% stays at 37.4%. This is the observed strength.
• Apply the alcoholometer correction factor (if any). This is the indicated strength.
• Use the thermometer to determine the temperature of the sample in degrees Celsius (°C). When using a thermometer, read up to the next 0.5 degrees if the thermometer's mercury column exceeds the whole degree or half degree graduation, for example 20.4°C becomes 20.5°C and 20.0°C remains at 20.0°C. This is the observed temperature.
• Apply the thermometer correction factor (if any). This is the indicated temperature.

Correcting readings to the standard temperature of 20°C

• Alcoholometers are calibrated to the standard temperature of 20°C. You must therefore correct the indicated strength reading to the standard temperature.
• Refer to Volume I, Practical Alcohol Tables. The front section of the book consists of temperature correction tables. Ambient temperature is shown across the top of each page and indicated strength is shown down the left hand side of each page.
• By cross referencing the readings you can arrive at the apparent strength (sometimes called the corrected strength) which has been corrected to 20°C.
• Adjust for obscuration. Obscuration is the alcohol obscured or undisclosed by matter such as sugar or colouring in an alcoholic beverage. Add the obscuration to the apparent strength to give the actual strength of the sample. The obscuration figure is normally obtained from the distiller's laboratory test results. Obscuration can be determined independently using a Thorpe's Still.

Example

Using the volume strength reading of the alcoholometer and the temperature reading of the thermometer, you can determine the ethanol strength expressed as a percentage of ethanol by volume at 20°C by reference to Volume I, Practical Alcohol Tables contained in AS2371 - 1980.

Observed	Read back	Alcoholometer	Indicated
Alcoholometer reading 60.5%	to nearest sub-division 60.4%	correction factor +0.2%	strength 60.6% a/v
Observed temperature reading			Read to next highest 0.5°C
18.7°C			19.0°C

From tables contained in Vol I select the page where temperature and observed % a/v coincide:

At page 291 of tables

60.6 at 19°C = 60.9 a/v at 20°C

APPENDIX: 11.3 Measuring the contents of bulk vessels and containers (including vats and tankers)

(section 5 in this chapter)

Procedure

1. Record the dip stick or sight glass measurement in millimetres.
2. Refer to the calibration chart for the vessel being dipped and convert the reading to litres.
3. Draw a representative sample and do strength and temperature tests (see Appendix: 11.2), correcting for instrument error to give an indicated strength.
4. Refer to Volume 1, Practical Alcohol Tables for the apparent strength.
5. Record the temperature correction factor from the second section (the complement) to Volume 1, Practical Alcohol Tables using the indicated strength.
6. Multiply the number of litres determined from the calibration chart by the temperature correction factor. This will give you the volume (in litres) at 20°C.
7. Multiply the volume (in litres) at 20°C by the actual strength and this will calculate the number of Lals.

Example:

Vat no.	Dip/- reading	Litres	Temp. of spirit in vat	Temp. of sample ex vat	Indicated strength	Apparent strength	Temp. corr.	Act. Str. inc. 0.3% Obs.	Lal
15	2180	12850	14°C	15°C	58.4	60.1	1.005	60.4	7800.2

Calculation:

12850 (litres)

x l.005 (T.C.F./litre)

12914.25 (litres of product at 20°C)

12914.25 litres x 60.4% = 7800.2 litres of alcohol

APPENDIX 11.4 Determination of volume by weight (including casks, barrels and drums)

(section 3.3 and section 6 in this chapter)

Appendix: 11.3 details the method for calculating litres and Lals using dips and sight glass readings. A similar calculation may be done using weights and density tables.

Procedure

1. Lower an alcoholometer into the alcohol sample.
2. Read and record the observed strength (% a/v). Where % a/v does not reach the next graduation, read down to the nearest 0.2%. Apply the alcoholometer correction factor as appropriate. This will give the indicated strength.
3. Lower a Celsius thermometer into the alcohol sample.
4. Read and record the temperature in degrees Celsius to 0.5°C. When the observed temperature is between graduations, read the temperature up to the next 0.5°C (for example 21.7°C ? 22.0°C).
5. From Volume 1, Practical Alcohol Tables, select the page where temperature and indicated strength coincide.
6. Read and record the apparent strength (this is the strength corrected to 20°C) from the table.
7. Refer to the density tables (that is the main table in Volume 2, Practical Alcohol Tables) and using the apparent strength locate the strength in the body of the table under the 20°C column and read the corresponding density from the left column. Density will range from 0.7700 to 1.0000.
8. Divide the net weight of the product (in kgs.) by the density to obtain the volume, that is the number of litres (mass = volume x density; therefore, volume at 20°C = mass ÷ density).
9. Add the obscuration to the apparent strength to determine the actual strength.
10. Multiply the number of litres by the actual strength to determine the litres of alcohol (Lals).

The above method would only be suitable for use where the weight or mass in kilograms is known or can be ascertained. For example, it could not be applied to calibrated vats which cannot be weighed.

Example:

Vessel no.	Gross weight	Tare	Net weight	Temp (°C)	Indicated strength
10	260	50	210	13.5	59.4%
Apparent strength	Strength in tables under 20°C	Density	Litres	Actual strength (inc. 0.3% obscuration).	Lal
61.6%	61.6%	.9055	231.91	61.9%	143.5

APPENDIX: 11.5 Drum calibration charts

(section 4.8 and section 6 in this chapter)

Standard 200 litre stainless steel drum

cm	Litres		cm	Litres		cm	Litres
1	2.5		31	79.5		61	156.4
2	5.1		32	82.0		62	159.0
3	7.6		33	84.6		63	161.5
4	10.2		34	87.2		64	164.1
5	12.8		35	89.7		65	166.7
6	15.3		36	92.3		66	169.2
7	17.9		37	94.8		67	171.8
8	20.5		38	97.4		68	174.4
9	23.0		39	100.0		69	176.9
10	25.6		40	102.5		70	179.5
11	28.2		41	105.1		71	182.1
12	30.7		42	107.7		72	184.6
13	33.3		43	110.2		73	187.2
14	35.9		44	112.8		74	189.7
15	38.4		45	115.4		75	192.3
16	41.0		46	117.9		76	194.9
17	43.6		47	120.5		77	197.4
18	46.1		48	123.1		78	200.0
19	48.7		49	125.6		79	202.6
20	51.2		50	128.2		80	205.1
21	53.8		51	130.8		81	207.7
22	56.4		52	133.3		82	210.3
23	58.9		53	135.9		83	212.8
24	61.5		54	138.4		84	215.4
25	64.1		55	141.0		85	218.0
26	66.6		56	143.6		86	220.5
27	69.2		57	146.1		87	223.1
28	71.8		58	148.7		88	225.7
29	74.3		59	151.3		89	228.2
30	76.9		60	153.8		90	230.8

Standard 200 litre plastic drum

cm	Litres		cm	Litres		cm	Litres
1	2.4		29	69.0		57	135.7
2	4.8		30	71.4		58	138.1
3	7.1		31	73.8		59	140.5
4	9.5		32	76.2		60	142.9
5	11.9		33	78.6		61	145.2
6	14.3		34	81.0		62	147.6
7	16.7		35	83.3		63	150.0
8	19.0		36	85.7		64	152.4
9	21.4		37	88.1		65	154.8
10	23.8		38	90.5		66	157.1
11	26.2		39	92.9		67	159.5
12	28.6		40	95.2		68	161.9
13	31.0		41	97.6		69	164.3
14	33.3		42	100.0		70	166.7
15	35.7		43	102.4		71	169.0
16	38.1		44	104.8		72	171.4
17	40.5		45	107.1		73	173.8
18	42.9		46	109.5		74	176.2
19	45.2		47	111.9		75	178.6
20	47.6		48	114.3		76	181.0
21	50.0		49	116.7		77	183.3
22	52.4		50	119.0		78	185.7
23	54.8		51	121.4		79	188.1
24	57.1		52	123.8		80	190.5
25	59.5		53	126.2		81	192.9
26	61.9		54	128.6		82	195.2
27	64.3		55	131.0		83	197.6
28	66.7		56	133.3		84	200.0

1 Section 50 of the Excise Act.

2 Section 52 of the Excise Act.

Chapter 12 - Concessional Release of Excisable Goods for Specified Official Bodies

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

ACS Australian Customs Service

AIG Alcohol Industry Group

AMF Australian Military Forces

ETI Excise Tariff Item

PSP Periodic Settlement Permission

RAN Royal Australian Navy

RTD Ready-to-drink beverage

SOFA Status of Forces Agreement.

1.2 Foreword

If you want to know more about Excise, go to our website at www.ato.gov.au.

Section 2: EXCISE TARIFF ITEM 18. SUPPLY OF CERTAIN EXCISABLE GOODS TO PERSONNEL OF SEA-GOING VESSELS OF THE ROYAL AUSTRALIAN NAVY (RAN) OR THE AUSTRALIAN MILITARY FORCES (AMF)

2.1 Overview

Item 18 of The Schedule to the Excise Tariff Act 1921 provides for certain excisable goods to be delivered at a free rate of duty for consumption by personnel of sea-going vessels of the RAN or AMF when such vessels are in full commission and when consumed on such vessels. A vessel is in full commission when it has a full complement of crew who live and are victualled (that is supplied with food and provisions) on board the vessel.

It is important to note that only certain excisable goods (that is, certain goods produced in Australia) can be obtained under Excise Tariff Item 18 (ETI 18). Imported (that is customable) goods cannot be obtained under ETI 18. For this reason, all ETI 18 requests are checked to ensure that they do not include customable alcoholic beverages. This will usually be quite obvious (for example when a request is made for Scotch whisky - product of Scotland). This cannot be approved.

(Customable goods may be obtained free of duty under section 129 of the Customs Act 1901 as ship's stores but only for vessels undergoing an international voyage. Such requests are processed by the Australian Customs Service).

In accordance with the terms of ETI 18, the personnel of sea-going vessels of the RAN or AMF may receive only excisable ale, porter and other beer, brandy, whisky, rum, gin, liqueurs, tobacco, cigars and cigarettes. They are not entitled under ETI 18 to receive RTDs (for example pre-mixed rum and cola or other mixers in bottles/cans).

The RAN provides the Tax Office with regularly updated details of RAN vessels in full commission so that the Tax Office can verify the eligibility of any RAN vessel seeking to obtain excisable goods under ETI 18.

2.2 Application form

While there is no prescribed Tax Office form to be used when requesting approval for ETI 18 goods, RAN administrative instructions (Defence Instructions (Navy) Amendment ADMIN 19-2) state that applications for the supply of excise free stores are to be made on Request for Ship's Stores Eligible Under Item 18 of the Excise Tariff Act 1921. This form provides for:

• the name of the Commanding Officer of the requesting vessel and the name of the vessel
• certification by the Commanding Officer that the requested goods are for consumption on board the vessel by the vessel's personnel and that the quantities requested are not in excess of reasonable requirements for consumption on that vessel during a nominated period
• certification that the vessel is a sea-going vessel in full commission
• the total number of officers and crew on board that vessel
• a description and quantity of goods requested
• the application of the vessel's stamp, and
• the signature of the Commanding Officer of the vessel.

2.3 Processing

The procedure for processing ETI 18 request forms is as follows.

• the RAN completes and forwards a request form to a nominated supplier (for example ship's provedore or brewery).
• the supplier faxes the request to the Alcohol Industry Group (AIG) at the Tax Office, (fax number 1300 130f916 for registration.
• the AIG checks the request form against a register of all fully commissioned RAN vessels and, if the vessel is eligible, the form is given a registration number and faxed back to the supplier. Providing a registration number does not authorise the delivery of ETI 18 goods to the vessel but confirms that the vessel is eligible to receive such goods.
• after receiving the registered request form, and provided that the supplier is the licensee of an excise storage place from which they are supplying the ETI 18 goods, the supplier must complete an excise return with details of the approved ETI 18 goods (using Instrument Code E018 at Box C and a rate of $0.00 at Box G on the excise return) and lodge the return with the Tax Office. Periodic settlement permission (PSP) holders lodge returns on the first working day after the end of their settlement period). When the return has been cleared by the Tax Office, the supplier receives a delivery authority (except for PSP holders who have approval to deliver goods without entry). The delivery authority authorises the supplier to acquit the ETI 18 goods from their stock records and to deliver the goods to the vessel. The supplier retains the delivery authority for audit purposes as evidence of approval for the delivery.
• wholesalers who are not excise licensees also act as intermediaries for the supply of ETI 18 goods. In this case, the wholesaler obtains the goods from the licensed supplier nominated on the approved request form. It is the responsibility of the licensed supplier to lodge an excise return to clear the goods.

Section 3: SUPPLY OF EXCISABLE GOODS FOR THE OFFICIAL USE OF DIPLOMATIC MISSIONS, CONSULAR POSTS, PRIVILEGED INDIVIDUALS OR PERSONS COVERED BY A STATUS OF FORCES AGREEMENT (SOFA)

3.1 Legislation

Excise Regulations:

Reg. 50(1)(ta)(ii)(A)	goods on which excise duty is payable, for the official use of a diplomatic mission of an overseas country
Reg. 50(1)(ta)(ii)(B)	goods on which excise duty is payable, for the official use of a consular post
Reg. 50(1)(tb)(i)	goods on which excise duty has been paid, for the official use of a diplomatic mission of an overseas country
Reg. 50(1)(tb)(ii)	goods on which excise duty has been paid, for the official use of a consular post
Reg. 50(1)(tc)(i) and (ii)	goods that are purchased by a person for use by a Government of a country other than Australia and for the official use of that Government, being goods referred to in ETI 13A, and in respect of which no refund is to be claimed
Reg. 50(1)(u)	goods on which excise duty has been paid are sold to a person for use by a Government of a country other than Australia and for the official use of that Government, being goods referred to in ETI 13A
Reg. 50(1)(ua) and (ub)	goods on which excise duty has been paid are sold to, or for use by, a person covered by a Status of Forces Agreement
Reg. 50(1)(zzb)	excise duty has been paid on goods: (i) for the official use of an international organisation to which the International Organisations (Privileges and Immunities Act 1963 applies, and (ii) acquired in an acquisition of goods that are exempt from duties of excise
Reg. 50(1)(zzc)	excise duty has been paid on goods for the personal use of the holder of a high office in an international organisation to which the International Organisations (Privileges and Immunities) Act 1963 applies, if the holder is exempt from duties of excise in accordance with regulations made under that Act.

Excise Tariff Act:

THE SCHEDULE

Item 10A	goods owned by the Commonwealth and are not intended to be used for the purposes of trade
Item 10B	articles owned by, and are for the official use of, the Governor-General
Item 10C	articles owned by, and are for the official use of, the State Governor
Item 10F	goods, as prescribed by by-law that are for the official use of an international organisation established by agreement between Australia and another country
Item 13A	goods for the Government of a country other than Australia and for the official use of that Government, as prescribed by by-law
Item 13B	goods for use by or sale to persons covered by a Status of Forces Agreement, as prescribed by by-law

Excise by-laws:

No. 92	applies to ETI 10F
No. 111	applies to ETI 13A
No. 112	applies to ET1 3B

3.2 Processing

The processing of applications is as follows:

• the embassy or consular staff complete an application for release of goods from Customs control to diplomatic missions, consular posts and privileged individuals and lodge the form with the Australian Customs Service (ACS).
• the ACS approves and stamps the application.
• the approved application is presented to the nominated supplier.
• if the supplier is the holder of a PSP, they can deliver the goods within their settlement period.
• the PSP holder reports the goods to the Tax Office on an excise return, using instrument Code DIPM (for goods for a diplomatic mission) or CONP (for goods for a consular post) at Box C and a rate of $0.00 at Box G.
• if the supplier does not have a PSP they cannot deliver the goods until they have been entered for home consumption, duty paid and approved for delivery. The goods are entered for home consumption using a pre-payment excise return, using Instrument Codes DIPM or CONP at Box C and a rate of $0.00 at Box G.
• the supplier may deliver the goods only after they have received a delivery authority from the Tax Office.

These processing procedures also apply to excisable goods as follows:

• owned by the Commonwealth and not intended to be used for the purposes of trade (ETI 10A)
• for the official use of the Governor-General (ETI 10B)
• for the official use of a State Governor (ETI 10C)
• for the official use of an agreed international organisation (ETI 10F)
• for the official use of a Government of a country other than Australia (ETI 13A)
• for use by persons covered by a Status of Forces Agreement (ETI 13B).

Chapter 13 - Glossary of Alcohol Industry Terms

This document has been archived. It is current only to 30 June 2006.

ABN	Australian Business Number
ACS	Australian Customs Service
AGAL	Australian Government Analytical Laboratories
AV (a/v)	Alcohol by volume. The amount of alcohol (ethyl alcohol or ethanol) contained in an alcoholic beverage.
Alcohol	All references to alcohol are references to ethyl alcohol or ethanol (section 6 of the Distillation Act, section 3 of the Spirits Act and the Schedule to the Excise Tariff Act).
Alcoholometer	A metric hydrometer approved for use in calculating the alcoholic strength of spirits.
Ale	A type of beer. A brew made with top-fermenting yeast. Usually brown to dark-brown with a distinctive fruity taste.
AMF	Australian Military Forces
ANTS	A New Tax System
Approved place	The premises specified in a storage licence (section 4 of the Excise Act).
Back	Any vessel in which wort is fermented.
Barrel	(in UK) A 36 gallon (163 litres) cask. A vessel holding not more than 164 litres and not less than 150 litres (formerly s.77A of the Excise Act). Dutiable contents = 160 litres (formerly s.77B of the Excise Act).
Baumé	The sugar content of grapes is expressed in degrees of Baumé. Measurement is by Baumé hydrometer.
Beer	A fermented drink brewed with hops. Lager, ale, stout, porter and so on are included in the general term beer. Section 4 of the Excise Act defines beer as any liquor on which, under the name of beer, any duty of excise imposed by the Parliament is payable. Beer is also defined in the Schedule to the Excise Tariff Act as a brewed beverage which: is the product of the yeast fermentation of an aqueous extract pf malted or unmalted cereals, whether or not containing other sources of carbohydrates contains hops, or extracts thereof, or other bitters has not had added to it, at any time, any alcohol from any other source, and contains more than 1.15% by volume of alcohol.
Bitter	A type of beer. Pale or amber ale, usually well-hopped for bitter flavour. Most often available on tap (draught) rather than bottled.
Bitters	A bitter herb, leaf or root. See hop - hops are the bittering agent used in the manufacture of beer. Other bittering agents used in other applications may include angostura bark, cascarilla, quassia or gentian.
Blending	The mixing of spirits. The age of the blended spirits is to be taken as that of the youngest spirit.
BOPS	Brew-on-premises shops
Bottom fermentation	The method of fermentation to produce lager. During fermentation, the spent yeast sinks to the bottom of the fermenting vessel.
Brandy	A spirit distilled from wine in such a manner that the spirit possesses the taste, aroma and other characteristics generally attributed to brandy, being a spirit that contains not less than 83% a/v (the Schedule to the Excise Tariff Act).
Brewery conditioned beer	Beer which has been brought to condition in the brewery before filtration instead of conditioning in the cask or bottle.
Brewery licence	A licence to manufacture beer (section 77A of the Excise Act). Brewery licence is only mentioned in sections 77A, 77E and 77F of the Excise Act.
Brewery	A factory in which a person is licensed to manufacture beer (section 77A of the Excise Act).
Bright beer	An industry term for matured, carbonated and filtered beer ready for packaging and drinking. Bright beer is not a term which appears in the Excise Act or Regulations.
Brix (or balling)	Another way of measuring the sugar content of the grape. 1.8° Brix = 1°Baumé
Brown ale	A container that has the capacity to have packaged in it more than two litres of liquid (section 4 of the Excise Act).
Bulk container	A container that has the capacity to have packaged in it more than two litres of liquid (section 4 of the Excise Act).
Cart-note	Delivery document (now mostly defunct) used to identify goods during delivery. Replaced by multi-part invoice or delivery docket.
Cask	Large barrel-like container made of wood, steel or plastic, esp. one for alcoholic liquor.
Cask-conditioned beer	Beer which is conditioned in the cask instead of in a brewery's conditioning tanks.
Centrifuge	A machine designed to separate solids from liquids (for example excess yeast from beer) or liquids from other liquids.
CEO	Chief Executive Officer (the Commissioner of Taxation)
Certified plan	The plan of a licensed premises outlining the bonded or licensed area and certified by the AIG.
Charge	Wash. The fermented material (for example distillation wine) used in a still and from which spirit is distilled.
Chromatography	A method for separating a mixture of chemical compounds into individual components by selective distribution between two immiscible (cannot be mixed) materials (or phases), one stationary and the other mobile. The phases are selected so that the mobile phase will carry the various components through the stationary or solid phase at differing rates to give separation. This is the method used by the major beer and spirit manufacturers to measure alcohol strength.
Conditioning	Maturation of beer after it leaves the fermentation tank.
Continuing movement permission (CMP)	A written permission issued under section 61A of the Excise Act authorising the use of commercial documents for the under bond movement of goods from one specified place to another without the need for Tax Office authority for each individual movement.
Cooper	A person who makes and repairs wooden casks.
Copper (or kettle)	Copper or stainless steel vessel in which wort is boiled with hops to give beer its bitter flavour.
Denaturant	Methylating substance added to spirit to make it unfit for human consumption.
Distillery	The licensed premises of a distiller (section 6 of the Distillation Act).
Draught	Term for beer which is drawn through a tap or pump to the bar.
Dry hopping	Addition of hops to beer during maturation to improve flavour and aroma.
Ebulliometer	An instrument designed for determining the alcoholic strength of wine or beer by observing the difference between the boiling point of the wine or beer and that of water under identical conditions. By the use of a conversion table, the difference can be expressed as a percentage of alcohol by volume at the standard 20°C. Special precautions must be taken to inhibit foaming when using the Ebulliometer to test the strength of beer.
EDN	Export declaration number.
Entry	A document (for example Nature 40 Entry for home consumption) formerly used to clear excisable goods into home consumption. For clients who were required to pre-pay duty before delivery of goods, the entry, once passed by Customs, became the authority for the manufacturer or owner to deliver excisable goods into home consumption. For clients on weekly settlement permissions, the entry supplied duty payment details of those goods which had been delivered for home consumption during the settlement period. Replaced in July 2003 by the excise return form.
Enzymes	Agents which cause changes from one substance to another. Present in all living things. During mashing they convert carbohydrates into sugars.
Essential oil	A volatile oil obtained from a natural vegetable product by steam distillation. Often mixed with high strength spirit and other substances to manufacture flavourings, essences, scents or toilet preparations. Many manufacturers use concessional spirit for this purpose.
ETI	Excise tariff item
Excise manufacturer	A person licensed to manufacture excisable goods (section 25 of the Excise Act).
Factory	The premises on which any person is licensed to manufacture excisable goods, and includes all adjoining premises used in connection therewith or with the business of the licensed manufacturer (section 4 of the Excise Act).
Feedstock	The raw material used in a process. For example, wheat, barley, rice, tubers, grapes and other fruits. Feedstock may also be ethyl alcohol used to manufacture an other excisable product (see also raw materials).
Fermentation	A natural process whereby living yeasts convert sugars into alcohol and carbon dioxide. The process in which yeast converts wort into beer.
Filtration	Removal of solid particles from beer using a filter unit.
Finings	Substance which is added to beer or wine to aid its clarification, for example isinglass, gelatin, silica and bentonite.
Firkin	Standard UK 9 gallon (41 litres) cask.
Fortification	The act of adding spirit to wine to produce a fortified wine (for example port, sherry). Australian wine must not be fortified to more than 23% a/v (section 59 of the Distillation Act).
Gas chromatography	See chromatography. Gas chromatography may be used to separate ethanol from the other by-products produced in fermentation and to measure them quantitatively.
General distiller	A person who is the holder of a spirit maker's general licence issued under Part III of the Distillation Act. They are authorised to distil spirits from any feedstock or raw material, for example barley, malt, molasses or wine.
Grain spirit	Spirit made from grain, such as barley, maize or wheat.
Grape spirit	Spirit made from grape wine; the fermented juice of fresh grapes.
Grist	Crushed malt ready for mashing.
GST	Goods and Services Tax
Hop	A perennial climbing plant. Its cones or flowers give beer a bitter flavour and aroma. There are many varieties of hops but they are divided into two main categories, bittering and aromatic. Bittering hops, the main bittering agent, are high in Alpha acids (typically around 10%). Aromatic hops are lower (around 5%).
Hop extract	Bittering substance produced from hops and concentrated into syrup.
Hop pellets	Natural hop powder which has been compressed.
Hydrometer	An instrument for measuring the density or specific gravity of liquids. It generally comprises a long stemmed tube, weighted at the bottom, which floats at different levels in liquids of different densities. Hydrometers are used in conjunction with thermometers and the Practical Alcohol Tables to correct readings to the standard 20°C. A Thorpe's Still may also be required to extract the spirit from the sample being tested where the specific gravity of the sample is affected by obscuration.
Illicit spirits	Spirits distilled, moved, altered or interfered with in contravention of the Distillation Act (section 6).
Immature spirits	Brandy, whisky or rum which has not been matured in wood for a minimum period of two years.
IMS	Industrial methylated spirits
Isinglass	Semi-transparent colloidal substance obtained from the swim bladders of sturgeon. One of the raw material of finings.
Keg	Sealed container usually for chilled and filtered beers.
Kettle	See copper.
Kilning	The drying and curing of malt by heat treatment.
Lager	Any beer made by bottom fermentation. In Australia and UK they are generally a golden colour but in parts of Europe they can also be dark.
Lals	Litres of alcohol (the volume of alcohol in an alcoholic product).
Lauter tun	A filtration vessel used in modern mashing techniques.
Lees	The sediment deposited by wine during manufacture and maturation (includes grape skins and other residue).
Licence	In relation to alcohol, licence means a manufacturer licence or storage licence (section 4 of the Excise Act), distiller's licence (section 13 of the Distillation Act) or methylator's licence (section 20 of the Spirits Act).
Licensed manufacturer	A person or partnership who holds a manufacturer licence (section 4 of the Excise Act).
Light ale	UK term for the bottled counterpart of draught beer.
Light beer	Any beer with reduced alcohol content (Excise Tariff - not exceeding 3% by volume of alcohol).
Liqueur	The product obtained by mixing or by distillation of spirit with or over fruits, flowers, leaves or other vegetable substances or their juices either singly or in combination or with extracts derived by distillation, infusion, percolation or maceration of such vegetable substances and containing not less than 25 grams per litre of sugars and not less than 17% a/v (The Schedule to the Excise Tariff Act).
Low wines	Spirits of the first extraction (distillation run) received into the low wines receiver. Low wines are a process in the production of spirits in saleable form.
Low wines receiver	A tank into which low wines flow from the still.
Malt barley	Barley which has been steeped in water, allowed to germinate and then heated in a kiln to halt further germination.
Malt extract	Sugars extracted from malt and concentrated by evaporation.
Malt mill	Machine for crushing malt into grist.
Manufacture	Includes all processes in the manufacture of excisable goods and, in relation to beer, includes the provision to the public at particular premises of commercial facilities and equipment for use in the production of beer at those premises (section 4 of the Excise Act).
Manufacturer licence	A licence granted under Part IV of the Excise Act, the holding of which authorises the licence holder to manufacture excisable goods (section 4 of the Excise Act).
Mash	A mixture of milled grain or other fermented carbohydrate in water used in the production of ethanol. The term may be used at any stage from the initial mixing of the feedstock in water prior to any cooking and conversion into fermentable sugars through to the completion of fermentation when it is referred to as beer.
Mash tun	Vessel in which mashing takes place and in which wort is separated from the spent grains.
Mashing	Mixing of grist and hot water at precise temperatures to form malt sugars which the yeast will eventually ferment.
Maturation (1)	The storage of spirit in wooden vessels to mature and develop certain characteristics of that particular type of spirit (brandy, whisky or rum). Sometimes referred to as ageing in the wood. Australian legislation requires a minimum of two years maturation for brandy, whisky and rum (sections 11 and 12 of the Spirits Act).
Maturation (2)	The storage of beer for a period during which its quality improves.
Methylated spirits	Denatured spirit. Spirit which has been rendered unsuitable for human consumption by the addition of an approved denaturant (section 14 of the Spirits Act).
Metric hydrometer	See alcoholometer.
NATA	National Association of Testing Authorities
Near infra red spectrometer	See spectrometer. Near infra red spectrometry covers the region of the electromagnetic spectrum between the visible and the short-wavelength microwave.
NSA	National Standards Association
Oast house	Kiln where hops are dried.
Obscuration	The difference between the true and apparent strength of spirituous liquor to which sweetening, flavouring and colouring agents have been added.
Other excisable beverage	Any beverage containing more than 1.15% a/v but does not include: beer brandy fruit brandy whisky rum liqueurs, or wine as defined in Subdivision 31-A of the A New Tax System (Wine Equalisation Tax) Act 1999 (the Schedule to the Excise Tariff Act).
Permission	The written permission of the Tax Office (section 4 of the Excise Act)
Periodic settlement (formerly weekly settlement)	The deferred payment of excise duty by approved persons/entities on a periodic basis (weekly). It allows the delivery of excisable goods into home consumption before payment of duty (section 61C of the Excise Act).
Pilsener	A type of beer. German brewers produce this style as inspired by the original brew from the town of Pilsen in Czechoslovakia. A classic Pilsener is characterised by the hoppiness of its flowery aroma and dry finish.
Pitching	Adding yeast to the wort in the fermenting vessel.
Porter	A London-style beer so named because it was popular with porters from the great London markets. It became obsolete but has recently been revived. A lighter bodied companion to stout.
Potable	Drinkable (L. potare, to drink)
Proof spirit	Obsolete system of measuring strength of alcohol. Replaced by litres of alcohol. Derived from the UK system. In Australia proof spirit was 100 units by volume of alcohol mixed with 75 units by volume of water. The system in the USA uses a proof spirit standard of 50 units of alcohol in 50 units of water. To convert UK/Australian proof spirit to Lals, multiply proof gallons by 2.5958 (note that this method is not sufficiently accurate for large quantities and produces an approximate result only).
Pycnometer	An instrument with a calibrated capillary for measuring the relative density of a liquid.
Racking	The operation in the manufacture of wine where the liquid is separated from the solids (lees - grape skins, seeds) by transferring the clear wine from one vat to another. Filling casks with beer.
RAN	Royal Australian Navy
Raw materials (see also feedstock)	In the production of ethyl alcohol, the basic ingredients are sugars and starches (which can be easily converted to fermentable sugars). For example: sugars may come from grapes, sugar cane and fruits such as plums, peaches and apples starches may come from grains such as wheat, barley, rye, maize, rice or tubers such as potatoes.
Refund	Under certain circumstances, duty which has been paid on excisable goods generally or on a class of excisable goods may be returned to the payer (section 78 of the Excise Act and regulation 50(1) of the Excise Regulations).
Remission	When excisable goods are destroyed, or dealt with in a prescribed set of circumstances, while under Tax Office control, the manufacturer or owner may be relieved of the liability to pay the duty on such goods, that is the duty is remitted (section 78 of the Excise Act and regulation 50(1) of the Excise Regulations).
Return	See entry
RTD	Ready-to-drink beverage
Rum	A spirit obtained by distillation of a fermented liquor derived from the products of sugar cane, being distillation carried out in such a manner that the spirit possesses the taste, aroma and characteristics generally attributed to rum (the Schedule to the Excise Tariff Act).
Secondary fermentation	Process by which beer continues to ferment and mature slowly in the bottle or cask (the finished product is known as naturally conditioned beer).
Section 50 direction	A written instruction issued under section 50 of the Excise Act by the Tax Office to a licensed manufacturer or a proprietor of an approved place. A standard direction is usually issued with each new licence requiring the licence holder to keep prescribed records, furnish prescribed returns, retain records for a prescribed period and produce records on demand by the Tax Office. A more detailed, prescriptive Section 50 Direction may be issued if a licensee's record keeping is later found to be inadequate.
Section 60 claim	A claim made on a person who has been entrusted with the possession, custody or control of excisable goods and who fails to keep them safely or cannot account for those goods to the satisfaction of the Tax Office (subsection 60(1) of the Excise Act).
Security	A bond, guarantee or cash deposit given by a person to the Tax Office to ensure compliance with legislative requirements (section 17 of the Excise Act).
Single movement permission (SMP)	Permission under section 61A of the Excise Act for the once-only movement of under bond goods between specified places (compare continuing movement permission).
Skimming	Removing yeast from the top of the beer as it ferments.
SMS	Specially methylated spirits
SOFA	Status of forces agreement
Sparging	Spraying hot water through a rotating arm over the mash in the mash tun to ensure complete extraction of malt sugars.
Specified place	A place nominated in a Section 61A permission for the dispatch or receipt of under bond goods.
Specific gravity	The ratio of the density of a material to the density of water at a specific temperature. For example at a temperature of 20°C and in vacuum, the specific gravity of ethanol in relation to water is 0.79067.
Spectrometer	An instrument used for the measurement of observed spectra (each substance has its own characteristic emission spectrum).
Spent wash	The liquor which remains after the spirits have been extracted by distillation.
Spirits	Potable spirits (brandy, fruit brandy, whisky, rum and liqueurs), that is goods described in item 2 (other than sub item 2H) of the Schedule to the Excise Tariff Act Absolute alcohol and rectified spirit.
Steeping	The exposure of barley to moisture for germination; the first stage of the malting process.
Standard temperature and pressure	Means a temperature of 20° centigrade and a pressure of one standard atmosphere (section 4 of the Excise Act)
Still	Any apparatus for or capable of distilling spirits and any part of or any connection with such an apparatus.
Storage licence	A licence granted under Part IV of the Excise Act, the holding of which authorises the licence holder: to keep and store goods that are: excisable goods on which duty has not been paid, and of the kind specified in the licence at the premises specified in the licence, and carry out at the premises activities of a kind specified in the licence in relation to those goods. (section 4 of the Excise Act)
Stout	A type of beer. An extra dark, almost black, top-fermenting brew made with highly roasted malts. Can be dry in the Irish style or sweet (sometimes called milk stout because it contains milk sugars or lactose which sweeten the brew without fermenting).
SVR.	From the Latin spiritus vini rectificatus - rectified spirit of the vine, very high strength spirit. Usually of the order of 96% a/v produced through distillation. SVR is rectified grape spirit, but the term is commonly used as a synonym for any neutral spirit.
Top fermentation	Traditional method of fermenting wort to make beer. Yeast rises to the top of the beer during the process.
TGA	Therapeutic Goods Administration.
Ullage	The amount by which a cask falls short of being full.
Under bond	An expression not found in excise legislation but widely used to describe goods that are subject to Tax Office control. Excisable goods remain under bond until any liability has been acquitted through the lodgement of an excise return and payment of excise duty or exported. With Tax Office permission, a person may move under bond goods from a specified place to another specified place without payment of excise duty (section 61A of the Excise Act). If the goods are sold while under bond, the excise liability transfers to the new owner.
Vessel	Includes bottle, can or any other container.
Vigneron	A person who holds a licence issued under the Distillation Act to distil spirits from wine or lees of wine for the purpose of fortifying Australian wine only.
Wash	The liquor from mashed material after it has commenced to ferment and before it has been distilled.
WET	Wine equalisation tax
Warehouse	A warehouse licensed under the Customs Act 1901.
Whisky	A spirit obtained by distillation of a fermented liquor of a mash of cereal grain in such a manner that the spirit possesses the taste, aroma and other characteristics generally attributed to whisky (the Schedule to the Excise Tariff Act).
Wine	Wine means: grape wine grape wine products fruit or vegetable wine cider or perry mead sake. However, wine does not include beverages that do not contain more than 1.15% by volume of ethyl alcohol. See Division 31 of A New Tax System (Wine Equalisation Tax) Act 1999.
Wine distiller	A person who holds a licence issued under the Distillation Act to distil spirits from wine or lees of wine.
Wort (pronounced wert).	A brewery term used occasionally in distilleries. It refers to an unfermented mash, particularly if produced from a liquid feedstock or if the solids have been removed to yield a relatively clear, free-flowing liquid.
Yeast	Any of various single-celled fungi used as a fermenting agent.

---

Copyright

Commonwealth of Australia 2005

This work is copyright. You may download, display, print and reproduce this material in unaltered form only (retaining this notice) for your personal, non-commercial use or use within your organisation. Apart from any use as permitted under the Copyright Act 1968, all other rights are reserved.

Requests for further authorisation should be directed to the Commonwealth Copyright Administration, Intellectual Property Branch, Department of Communications, Information Technology and the Arts, GPO Box 2154, Canberra ACT 2601 or posted at http://www.dcita.gov.au/cca.