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

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This document has been archived.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 consumption 1 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 goods 3 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 goods 4 .

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 consumption 6 .

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 Parliament 7 .

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 alteration 8 .

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 occasion 9 . 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 Office 12 .

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 held 13 .

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 duty 14 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 duty 15 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 paid 16 . 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 Office 17 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 occurring 18 .

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 wood 19 . 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 losses 19 . 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 duty 20 .

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 follows 20 :

  • 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 Office 21 .

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 claim 22 .

The Excise Regulations prescribe the circumstances under which refunds are made 23 . 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 consumption 24 .

(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 fact 25 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 refund 26 .

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) unless 27 :

  • 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 duty 28 . 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 goods 29 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 where 30 :

  • 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 unless 31 :

  • 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, include 32 :

(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 consumption 33
(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.

ATO references:
NO NAT 14790-04.2006

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