ATO Interpretative Decision

ATO ID 2009/7 (Withdrawn)

Excise

• This ATO ID is withdrawn as it is superseded by Excise Ruling ER 2012/1 paragraphs 31-35.
  This document has changed over time. View its history.

Issue

Is alcoholised water that is produced as a result of alcohol derived from wine permeate being mixed with water, 'excisable goods' for the purposes of subsection 4(1) of the Excise Act 1901?

Decision

Yes, alcoholised water that is produced as a result of alcohol derived from wine permeate being mixed with water is 'excisable goods' for the purposes of the Excise Act.

Facts

Wine is put through a reverse osmosis process that separates the wine into wine permeate and wine retentate.

The wine permeate then moves onto a membrane. The membrane comprises very small pores and has two surfaces. Water runs along the outside surface of the membrane. Alcohol from the wine permeate evaporates at the pores of the surface of the membrane and passes through the membrane. On exit from the pores of the membrane, the alcohol condenses and dissolves or mixes into the water running along the outside surface of the membrane.

The result is the water is alcoholised, generally at less than 10% by volume.

The entire process can be performed by mobile or fixed apparatus of varying capacities and can be carried out on a winemaker's premises.

Reasons for Decision

Section 2 of the Excise Tariff Act 1921 (Tariff Act) provides for the Tariff Act and the Excise Act to be read as one.

Excisable goods are defined in subsection 4(1) of the Excise Act as:

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 Parliament.

The Tariff Act imposes duty of excise. Of particular relevance is paragraph 5(1)(a) which states in part:

The Duties of Excise specified in the Schedule are hereby imposed in accordance with the Schedule,

...

on the following goods, namely:

...

all goods dutiable under the Schedule and manufactured or produced in Australia after the time or dates when such duties are deemed to have been imposed; and

...

(Emphasis added)

It follows that for goods to be 'excisable goods', the goods must be specified in the Schedule to the Tariff Act and manufactured or produced in Australia. Each of these requirements will be examined in turn.

1. Goods must be specified in the Schedule to the Tariff Act

Among other products the Tariff Act imposes excise duty on beer, brandy, spirits, other excisable beverages not exceeding 10% by volume of alcohol and other excisable beverages exceeding 10% by volume.

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

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

(a)

beer; or

(b)

brandy; or

(c)

wine.

Beer, brandy and wine are all defined in the Schedule to the Tariff Act, The alcoholised water, which has an alcoholic strength not exceeding 10% alcohol by volume does not meet the definitions of beer, brandy or wine, nor is it spirits.

In Bristol-Myers Company Pty Ltd v. Federal Commissioner of Taxation (1990) 23 FCR 126; 21 ATR 417; 90 ATC 4553, which considered the word 'beverage', Lockhart J said:

I prefer the simpler definition attributed to the word "beverage" by the Macquarie Dictionary which is simply "a drink of any kind".

The Commissioner considers alcoholised water to be a beverage, as it is a mixture of water and alcohol which can be drunk.

Accordingly, the alcoholised water is dutiable under the Schedule, being 'other excisable beverages not exceeding 10% alcohol by volume', and is classifiable to item 2 of the Schedule to the Tariff Act.

2. Goods must be manufactured or produced in Australia

The terms 'produced' and 'manufactured' are considered to be synonymous for the purposes of the Excise Act and Tariff Act.

The Excise Act at subsection 4(1) provides that '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.

As the definition of 'manufacture' is an inclusive one, it is relevant to examine the processes in the manufacture of those goods.

In this instance, alcohol from the wine permeate evaporates and then condenses before mixing or dissolving into water that runs along the outside surface of the membrane. This provides alcoholised water, which is generally less than 10% alcohol by volume.

The alcoholised water is the product of the transformation of the individual components (alcohol and water) into a thing which is different from its inputs. It also brings something new into existence as a result of the skill or knowledge inherent in the overall process.

This constitutes a process in the manufacture of a product or commodity consistent with the judgments in McNicol v. Pinch [1906] 2 KB 352 (at 361) and M.P. Metals Pty Ltd v. Federal Commissioner of Taxation [1967-1968] 117 CLR 631; 10 AITR 543; (1967) 14 ATD 407; (1968) 14 ATD 540 per Windeyer J.

Conclusion

water is dutiable under the Schedule and manufactured or produced in Australia.

Accordingly, alcoholised water is 'excisable goods' as defined in section 4 of the Excise Act.

Legislative References:
Excise Act 1901
   subsection 4(1)

Case References:
Bristol-Myers Company Pty Ltd v. Federal Commissioner of Taxation
   (1990) 23 FCR 126
   21 ATR 417
   90 ATC 4553

Other References:
The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01
The Alcohol Industry - Excise Technical Guidelines

Keywords
Excise
Excisable goods
Manufacturer

Business Line:  Indirect Tax

Date of publication:  6 February 2009

ISSN: 1445-2782