22 June 2004 Excise Interpretation 51503 - User's Licence and a Specially Denatured Alcohol Registration

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.

Dear XXXXX:

Thank you for your letter XXXXX addressed to Mark Hartigan, concerning your request to keep your user's licence under the Excise Act, 2001 ("the Act").

Your letter explained the process for which your company purchases ethyl alcohol. The following information is taken from your letter and other details you provided to XXXXX, of our XXXXX office, during the course of his visit to your firm XXXXX. We also obtained information from the findings of the Laboratory and Scientific Services Directorate ("the laboratory"), based on their analysis of samples of contaminated alcohol taken from your process and submitted to them XXXXX.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX holds both a user's licence XXXXX and a specially denatured alcohol registration, both issued effective July 1, 2003.

2. Your company purchases or imports ethyl alcohol for sole use in its solvent extraction process for the cosmetic product it is now developing. This product is intended for XXXXX and is known as XXXXX.

3. XXXXX purchased XXXXX drums of ethyl anhydrous alcohol from XXXXX and made a further XXXXX drum purchase of such alcohol from that company in XXXXX.

4. The process used by XXXXX involves the blending of one drum of the anhydrous alcohol with one other ingredient, the identity and quantity of which you were unwilling to disclose to us. The process then involves taking approximately XXXXX litres of the blended substance to put through the solvent recovery system that separates the product into alcohol and a black greasy substance. The latter substance is then used in the manufacture of your company's XXXXX product.

5. The separated and reclaimed alcohol is then dumped back into the drum of pre-blended alcohol (mixed with the unidentified ingredient) for re-use.

6. Small amounts of alcohol are lost to incidental evaporation and accidental spills, but almost all of it is reused in the process described above.

7. While XXXXX litre drums of alcohol have already been entered into the company's process, XXXXX others that you have purchased are about to be brought into use to expand your processing capacity. Additional repurchasing of ethyl alcohol by your company would be for the purposes of further expanding the processing capacity, though about XXXXX L drum would be needed every two years to replace the alcohol lost due to evaporation and spillage.

8. Your company wants to refine its processing operation to limit alcohol losses even further than they have been until now.

9. The samples of contaminated alcohol taken following the solvent extraction process, as analyzed by the laboratory staff, found the alcohol to be a XXXXX, but it was not possible to determine the quantity of the compounds. The laboratory also determined, in answer to the questions raised by XXXXX, that XXXXX.

10. Your company has not applied for an approved formulation for the XXXXX product, as you were not willing to disclose to us the product formula. However, you also indicate that this product does not contain any alcohol.

Ruling Requested

You have requested that your company's user's licence be maintained.

Ruling Given

On the basis of the above understandings, we have no grounds on which to cancel your company's user's licence, and no such action will be taken. Your company may continue to obtain bulk or packaged spirits under its user's licence without payment of excise duty.

Your request did not specifically ask us to rule on the question as to whether your company's solvent extraction process described to us constitutes a destruction of alcohol for the purposes of the provisions of the Act. However, it is our ruling that the way in which your company uses the bulk alcohol does qualify as "... a process in which the absolute ethyl alcohol is destroyed to the extent approved by the Minister" under the provisions of paragraph 73(b) of the Act, which therefore allows you to use the bulk ethyl alcohol without payment of excise duty.

We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal under the provisions of the Act and that there are no relevant changes in the future to the Act or to our interpretative policy; and that you have fully described all the necessary facts on which this ruling has been issued and for which the alcohol samples were received by the laboratory for testing.

Explanation

The sample of contaminated alcohol taken at the end of your solvent extraction process and analyzed by the laboratory resulted in a determination that it could not be rendered potable through re-distillation. Therefore, it is our view that the ethyl alcohol is destroyed for the purposes of the Act. A copy of the laboratory's report is enclosed with this letter.

We have noted the fact that your company did not act in compliance with the Act when it omitted to ask us to approve its process before using the ethyl alcohol that was purchased under its user's licence. Such non-compliance could result in an assessment on the quantities of alcohol already used prior to this ruling. Also, please note that this ruling is based only on our understandings of your company's process, as described to us, and does not apply to any future processes or alterations to the existing process.

For any new processes in which you might plan to use ethyl alcohol or for any alterations of the existing process, we ask that you seek our advance approval to determine whether the alcohol is indeed destroyed "... to the extent approved by the Minister." Also, if you wish to use ethyl alcohol on a duty-relieved basis to produce an end-product, you must seek advance approval for an "approved formulation", which would require the submission of samples and a complete description of the product formula to us and to the laboratory for their examination and recommendation.

Should you require further information on this matter, please do not hesitate to contact me at (613) 954-4208, or Steve Mosher, at (613) 941-1497.

Sincerely,

Ron Hagmann
A/Manager
Excise Duty Operations - Alcohol
Excise Duties and Taxes Division

Attachment

2004/06/30 — RITS 52235 — Request to Increase the Purchasing Size for Homeopathic Remedies