10 June 2004 Excise Ruling 42264 - Cooking Wines

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:

This refers to your facsimile transmission XXXXX, to XXXXX concerning your eligibility for an excise duty drawback pursuant to paragraph 135(2)(a) of the Excise Act. We apologize for the delay in responding to your letter.

Please note that the Excise Act, 2001 has now become law and was implemented effective July 1, 2003. As a result, all legislative provisions under the Excise Act relating to excise duty drawbacks on spirits have become obsolete effective July 1, 2003. However, your request concerning your eligibility for such a drawback is being considered under the legislative provisions that were in effect at the time of your request.

The following information is taken from your facsimile transmission, your telephone conversation with XXXXX of the Excise Duty XXXXX Region and subsequent telephone conversations you had with Mr. Don Gibbons of this office.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX is a corporation registered under XXXXX for purposes of commercial activities supplied in Canada.

2. XXXXX is a biotechnical company that was spun off from the XXXXX. The XXXXX has retained a XXXXX% shareholding in XXXXX, which entitles the XXXXX to XXXXX% of the dividends XXXXX produces.

3. XXXXX was originally located on the XXXXX and also received technical assistance from the XXXXX laboratory up until XXXXX. Later in XXXXX XXXXX relocated its business from the XXXXX because their access to the laboratory was insufficient to meet their contractual obligations.

4. XXXXX purchases ethanol and the federal excise duty is included in the total amount paid. XXXXX uses the ethanol in a process to extract and isolate DNA molecules from animal tissue, mostly air. The animal tissue is first chemically digested with enzymes, releasing the DNA from the cells. Ethanol is then added to the chemical solution causing the DNA molecules to precipitate out of the solution, thereby allowing it to be separated from the mixture of chemical and organic materials by a filtration process. The ethanol remains in solution with the other chemicals and organic material and is discarded into a waste receptacle which is in turn disposed of through the regular garbage disposal system.

5. XXXXX performs DNA fingerprinting research to confirm the parentage, species and gender of wildlife. XXXXX research forms the genetic database used in the support and management of wildlife populations. The resulting data from their research forms the basis for various governmental publications concerned with animal populations such as setting and monitoring provincial hunting quotas, identifying animals that have attacked humans and establishing where endangered species are currently distributed.

6. XXXXX had most of its commercial contracts with provincial agencies, US agencies, XXXXX, XXXXX and the XXXXX. XXXXX had other smaller contracts with wildlife breeders (game farmers) for whom XXXXX certifies pedigrees. From XXXXX to XXXXX, a total of $XXXXX of business revenues are derived from the above contracts.

7. XXXXX received research grants from the Industrial Research Assistance Program (IRAP) through the National Research Council of Canada, however these grants were discontinued in XXXXX.

8. XXXXX supplies its results to various managers, researchers and breeders from the above-mentioned contracting agencies. These agencies incorporate these results in their own agency reports or scientific publications, which are then made available to the public.

Ruling Requested

XXXXX you would like to know whether XXXXX is eligible to receive an excise duty drawback pursuant to paragraph 135(2)(a) of the Excise Act on the purchase of ethanol used in its research activities.

Ruling Given

Based on the facts set out above, it is our ruling that XXXXX is not eligible to receive an excise duty drawback pursuant to paragraph 135(2)(a) of the Excise Act. For your information, we also reviewed the other provisions of subsection 135(2) of the Excise Act and assessed XXXXX eligibility under those provisions.

We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to our interpretative policy; and that you have fully described all necessary facts and products for which you requested this ruling.

Explanation

Paragraphs 135(2)(a) and (b) of the Excise Act stipulate that

"(2) A drawback of ninety-nine per cent of the duty paid pursuant to subsection (1) on spirits testing not less than eighty-five per cent absolute ethyl alcohol by volume that are sold and delivered, with the approval of the Minister and in such limited quantities as are prescribed by him, may be granted, under departmental regulations, to a distiller or to any person purchasing spirits from a board, commission or other government agency that the law of a province is empowered to sell spirits, when the spirits are sold and delivered,

(a) for scientific purposes only,

(i) to any scientific and research laboratory in receipt annually of aid from the government of Canada or a province, or

(ii) to any university or other educational institution at which courses recognized by the government of a province in which the institution is situated to be of post-secondary level are taught;

(b) to any person for the purposes of scientific research, the results of which are regularly made available to the public without charge;"

For purposes of explanation, subparagraphs 135(2)(a)(i) and (ii) of the Excise Act may be divided into two separate criteria that limit who may have qualified under those provisions:

•   pursuant to subparagraph 135(2)(a)(i) XXXXX does not qualify. Although XXXXX is a scientific and research laboratory, as of XXXXX it did not receive aid (i.e., grants) from the Government of Canada or from a province.

•   pursuant to subparagraph 135(2)(a)(ii) XXXXX does not qualify. XXXXX is not considered to be an educational institution for purposes of courses taught at a university or other educational institution.

XXXXX also does not qualify pursuant to paragraph 135(2)(b). Although XXXXX uses spirits for scientific research, XXXXX does not qualify because the resulting work is not regularly made available to the public withought charge. XXXXX provides research results to other contracting agencies, which in turn include the results in their own technical publications.

Should you have any further questions or require clarification on the above matter, please call me at (613) 954-4208.

Yours truly,

Ron Hagmann, CGA
A/Manager
Excise Duty Operations - Alcohol Unit
Excise Duties and Taxes Division
Excise and GST/HST Directorate

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