30 November 2007 Excise Interpretation 88378 - Information on Excise Tax Drawback Claims

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 concerning the application of the Excise Tax Act (ETA) to the operations of XXXXX. We apologize for the delay in responding.

In your XXXXX, you have asked the Canada Revenue Agency (CRA) to clarify several points with regards to the eligibility of filing Federal Excise Tax (FET) drawback and refund claims for aviation fuel supplied as ships' stores for international flights.

Prior to responding the specific issues raised in your XXXXX, I would like to outline the relevant legislative provisions.

Imposition of FET

Subsection 23(1) of the Excise Tax Act (ETA), subject to subsections (6) to (8), imposes excise tax on items listed in Schedule I to the ETA, at the rate specified in the Schedule. Section 9.1 of Schedule I to the ETA specifies a tax rate of $0.04 per litre on aviation fuel.

As a licensed manufacturer under the ETA, XXXXX is required to remit, to the CRA, FET on sales of motive fuel products including aviation fuel.

Ships' Stores

Paragraph 59(3.2)(a) of the ETA provides that the Governor in Council may make regulations designating certain classes of goods as ships' stores for use on board a conveyance of a prescribed class.

Subsection 3(1) and Item 4 of the Schedule to the Ships' Stores Regulations designate petroleum products, which includes aviation fuel, as ships' stores for use on board an international aircraft. Subsection 2(1) of the Ships' Stores Regulations defines an international aircraft to mean "an aircraft operating internationally in the transportation of passengers or goods, or both, for reward". Aviation fuel purchased by your clients for use in international flights would qualify to be taken on as ships' stores.

In order to recover the FET on goods designated as Ship's Store, an application for either a drawback or refund must be submitted to the CRA.

Drawback for Ships' Stores

Paragraph 70(1)(b) of the ETA states that "On application, the Minister may, under regulations of the Governor in Council, grant a drawback of the tax imposed under Part III and paid on or in respect of goods supplied as ships' stores."

Section 4 of the Goods for Ships and Aircraft (Excise) Drawback Regulations provides that a drawback may only be claimed by the person who supplied the goods as ships' stores. As such, XXXXX, as the supplier of the aviation fuel, would be eligible to file for a drawback.

In order to receive a drawback for aviation fuel used as ships' stores, XXXXX would be required, in accordance with section 5 of the Goods for Ships and Aircraft (Excise) Drawback Regulations, to submit a request to the CRA within four years after the taxes were paid on the aviation fuel.

Refund for Ships' Stores

Section 68.17 of the ETA provides that "If tax under Part III has been paid in respect of any goods and a manufacturer, producer, wholesaler, jobber or other dealer has sold the goods for use as ships' stores, an amount equal to the amount of that tax shall, subject to this Part, be paid to that dealer if that dealer applies for it within two years after that sale of the goods." Therefore, XXXXX would be entitled to a refund of FET on aviation fuel sold for use as ship's stores.

I will now respond to the points raised in your XXXXX in the order presented.

Point 1 – Our current understanding is that a 2 year timeframe is allowed for processing of Ships' Stores N15 claims plus a further 2 year timeframe (or 4 years retroactive) allowed for drawback claims. Please confirm.

A drawback under section 70 of the ETA and a refund under section 68.17 of the ETA are considered to be separate and distinct methods of recovering the FET for aviation fuel sold/supplied for ships' stores. As indicated above, a drawback application can be made within 4 years after the FET was paid on the aviation fuel supplied, whereas, refund claim can be filed within 2 years after the sale of the aviation fuel. Either a refund request or a drawback claim can be submitted for their respective eligible time period.

Point 2 – Our current understanding is that the process to file Drawback Claims is to submit the N15 form with the reason of 'Drawback Claim'. The Drawback should be submitted to the same CRA contacts currently administering N15 claims for Ships' Stores. Please confirm.

Form N15 with the reason of 'Drawback Claim' should be submitted to the CRA at the following address.

Excise Tax Unit
Summerside Tax Centre
Suite 101, 275 Pope Road
Summerside PE C1N 6E7

Point 3 – If N15 claims submitted under ships' stores were adjusted by CRA for the portion of the claim that was outside the current 2 year timeframe, can these adjustments now be claimed as drawback claims? If so, what process would be required to submit drawback claims?

Where a refund for ships' stores, that was made under section 68.17 of the ETA, was adjusted due to the fact that part of the claim period was outside the 2 year filing limit, a separate and subsequent claim may be made for a drawback, under section 70 of the ETA, for the adjusted period provided that it is submitted within 4 years after the FET was paid on the aviation fuel sold as ships' stores. Since the drawback is separate from the refund request, XXXXX may be required to re-submit similar documentation to support their claim.

Please see the response to point number 2 for information on submitting a drawback.

Point 4 – If N15 claim submitted under ships' stores were adjusted by CRA for the portion of the claim that was outside the current 2 year timeframe, and they no longer meet the timeframe requirements for process drawback claims, but did at the point in time that CRA made the adjustments, would the drawback claim still be processed if all of the documentary requirements were met?

The CRA would not allow a substitution from a request for refund to a drawback in order to allow for the period that was adjusted outside the 2 year timeframe. If a separate drawback claim was not submitted within the allowable time period, no further consideration would be given.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-5899.

Yours truly,

Darren Weiner
Excise Tax and Other Levies Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate

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