Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 20th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 142431
June 27, 2012
Dear [Client]:
Subject: EXCISE INTERPRETATION
[Purchase and Sale of Diesel Fuel]
Thank you for your […][correspondence] of February 16, 2012 concerning the application of the Excise Tax Act to the sale/purchase of diesel between licensees.
All legislative references are to the Excise Tax Act and the regulations therein, unless otherwise specified.
We understand the following:
Company A holds an “E” licence and manufactures off-specification diesel at its refinery.
Company A does not have an authorization under section 48 of the Excise Tax Act (ETA).
Company A acquires diesel from Company B for the purpose of blending (or incorporating) the diesel with its own product to produce on-spec […][XYZ] diesel.
Company B holds an “E” licence and has an authorization under section 48 of the ETA.
Company C holds an “E” licence but does not have authorization under section 48.
INTERPRETATION REQUESTED
You would like to know if excise tax applies in the following 5 scenarios.
1. Company A purchases diesel from Company B for the purpose of blending.
2. Can Company B sell the diesel FET exempt to Company A?
3. When Company A sells the finished product to Company B, can it be sold exempt of FET?
4. When Company A sells the finished product to Company C, can it be sold exempt of FET?
5. When Company A sells the finished product to a customer with no FET exemption, the FET will apply.
INTERPRETATION GIVEN
Based on the information provided, we have the following comments:
1. Paragraph 23(7)(a) allows an “E” licensee to purchase goods exempt of excise tax if the good is to be incorporated into and form a constituent or component part of an article or product that is subject to excise tax.
Blending is an activity that meets the requirement of paragraph 23(7)(a), but in order to be considered “blending” the resulting product must be given new forms, qualities and properties or combinations from the initial product, whether by hand or by machinery. Since Company A blends its own off-spec diesel with Company B’s diesel to produce an on-spec diesel, the activity is considered blending. Consequently, Company A can purchase diesel from Company B tax-exempt.
Company A must provide a certificate of exemption to Company B. Please find below an example of a certificate of exemption
"We certify that the goods ordered hereby are to be used in, wrought into, or attached to taxable goods for sale.
Licence Number E ___________________________
Signature of Purchaser _________________________"
Licensed manufacturers who repeatedly order "partly manufactured goods" by telephone or fax, and who do not issue follow-up written orders, may give to their suppliers, in advance, at intervals not exceeding 12 months, a blanket certificate for such goods in the following form:
"We certify that the goods which we will purchase from you during the period from (date) to (date) are to be used in, wrought into, or attached to taxable goods for sale.
Licence Number E _____________________________
Signature of Purchaser ___________________________"
2. Company B can sell diesel tax-exempt to Company A only if Company A will incorporate the diesel into its own product as mentioned above. Otherwise, Company A must pay excise tax on the purchased diesel.
3. Company A can sell the finish product to Company B tax-exempt as long as the sale is done under Company B’s authorization under section 48.
4. If the diesel is sold as a finished product and is not to be incorporated in the product of Company C, Company A must sell the diesel tax-paid to Company C.
5. When Company A sells the finished product, it must sell it on a tax-paid basis unless an exemption applies, such as:
* The diesel is sold to a licensed wholesaler.
* The diesel is sold to a licensed manufacturer who will further manufacture the diesel or where a section 48 authorization exists.
* The diesel is sold to an end-user for use in the generation of electricity, except where the electricity so generated is used primarily in the operation of a vehicle. The end-user must provide a certificate.
* The diesel is exported from Canada.
* The fuel is sold and used as ships’ stores.
* The diesel is sold as heating oil.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the Excise Tax Act, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 957-4138.
Yours truly,
Nathalie Robitaille
Excise Taxes and Other Levies Unit
Excise Duties & Taxes Division
Excise and GST/HST Rulings Directorate
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