ATO ID 2007/202: Excise: beer used in the manufacture of a non-excisable product
Date of decision: 5 November 2007
Business line: Indirect Tax

Issue
Can an entity that manufactures beer, use that beer to make another product that is not excisable without paying excise duty on the beer?

Decision
No, an entity that manufactures beer cannot use that beer to manufacture another product that is not excisable without paying excise duty on that beer.

Facts
The entity is licensed to manufacture excisable goods pursuant to Part IV of the Excise Act 1901 (Excise Act). The entity manufactures beer as defined in the Schedule to the Excise Tariff Act 1921 (Excise Tariff Act). The beer is fit for human consumption. The beer is used as an ingredient in the manufacture of a non-beverage food product that is not an excisable good. The manufacture of the beer and the manufacture of the food product are undertaken at the same premises.

Reasons for decision
Summary: Section 5 of the Excise Tariff Act imposes excise duty on goods that are specified in the Schedule to that Act and which are manufactured or produced in Australia. Item 1 in the Schedule to the Excise Tariff Act specifies that excise duty is applicable to beer and provides various rates of duty dependent upon the strength of the beer and the size of the container in which the beer is packaged. The Commissioner is cognisant of the fact that the entity commercially manufactures non-excisable goods for sale, with the manufacture of the beer undertaken solely for the purpose of achieving that end. Notwithstanding that the entity does not manufacture beer for sale, the beer is an excisable good on which duty is imposed. Pertinent to this entity then, is whether the Excise Act or Excise Tariff Act contains a provision allowing the Commissioner to give permission to the entity to use the beer without paying duty. Section 77D of the Excise Act allows for the delivery of certain beer to be used for manufacturing purposes without an entry for home consumption and without paying duty. However section 77D is limited to beer that is unfit for human consumption. That is not the situation in this case. Other provisions of the Excise Act or Excise Tariff Act allow the Commissioner to grant approval to a person to use certain excisable goods for specified purposes. For example, section 77FF of the Excise Act allows the Commissioner to grant approval to a person to use spirits for specified industrial, manufacturing scientific, medical, veterinary or educational purposes. Spirit subject to such an approval is classified to subitem 3.7 in the Schedule to the Excise Tariff Act which attracts a free rate of duty. However, no such provisions have been provided for in the relevant Acts specific to beer. Section 61 of the Excise Act provides that excisable goods are subject to the Commissioner's control until they are delivered for home consumption or for export. Section 61 also provides that a person must not, without permission, move, alter or interfere with goods subject to the Commissioner's control. Section 24 of the Excise Act may allow for excisable goods to be used in the manufacture of other excisable goods. However as the entity is using an excisable good to manufacture a food product which is not excisable, section 24 will not apply. In the absence of a similar provision allowing the use of excisable goods in the manufacture of non-excisable goods, it can be inferred that Parliament has not intended for such manufacturing processes to be allowed without the entity being required to pay duty on those goods. There are two ways in which the entity may account for the beer and pay the requisite duty. Section 58 of the Excise Act allows entries to be made in respect of excisable goods, and for Excise officers to pass the entries, thereby authorising the removal of the goods for home consumption. Alternatively, entities may seek permission under section 61C of the Excise Act to deliver the goods for home consumption without entering the goods. In both instances the beer must be classified to the appropriate subitem in the table in the Schedule to the Excise Tariff Act and excise duty paid accordingly. Therefore an entity that manufactures beer cannot use the beer in the manufacture of non-excisable products without paying the appropriate excise duty on the beer.

Legislative references: Excise Tariff Act 1921 section 5 Item 1 in the Schedule
Subject references: Alcohol Alcohol excise Beer Beer excise Excisable goods Excisable goods manufacturer Excise Licensing