Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise Duties and Taxes Division
Place de Ville, Tower A, 20th floor
320 Queen Street
Ottawa, ON K1A 0L5
Case Number: 115243
XXXXX
XXXXX
XXXXX
XXXXX
August 11, 2009
Attention: XXXXX
Dear Sir:
Subject:
EXCISE INTERPRETATION
Manufacturer "E" Licence
Thank you for your letter of XXXXX concerning the concept of "manufacturer" for the purposes of the Excise Tax Act (ETA) as it relates to obtaining and using a Manufacturer "E" Licence.
All legislative references are to the ETA and the regulations therein, unless otherwise specified.
Statement of Facts
We understand that:
1) Your client, XXXXX is a Canadian-incorporated and resident subsidiary of a XXXXX group of companies (XXXXX Group);
2) XXXXX purchases different types of bio-diesel from suppliers across North America to blend with other bio-diesel and fossil fuels in its leased XXXXX storage, blending and transfer facility;
3) XXXXX purchases B100 bio-diesel from Canadian suppliers and imports B99.9 from US suppliers to blend with other bio-diesel and fossil fuels;
4) XXXXX purchases B100 tallow (animal fat-based) methyl esthers (TME), B99.9 soy (vegetable-based) methyl esthers (SME), B99.9 canola (vegetable-based) methyl esthers (CME), and B99.9 corn (vegetable-based) methyl esthers (CMME);
5) XXXXX blends certain additives such as anti-oxidants or anti-gelling agents into the bio-diesel to derive new bio-diesel products to sell to different markets and customers; and
6) XXXXX blends fossil fuel diesel into the bio-diesel blends to achieve a new product that contains a significantly smaller percentage of bio-diesel (i.e. B20 through B80).
Interpretation Requested
You would like to know whether XXXXX is a manufacturer/producer and is considered to be manufacturing bio-diesel and blends of bio-diesel under the following scenarios:
1) XXXXX blends bio-diesel and fossil fuel diesel;
2) XXXXX blends different source products (TME, SME, CME, CCME) of pure bio-diesel or any blend less than B100;
3) XXXXX blends two similar source products where one is B100 and the other is B99.9 (e.g. B100 bio-diesel CME with a B99.9 bio-diesel CME) or a lesser blend of bio-diesel;
4) XXXXX combines identical raw material feedstock bio-diesel types such as existing volume of B99.9 SME (already in blending tank) with a new volume of B99.9 SME and special additives are mixed into the blend to improve the overall performance of the resulting product;
5) XXXXX blends bio-diesel when combining identical raw material feedstock bio-diesel types such as an existing volume of B99.9 SME (already in blending tank) with a new volume B99.9 SME and no other additives are mixed into the blend.
Interpretation Given
Based on the information provided
In scenarios 1) to 4) above, XXXXX can use its Federal Excise Tax (FET) manufacturers licence to purchase and import otherwise FET-taxable source fuels (bio-diesel or fossil-based diesel) on an FET-exempt basis.
In scenario 5), XXXXX is not considered to be a manufacturer, and must purchase or import the source fuels on a FET-inclusive basis. However, if an application under section 48 is submitted by XXXXX and approved by the minister to consider the goods to be "similar goods", than the fuel could be purchased on a FET-exempt basis as well.
Explanation
In the definitions in Subsection 2(1) of the ETA, a "manufacturer or producer" includes
"(f) any person, who, by himself or through another person acting for him, prepares goods for sale by assembling, blending, mixing, cutting to size, diluting, bottling, packaging or repackaging the goods or by applying coatings or finishes to the goods, other than a person who so prepares goods in a retail store for sale in that store exclusively and directly to consumers."
Although the term "manufacture" is not defined in the ETA, the Supreme Court of Canada in its decision on the case of York Marble Tile & Terrazzo Ltd. v The Queen (1966) refers to manufacture as "the production of articles for use from raw or prepared materials by giving to these materials new forms, qualities & properties ...".
In 1) to 3) presented above, XXXXX blends the various products to obtain a product that has new qualities and properties that suit a particular customer's requirements. In 4), certain additives are combined with the bio-diesel to produce a different end product with properties that customers desire, i.e. improved performance in colder climates. In all of these scenarios, XXXXX manufactures a new product.
In 5), new volumes of bio-diesel are mixed with existing volumes of the same product. The resulting product would not be considered to have been "manufactured" as it would not exhibit any new forms, qualities or properties.
ss 23(1) "Subject to subsection (6) to (8), whenever goods mentioned in Schedule I are imported or are manufactured or produced in Canada and delivered to a purchaser of those goods, there shall be imposed, levied and collected, in addition to any other duty or tax that may be payable under this or another other law, an excise tax in respect of the goods at the applicable rate set out in the applicable section of that Schedule, computed, if that rate is specified as a percentage, on the duty paid value or the sale price, as the case may be."
The definition of diesel fuel provided in subsection 2(1) is as follows: "diesel fuel includes any fuel oil that is suitable for use in internal combustion engines of the compression-ignition type, other than any such fuel oil that is intended for use and is actually used as heating oil". Bio-diesel is considered to be diesel fuel for purposes of the ETA and the current rate of excise tax is 4 cents per litre as per s. 9.1 of Schedule I.
ss 23(2) "Where goods are imported, the excise tax imposed by subsection (1) shall be paid in accordance with the provisions of the Customs Act by the importer, owner or other person liable to pay duties under that Act, and where goods are manufactured or produced and sold in Canada, the excise tax shall be payable by the manufacturer or producer at the time of delivery of the goods to the purchaser thereof."
Paragraph 23.5(2) of the ETA, which provided for an excise tax exemption for bio-diesel fuel, was repealed, effective April 1, 2008. Persons who produce bio-diesel fuel, and whose sales volume exceeds $50,000 per calendar year, are now required to obtain an excise tax manufacturer's "E" licence, file monthly returns, and remit excise tax on any sales of bio-diesel fuel. Persons whose annual sales of taxable goods are less than $50,000 qualify as small manufacturers and have the option to apply for a licence.
ss 23(7) "The tax imposed under subsection (1) is not payable in the case of
(a) goods that are purchased or imported by a manufacturer licensed for the purposes of this Part and that are to be incorporated into and form a constituent or component part of an article or product that is subject to excise tax under this Act, if the tax on the article or product has not yet been levied under this section; or ..."
The manufacturers' "E" licence may be used as the basis for quoting a certificate of exemption. Persons holding "E" licences may purchase under a certificate of exemption, or import goods under the appropriate tax exemption code without payment of excise tax, where the goods so purchased or imported are to be incorporated into and form a constituent or component part of an article that is subject to excise tax (i.e. partly manufactured goods).
ss 48(1) "Any licensed manufacturer may make an application in writing to the Minister to be considered, for the purposes of this Act, as the manufacturer or producer of all other goods, in this section and section 49 referred to as "similar goods", that the licensed manufacturer sells in conjunction with his sales of goods of his manufacture or production in Canada or that are of the same class as goods the licensed manufacturer manufactures or produces in Canada."
Sections 48 and 49 of the ETA provide the authority for any licensed manufacturer who acquires, for resale purposes only, goods that complement or are of the same class as goods of its manufacture, to apply to the Minister to be considered as the manufacturer of such similar goods and hence to account for tax on its sales of these "similar goods" in the same way as it does on sales of goods of its production.
In order to obtain a section 48 authorization, a licensee must meet certain criteria. The applicant's dollar sales volume of similar goods, during the twelve months immediately preceding the application, must be twenty-five per cent or less of its sales value of goods of its manufacture or production in Canada. These dollar volumes refer to goods subject to excise tax.
ss 64(1) "Every person who is required under Part III to pay taxes shall, from time to time as required, under the regulations, apply for a licence in respect of that Part.
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 ETA and its 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) 954-4132.
Yours truly,
Joan Thompson
Rulings Officer
Excise Taxes and Other Levies
Excise & GST/HST Rulings Directorate
UNCLASSIFIED
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