ATO Interpretative Decision

ATO ID 2007/28

Excise

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Issue

Have excisable goods been manufactured, for the purposes of the Excise Tariff Act 1921, when in collecting used oil, an entity strains the used oil as it is pumped into their collection truck and removes water that settles in the truck's collection tank?

Decision

No. Excisable goods have not been manufactured, for the purposes of the Excise Tariff Act, when in collecting used oil, an entity strains the used oil as it is pumped into their collection truck and removes water that settles in the truck's collection tank.

Facts

An entity collects used sump oil from industrial premises and workshops.

The used oil is pumped from the customers' collection tanks into the entity's tank on the back of a truck.

To prevent damage to the pump, the used oil passes through a coarse strainer to remove contaminants such as nuts, bolts, washers, rags and cigarette butts.

The used oil is then left in the collection tank on the truck, where any water in the used oil separates due to gravity.

The water is then drained off. The amount of water removed is less than 0.1% of the total used oil.

The used oil is not for reuse as an oil or grease.

Reasons for Decision

Section 5 of the Excise Tariff Act imposes excise duty on goods listed in the Schedule to the Excise Tariff Act that are manufactured or produced in Australia. To determine if a particular product is excisable it is necessary to determine if the product was manufactured or produced in Australia and if it is listed in the Schedule.

Neither 'manufacture' nor 'produce' are defined in the Excise Tariff Act. However, section 2 of the Excise Tariff Act provides that the Excise Tariff Act is to be read as one with the Excise Act 1901. Section 4 of the Excise Act contains the following definition of manufacture:

"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.

This extends the common meaning of manufacture to include all the processes in the manufacture of excisable goods. This allows provisions of the Excise Act, such as those relating to licensing and supervision of excise manufacture, to apply to processes before excisable goods exist.

The common meaning of 'manufacture' from The Macquarie Dictionary (revised third edition) is:

verb (t) (manufactured, manufacturing)

4. to make or produce by hand or machinery, especially on a large scale.

5. to make in any manner.

This does not address whether the screened and dewatered used oil is a product that has been manufactured or produced in Australia. The Commissioner's view is that in order to determine whether goods are manufactured or produced, for the purposes of the Excise Tariff Act, one must look at the Act and the Schedule together.

Paragraph 10(d) of the Schedule to the Excise Tariff Act makes reference to goods '... derived through a recycling, manufacturing or other process'. Therefore recycling processes must be considered to be part of manufacture - otherwise Parliament's clear intention to impose excise on recycled products would be defeated. The Commissioner's view therefore is that recycling processes can be processes of manufacture if the resulting product is listed in the Schedule to the Excise Tariff Act.

Therefore, it is necessary to determine whether the activities undertaken by this entity constitute recycling or other processes, and whether the resultant product is listed in the Schedule to the Excise Tariff Act.

Recycling of used oil typically consists of two distinct phases. In the first phase, the used oil is collected from places where it has been accumulated following its original use. These places may be centralised collection facilities or as in this case, workshops or other industrial premises. The used oil may have become contaminated during its storage, with such things as nuts, bolts, washers, rags and cigarette butts. This contamination that has resulted from the storage of the used oil may be contrasted with contamination that has resulted from the use of the oil.

Water can be present in used oil in two ways. It can be in the form of free water which will separate by allowing the used oil to settle. Water can also become bound with the oil such as in emulsions. To remove this water requires more than simply allowing the oil to settle.

The second phase in the recycling of used oil consists of processes such as filtering and demineralising which remove further contaminants such as fine metal shavings that have entered the oil as a result of its initial use. These processes render the oil suitable for re-use as lubricating oil.

To conclude that the mere collection of the used oil, and the activities that occur during this collection phase result in an excisable product would significantly affect the ability of the used oil recycling industry to comply with the provisions of the Excise Act. To interpret the provisions in this way would require these activities to occur only at licenced premises and by licenced entities.

The Commissioner's view is that in this case the screening and dewatering activities undertaken by the entity are more properly regarded as part of the collection and transportation of the used oil so that it can then be recycled. The activities of screening and dewatering, as part of the collection of used oil, do not constitute recycling or other processes that result in excisable goods. Therefore excisable goods have not been manufactured, for the purposes of the Excise Tariff Act, when in collecting used oil, an entity strains the used oil as it is pumped into their collection truck and removes water that settles in the truck's collection tank.

Legislative References:
Excise Tariff Act 1921
   section 2
   section 5
   paragraph 10(d) of the Schedule

Other References:
The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW

Keywords
Excise
Excise collections
Fuel

Business Line:  Indirect Tax

Date of publication:  2 February 2007

ISSN: 1445-2782