4 October 2005 Excise Interpretation 59529 - Application of Excise Tax to Modular Links

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

Statement of Facts

1. XXXXX is a construction company providing general contracting, excavation, water and sewer, road construction, and directional drilling services.

2. XXXXX is not licensed for excise tax purposes.

3. While doing construction work in quarries and temporary quarries throughout XXXXX, XXXXX uses specialized rock-crushing units. The purpose of the rock-crushing units is for the manufacturing of rock aggregate.

4. You have described and provided pictures of two types of rock-crushing units. One type of unit is on tracks and is self-propelled. This type of unit moves to the source of the raw material. The other type of unit is fixed in place. Raw material has to be moved to this type of unit.

5. The rock-crushing units are equipped with a diesel engine that generates electricity in order to power the hydraulic pumps of the machine.

Interpretation Requested

You would like to know whether the diesel fuel used by the diesel engine of the mobile rock-crushing unit to generate electricity would qualify for an excise tax refund.

Interpretation Given

Subsection 23(1) of the ETA 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 diesel fuel. Diesel fuel is defined in subsection 2(1) of the ETA to include "... any fuel oil that is suitable for use in internal combustion engines of the compression-ignition type, other than any such fuel that is intended for use and is actually used as heating oil."

Paragraph 23(8)(c) of the ETA provides for an exemption of excise tax on diesel fuel for use in the generation of electricity, except where the electricity so generated is used primarily in the operation of a vehicle.

The word "vehicle", for purposes of the above noted exemption, has broad meaning referring to carriages and conveyances of all kinds which are used to carry or transport persons or goods. The term "operation of a vehicle" also has a broad meaning with respect to the overall functioning of the vehicle.

Based on the pictures you have supplied with your letter, it would appear that a mobile rock-crushing unit would fall within the broad meaning of a vehicle. This type of machine has tracks on the bottom of the unit, which allows for mobility and is self-propelled. The purpose of the unit is to crush large boulders and to move the resulting aggregate rock into either a truck or placed into a pile.

The electricity generated by the diesel engines on the unit is being used primarily in the operation of the vehicle, since the electricity generated is being used almost exclusively to power the hydraulic pumps of the unit.

Therefore, a refund on excise tax for diesel used in the generation of electricity would not be available since the mobile rock-crushing unit would be considered to be a vehicle and the electricity generated by the diesel engine on the unit is used primarily in the operation of the vehicle.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-6718.

Yours truly,

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

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