24 March 2006 Excise Interpretation 78343 - Importation of Denatured and Undenatured 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 XXXXX letter to Joy Piepjohn XXXXX concerning your company's proposed importations of packaged alcohol, as well as denatured alcohol and "reagent grade" alcohol, for purposes of resale to laboratories.

Your letter to Ms. Piepjohn explained that the denatured alcohol would either qualify as denatured alcohol under the Denatured and Specially Denatured Alcohol Regulations or as "reagent grade" alcohol that has been denatured with 5% methanol and 5% isopropyl alcohol.

Our response to your letter addresses only those matters that relate to the Excise Act, 2001, the Customs Tariff provisions that relate to provisions of the aforementioned Act, and the Importation of Intoxicating Liquors Act. Any information you require in respect of the applicable tariff items for the proposed importations must be obtained from the Canada Border Services Agency. Also, you should contact the XXXXX for information regarding any possible restrictions under provincial legislation.

Statement of Facts

Our understandings of the facts are as follows:

1. XXXXX and its subsidiaries, including XXXXX, sell biochemical and organic chemical products and kits used in scientific and genomic research, biotechnology, pharmaceutical development, and other scientific and technological uses.

2. XXXXX holds business number XXXXX, but it does not have an excise duty licence under the Excise Act, 2001 or the Excise Act.

3. XXXXX proposes to import packaged spirits of between XXXXX and XXXXX proof, in containers of fewer than XXXXX litres, and packaged denatured alcohol, for resale in Canada. Both the spirits and the denatured alcohol are intended for laboratory use.

4. The company is also considering importations of "reagent grade" alcohol for sale to laboratories. This substance is understood to be comprised mainly of ethyl alcohol, but would also contain 5% methanol and 5% isopropyl alcohol.

Interpretation Requested

Your letter raised the following questions:

(1) Is the importation into Canada of undenatured and denatured alcohol allowed?

(2) If such importations are allowed, does XXXXX require a licence?

(3) Does XXXXX require a permit for such importations?

(4) XXXXX understands that "reagent grade" alcohol that is denatured with 5% methanol and 5% isopropyl is an "approved formulation". Are there any restrictions on activities using an approved formulation?

Interpretation Given

The direct importation by your company of packaged spirits that are intended for laboratory uses would be permitted under section 8 of the Importation of Intoxicating Liquors Act.

Your company's importations of packaged spirits for purposes of resale would, however, be subject to the additional duty equal to excise duty that is imposed under subsection 21.2(1) of the Customs Tariff, at the rate of $11.066 per litre of absolute ethyl alcohol. There is no provision under the Excise Act, 2001 that restricts the possession of duty-paid packaged spirits. However, you must also check with officials at the XXXXX about any restrictions that they have on the importation and distribution of spirits in XXXXX.

Denatured alcohol that is a recognized DA grade under the Denatured and Specially Denatured Alcohol Regulations, and that fully meets the specifications set out in Schedule I to the said Regulations, is not subject to excise duty under the Excise Act, 2001. As well, denatured alcohol is not subject to the additional duty equal to excise imposed under the Customs Tariff. The Excise Act, 2001 requires no licence or permit for anyone to import or possess DA.

The "reagent grade" alcohol you described in your letter does not meet the specifications of any of the grades of DA or SDA that are outlined in the Denatured and Specially Denatured Alcohol Regulations. However, if it were imported into Canada it might qualify as an "approved formulation" under paragraph (b) of that term, as set out under section 2 of the Excise Act, 2001. Persons who import substances that are regarded as "approved formulations" under that provision are not required to be licensed or to obtain a permit under the Excise Act, 2001. There are also no limitations set out under the Act concerning the end-uses of "approved formulations".

Explanation

No licence or permit is required under the Excise Act, 2001 to import or possess packaged spirits that have been duty-paid, as there is no limitation under the Act with respect to the possession of duty paid spirits. Furthermore, section 8 of the Importation of Intoxicating Liquors Act does not limit or forbid the importation of alcohol that is intended for manufacturing or commercial purposes, as long as it is not for the manufacture of or use as beverage alcohol. As well, there are no provisions in the Excise Act, 2001 that set restrictions as to who may import or possess denatured alcohol that fully meets the criteria of one of the DA grades listed under the Denatured and Specially Denatured Alcohol Regulations.

It should be noted, however, that if your company intends to import packaged spirits that are intended for sale to persons who are either licensed users or registered users under the Excise Act, 2001, such persons are entitled to obtain and possess non-duty paid packaged spirits. For that reason, your company might wish to consider applying for an excise warehouse licence under the Act, since such a licence would allow the company to import and possess non-duty paid packaged spirits. However, in addition to meeting the requirements for an excise duty licence under the Regulations Respecting Excise Licences and Registrations, you would also have to be authorized by the XXXXX to warehouse packaged alcohol in XXXXX. A copy of Excise Duty Memorandum 8.1.1, Excise Warehouses, is enclosed with this letter for further information.

The "reagent grade" alcohol that you described in your letter contains the same substances - methanol and isopropyl alcohol - and in roughly the same proportions as US grade SDA 3-A, which is recognized in the United States under regulations administered by the Bureau of Alcohol, Tobacco and Firearms. However, it is not a recognized grade of specially denatured alcohol under the Denatured and Specially Denatured Alcohol Regulations under the Excise Act, 2001.

The definition of "approved formulation" under section 2 of the Act provides for the following:

"any imported product that, in the opinion of the Minister, would be a product under paragraph (a) if it were made in Canada by a licensed user."

In order to determine with certainty as to whether this "reagent grade" alcohol would qualify as an "approved formulation" under paragraph (b) of the definition in the Excise Act, 2001, you would have to submit a sample of the substance to the Laboratory and Scientific Services Directorate of the Canada Border Services Agency for their analysis. Please refer to Excise Duty Memorandum 1.1.6 - Formulation Approval Process, for further information in this regard, and to the form Y15A. Both the ED Memorandum and the form are enclosed with this letter.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the Excise Act, 2001, its regulations, or our interpretative policy could affect this interpretation.

If you have any questions with respect to this letter, please feel free to contact me at (613) 954-4208 or Steve Mosher at (613) 941-1497.

Sincerely,

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

2006/02/02 — RITS 52964 — [Application of Excise Tax on Blended Gasoline Purchased by a Licensed Manufacturer]