7 December 2006 Excise Interpretation 81764 - Excise Duty Implications of Specially Denatured Alcohol

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 concerning your client, XXXXX, and the excise duty implications of certain products that it has imported. We regret the delay in responding to your request.

Your letter, accompanied by several attachments, requested that we provide your client with information on the excise duty implications of XXXXX different substances, XXXXX. XXXXX.

Statement of Facts

Our understanding of the facts is as follows:

(1) XXXXX.

(2) XXXXX has its head office in XXXXX and XXXXX locations across Canada XXXXX. XXXXX.

(3) XXXXX holds a registration for specially denatured alcohol (SDA) under the Excise Act, 2001 ("Act"), that allows the company to purchase or import SDA grades (as recognized under the Denatured and Specially Denatured Alcohol Regulations) for sole use in its own processes.

(4) XXXXX the CBSA's Trade Compliance Division office XXXXX issued an advance ruling that pertained to importations of XXXXX denatured alcohol products. Through that ruling, which was issued under the provisions of paragraph 43.1(1)(c) of the Customs Act, the CBSA determined that each of the XXXXX products to be classified under Tariff Item 2207.20.19.00 of the schedule to the Customs Tariff.

(5) Tariff Item 2207.20.19.00 of the schedule to the Customs Tariff covers "Ethyl alcohol and other spirits, denatured, of any strength, other".

(6) The advance ruling letter from the CBSA referred to a report made by the Laboratory and Scientific Services Directorate (LASS) of that Agency, in which that directorate stated that none of the products ruled upon met the specifications of the Denatured and Specially Denatured Alcohol Regulations that were made under the Act. The letter also stated that LASS considered each of the products covered by the ruling from the CBSA to be an "approved formulation" under section 2 of the Act.

(7) The following descriptions in paragraphs #8 to #22, inclusive, relate to the products for which we have been asked to advise as to their excise duty implications. The tab numbers in the attachments to your letter are included for ease of reference. The products described in paragraphs XXXXX were the subject of the advance ruling from the CBSA concerning their tariff classification. It is our understanding that no ruling letter has been issued by the CBSA to your client in respect of the products described in paragraphs XXXXX.

(8) XXXXX

(9) XXXXX

(10) XXXXX

(11) XXXXX

(12) XXXXX

(13) XXXXX

(14) XXXXX

(15) XXXXX

(16) XXXXX

(17) XXXXX

(18) XXXXX

(19) XXXXX

(20) XXXXX

(21) XXXXX

(22) XXXXX

Ruling Requested

XXXXX has requested that the Excise Duty Operations - Alcohol section of the Excise Duties and Taxes Division of the Canada Revenue Agency (CRA) provide them with the excise duty implications for the products described above, and asked that they be applied to all of those products imported for the period XXXXX.

Ruling Given

Based on the review by the Laboratory and Scientific Services Directorate of the CBSA of the certificates of analyses, product sheets and descriptions submitted by XXXXX, the goods described in #8 to #22, above, are not considered to meet the specifications for any of the grades of denatured alcohol (DA) or specially denatured alcohol (SDA) that are set out under the Denatured and Specially Denatured Alcohol Regulations to the Act.

However, based on the same review, all of the same products described in #8 to #22, meet the definition of "approved formulation" under paragraph (b) of the definition of that term in section 2 of the Act. They are, thus, excluded from the definition of "spirits" under the same provision of that Act.

For the period XXXXX to June 30, 2003, none of the importations of the above-described products could be considered to be "approved formulations". However, for importations that took place on or after July 1, 2003, the goods qualify as imported "approved formulations" under the above-mentioned provision of the Act.

The definition of "spirits" under section 2 of the Act specifically excludes, among other things, anything that is considered to be "an approved formulation" under the Act.

If a licensed user had made these products in Canada, they would not be subject to excise duty. Under section 21 of the Customs Tariff, the definition of "spirits" means, among other things, "... spirits as defined in section 2 of the Excise Act, 2001."

Explanation

The Act came into force on July 1, 2003. Paragraph 2(b) of the definition of "approved formulations" recognizes that imported goods may qualify under that definition. "Approved formulations" are not regarded as spirits under the Act, and are not subject to excise duty.

Prior to July 1, 2003, the Excise Act governed alcohol. There was no provision under the Excise Act for "approved formulations" in relation to imported goods.  

Since the definition of "spirits" in section 21 of the Customs Tariff appears to exclude "approved formulations", such goods may not be subject to additional duty equal to excise duty. However, since the additional duty equal to excise duty is a levy that is imposed on spirits under sections 21.1 and 21.2 of the Customs Tariff, any formal decision to grant relief from it must be made by the CBSA. Therefore, any recovery of the additional duty equal to excise duty that has been applied since July 1, 2003 to importations of the goods held to be "approved formulations" by this ruling must also be sought from that Agency.

Should you require further information on this matter, please do not hesitate to contact me at (613) 952-0178, or Steve Mosher, at (613) 941-1497.

Sincerely,

Preston Gallant, CGA
Manager
Excise Duty Operations - Alcohol
Excise Duties and Taxes Division

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