10 July 2003 Excise Interpretation 46393 - Purchase of a Sapphire Gemstone

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 to Mr. Bill Gray of my staff, concerning your purchase of a sapphire gemstone from a regular supplier. I regret the length of time it has taken to provide you with a response to your questions.

Statement of Facts:

1. You purchased the sapphire from a travelling salesman who paid excise tax on the stone at the time of importation. This indicates that your supplier is not licensed for excise tax purposes.

2. When you purchased the stone the invoice was marked "10% excise tax included".

3. When you sold a ring containing the sapphire in question you accounted for excise tax based on the value of the completed ring.

4. Your subsequent application for a refund of excise tax paid on the sapphire was disallowed.

Our Comments:

Under the provisions of the Excise Tax Act, excise tax licensees may purchase goods subject to excise tax for incorporation into goods of their own manufacture, exempt from tax under their license and upon presentation of a certificate of exemption to their licensed supplier.

In addition, when an unlicensed supplier provides excise tax-paid goods to a licensed manufacturer, that supplier will then be eligible to apply for a refund of the tax paid.

The Excise Tax Act is constructed to provide refunds of excise tax, in specific situations, to the person who, by virtue of the legislation, was liable to pay and paid it: in this case to your supplier who paid it at the time of importation and subsequently sold it under conditions which would allow him to claim a refund. We encourage these suppliers to pass on the refund to their customers since they do include it in their calculations to arrive at their selling price, but do not have the authority to compel them to do this. Recourse can only be pursued by you through your supplier.

Consequently, I must confirm the decision by XXXXX of the XXXXX Tax Services Office that there is no legislative basis for a refund of excise tax available to you through the provisions of the Excise Tax Act.

We recognize that excise tax paid by unlicensed suppliers is an element contained in their selling price and unfortunately invoices such as the one you received give the impression that the supplier's customer is actually paying the excise tax.

As I explained above, excise tax would not be collected by the unlicensed supplier at the time of sale of the good because, under the Excise Tax Act, excise tax is not exigible at that time. Excise tax was properly paid by the unlicensed supplier at the time of importation with no further tax being exigible at the time of re-sale of the good.

I appreciate that the excise tax on jewellery in particular is complex and cumbersome and has provided difficulties for those in the jewellery industry. Your request for the abolition of the tax was correctly addressed to the Honourable John Manley, Minister of Finance, who is responsible for matters of tax policy. As you have seen from his response many submissions and studies have concluded that the tax should be repealed.

CCRA must administer the excise tax legislation as it is currently written and cannot therefore excuse any charges which may be outstanding on your current account as you have suggested.

I have forwarded a copy of your letter to the Director of Revenue Collections in the XXXXX Tax Services Offices for investigation into your complaint about the behaviour of XXXXX.

I regret I am unable to provide you with a more favourable response but hope this explanation clarifies the matter for you.

Yours truly,

Douglas A. Rollins
Manager
Excise Taxes and Special Levies
Excise Duties and Taxes Division