ATO ID 2005/280: Excise: Accounting for stock shortages and surpluses.
Date of decision: 4 October 2005
Business line: Indirect Tax

Issue
Has a person accounted for excisable goods to the satisfaction of the CEO for the purposes of section 60 of the Excise Act 1901 (Excise Act) if, following a stock take, the person advises the CEO of various stock shortages and stock surpluses, and pays an amount of duty equating to the difference between the amount outstanding on stock shortages and the amount overpaid on stock surpluses?

Decision
Yes. A person has accounted for excisable goods to the satisfaction of the CEO for the purposes of section 60 of the Excise Act if, following a stock take, the person advises the CEO of various stock shortages and stock surpluses, and pays an amount of duty equating to the difference between the amount outstanding on stock shortages and the amount overpaid on stock surpluses.

Facts
An excise licensee conducts regular, periodic stock takes. Stock shortages and/or surpluses of excisable alcoholic goods are identified as a result of the stock takes. Details of the shortages and surpluses are provided to the CEO. The licensee has determined that their production records are accurate. The licensee pays an amount of duty to the CEO equating to the difference between the amount outstanding on stock shortages and the amount overpaid on stock surpluses.

Reasons for decision
Summary: Section 60 of the Excise Act requires persons who have been entrusted with the possession, custody or control of excisable goods to keep those excisable goods safely or, when requested by the CEO to account for those goods to the satisfaction of the CEO. The term 'CEO' is defined in section 4 of the Excise Act to mean the Commissioner of Taxation. The purpose of section 60 of the Excise Act was examined in Collector of Customs v. Southern Shipping Co Ltd (1962) 107 CLR 279. The case was decided prior to the Commissioner of Taxation taking responsibility for Excise matters. The principles outlined in the decision remain valid but references to Customs control should be read as references to the CEO's control. In discussing sub section 60(1) of the Excise Act, Menzies J stated: ... the safety with which the section is concerned is that the goods - subject as they are to the control of Customs - do not get out of Customs control into home consumption without the payment of duty; similarly, the account of the goods that is required is an account that shows an authorized relinquishment of possession, custody and control or, despite an unauthorized loss of possession, custody and control, that the goods have not gone 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. Finkelstein J in Sidebottom v. Giuliano (2000) FCA 607; (2000) 98 FCR 579, described the object of section 60 of the Excise Act as follows: The object of s60 is to impose an obligation upon a person in possession, custody or control of excisable goods to ensure that those goods do not find their way into home consumption without the payment of duty. Therefore, section 60 of the Excise Act requires that excisable goods do not leave the CEO's control until they are properly accounted for. Proper accounting requires that the goods are entered for home consumption and the correct amount of duty paid. Where a person identifies a stock shortage, this indicates that goods have entered home consumption without being reported to the CEO and without paying the requisite duty. A proper accounting under section 60 requires the licensee to advise the CEO of the goods that have entered home consumption and pay the requisite duty. Section 59 of the Excise Act prescribes that the rate of duty on excisable goods must be calculated based on the prevailing rates at the earlier of the date when the goods were delivered for home consumption or when payment was made. In this instance, the goods have been delivered for home consumption prior to the payment of duty. Therefore, the licensee must determine, to the best of their ability, the date upon which the goods were delivered into home consumption and calculate the duty payable based on the rates applicable at that date. Where a person has determined that their production records are correct, and identifies a stock surplus, this indicates that duty has been paid in error on goods that were never delivered into home consumption. The client may offset this overpayment against the underpayment of duty indicated by the stock shortage. The stock surplus must also be taken up in the licensee's stock records, so that duty is paid appropriately when the goods are delivered into home consumption. In the above circumstances, to account for the goods satisfactorily for the purposes of section 60 of the Excise Act, the licensee must ensure that the CEO is made aware of the accounting errors, and that the CEO is recompensed for any net shortfall in duty. It should be noted that the CEO may specify the form that this disclosure takes. Section 50 of the Excise Act requires manufacturers and proprietors of approved places to submit whatever returns, and to keep whatever records, the CEO requires. Therefore, the CEO is able to specify the information that must be provided to him.

Legislative references: Excise Act 1901 section 3 section 60 subsection 60(1) section 50 section 59
Case references: Sidebottom v. Giuliano [2000] FCA 607 (2000) 98 FCR 579
Subject references: Alcohol excise Excise Excise payments other