ATO ID 2006/281: Petroleum : blend of fuels - blend cannot be used in an internal combustion engine in its pure form - capable of use as a fuel extender
Date of decision: 25 September 2006
Business line: Indirect Tax

Issue
Can a blend of fuel and other substances be 'used as fuel in an internal combustion engine' for the purposes of subitem 10.30 of the Schedule to the Excise Tariff Act 1921 (the Schedule), if the blend cannot be used in an internal combustion engine in its pure form, but is capable of use as a fuel extender?

Decision
No. A blend of fuel and other substances cannot be used as fuel in an internal combustion engine for the purposes of subitem 10.30 of the Schedule, if the blend cannot be used in an internal combustion engine in its pure form, but is capable of use as a fuel extender.

Facts
A licensed excise manufacturer blends fuel with other substances. The resultant blend is intended for various uses but cannot be used in its pure form in an internal combustion engine. However, the blend may be used as a fuel extender. That is, if the blend is mixed with other fuel, the resultant mix can be used as fuel in an internal combustion engine.

Reasons for decision
Summary: Subitem 10.30 of the Schedule covers blends of one or more fuels (with or without other substances), not elsewhere included under item 10, that can be used as fuel in an internal combustion engine (other than goods covered by section 77J of the Excise Act 1901 ). The particular blend that is manufactured by the licensed manufacturer cannot be used in its pure form as a fuel in an internal combustion engine. Given subitem 10.30 of the Schedule refers to blends 'that can be used as fuel in an internal combustion engine', it is necessary to consider whether that blend alone fulfils this test. In this instance, the blend does not, as it cannot be used as fuel in an internal combustion engine in its pure form. The fact the blend can be used as a fuel extender does not change the fact that the blend itself cannot be used as fuel in an internal combustion engine. If the blend is used as a fuel extender, this will necessarily involve the mixing of the blend with other fuel(s). This mixing will constitute the creation of a new blend, distinct from the original blend being manufactured by the licensed manufacturer. While the new blend (containing the original blend plus fuel) can be used as fuel in an internal combustion engine, and will therefore be classifiable to subitem 10.30 of the Schedule, this does not alter the fact that the original blend being manufactured by the licensed manufacturer cannot be used as fuel in an internal combustion engine and therefore cannot be classified to the same sub-item. Therefore, a blend of fuel with other substances cannot be used as fuel in an internal combustion engine for the purposes of subitem 10.30 of the Schedule if it cannot be used in an internal combustion engine in its pure form, regardless of the fact that it may be used as a fuel extender.

Legislative references: Excise Tariff Act 1921 Schedule, subitem 10.30
Subject references: Excisable goods manufacturer Fuel blending Not for use in an internal combustion engine Fuel extender