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This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
CONTENTS
Passage History
Petroleum Excise Amendment (Measures to Address Evasion) Bill 2000
Date Introduced: 6 April 2000
House: House of Representatives
Portfolio: Treasury
Commencement: With one minor exception,(1) the Act commences on Royal Assent.
To combat evasion of excise duty occurring through fuel substitution.
The problem of fuel substitution
Historically, excise on petroleum products has been levied at differential rates depending upon the intended end use of the product. Fuels intended for on-road use, such as diesel fuel and unleaded petrol have attracted a relatively higher tariff. Tariffs on fuels sold for non-transport uses, such as heating oils and kerosene, have been levied at a lower rate, and other products sold for non-fuel use, such as solvents, have not attracted any excise duty.
The differential tariff rates have been exploited to avoid excise duty on transport fuels through the substitution of lower excise petroleum products. Besides reducing Government revenue, the practice of blending or substituting fuels for on-road use is potentially dangerous and can cause damage to vehicle engines.
Legislative changes designed to combat substitution were put in place as far back in 1993, and again in 1997.(2) In February 2000, a further round of changes was passed to ratify customs and excise proposals that came into effect in November 1999.(3)
However, by the time of the introduction of the February 2000 legislation, it became evident that some operators in the petroleum industry had reacted to the November 1999 changes by increasing the levels of toluene in fuel.(4) At that time, toluene, when imported as a 'chemical' (eg for use as a paint solvent) attracted no customs duty, whereas if it was imported as 'fuel' it did. It appeared that large quantities of toluene that were nominally imported under the chemical classification were in fact diverted to a fuel use, thus avoiding customs duty.
On 6 March, the Government announced that it would amend the Customs Tariff Act 1995 to make imported toluene and related substances subject to customs duty(5). Sectors such as the paints industry that used these substances for non-fuel purposes (eg as solvents) would receive rebates on customs duty paid. The reaction to the changes was mixed. For example, the Australian Paint Manufacturers Federation reportedly had concern that the proposed rebate system 'would leave companies with cash shortfalls and increase prices'.(6) The Australian Institute of Petroleum commented
Wider reform is [needed] to stop the problem from re-occurring in the future....the best way to stop these scams...is to remove the incentive to blend fuels by introducing uniform excise rates across all relevant petroleum products (italics added by author).(7)
Addressing loopholes in Customs and Excise legislation
As mentioned above, the scam involving the toluene substitution apparently arose as a result of certain 'loopholes' being closed in November 1999. In situations where tariff-related legislation needs to be amended quickly to close down such practices, the standard practice is for the Government to introduce so-called 'tariff proposals' which usually take effect within days of being proclaimed. These are then ratified by legislative amendment at a later date.
However, a potential difficulty exists in relation to tariff proposals amending excise payable on petroleum products due to the interrelationship of Excise Tariff Act 1921 and other relevant Acts. The amount of excise payable on various petroleum products is governed by the relevant categories listed item 11 in the Schedule of the Excise Tariff Act 1921. These categories are in turn specifically referred to in relevant Acts. For instance, aviation gasoline under the Aviation Fuel Revenues (Special Appropriation) Act 1988 is currently defined as 'goods falling within subparagraph 11(A)(3)(a) in the Schedule' (of the Excise Tariff Act 1921).
The problem arises because a new tariff proposal may amend the Schedule by creating a new petroleum product category, thereby adding a new section / paragraph / subparagraph to item 11 of the Schedule. The result of this is that the references to specific sections in say the Aviation Fuel Revenues (Special Appropriation) Act 1988 may now be inaccurate unless the Act itself was amended by the time the excise proposal was to take affect. Given the time required to table and debate a legislative amendment, the end result could be a considerable delay in plugging an excise loophole. The Bill therefore proposes to replace current references to specific Item 11 petroleum product categories in several Acts with a generic 'catch all' definition of petroleum product. According to the Explanatory Memorandum the changes do not effect the way excise is levied or the amount payable.
Prosecuting fuel substitution and related offences
The 1997 reforms referred to earlier included a number of Acts designed to assist the detection and prosecution of offences. While the Government has not publicised the issue, it appears that there has only been qualified success in bringing prosecutions for unlawful evasion of duty, claiming of rebates etc.(8) From July 1999, responsibility for excise functions, including those relating to fuel substitution matters, was transferred from the Australian Customs Service to the Australian Tax Office. At the time of the hand-over, the 1998-99 Customs annual report noted that 'establishing proof of offences under the Fuel (Penalty Surcharges) Amendment Act 1997 has proven to be more difficult than expected'.(9)
To address this problem, the Bill proposes to eliminate the need to prove an ownership trail of the fuel back to original suppliers and also enable 'evidentiary certificates'(10) to be admissible in court in proving certain elements required to prosecute an offence. It is understood that the evidentiary certificate amendments were inserted on the advice of the Commonwealth Director of Public Prosecutions. The proposed provisions relating to analyst's evidentiary certificates mirror those relating to proving the composition of narcotic drugs under s. 233BA(2) of the Customs Act 1901. These latter provisions were inserted in 1989.
In theory, it is also possible to prosecute substitution activities through trade practices (ie fair trading) legislation. However, the fact that there is no legally binding standard governing the content of petrol is a significant impediment.(11) The Commonwealth does not appear to have given any indication that it is looking at the issue in relation the Trade Practices Act 1974. Professor Fels, the Chair of the Australian Competition and Consumer Commission, commented on the issue at a recent Parliamentary Committee hearing:
We ran a case a few years ago on fuel substitution where we thought it was occurring illegally. It was a very, very difficult case to win. We had to prove in court that the fuel was no good. In the end it was not possible to prove it. It might sound simple, but I am afraid it is quite the opposite.(12)
The NSW Government was reportedly examining the possibility of incorporating a definition of petrol into its Fair Trading legislation but it is unclear whether this is still being pursued.(13)
Item 1 relates to the definition of aviation gasoline in section 3 of the 1988 Act. It is currently defined by reference to subparagraph 11(A)(3)(a) of the Schedule to the Excise Tariff Act 1921. The amendment defines it simply by reference to item 11 of the Schedule.
Item 2 relates to the definition of aviation kerosene in section 3 of the 1988 Act. It is currently defined by reference to section 11(D) of the Schedule to the Excise Tariff Act 1921. The amendment defines it simply by reference to item 11 of the Schedule.
Schedule 2 (amendment of the Excise Act 1901) ('the 1901 Act')
Item 1 relates to the definition of blended petroleum product in section 77G(b) of the 1901 Act. It is currently defined by reference to subparagraph 11(B)(2)(b) of the Schedule to the Excise Tariff Act 1921. The amendment defines it simply by reference to item 11 of the Schedule.
Item 2 relates to the definition of unleaded gasoline in section 78AAAA(6) of the 1901 Act. It is currently defined by reference to subparagraph 11(H)(2)(c) of the Schedule to the Excise Tariff Act 1921. The amendment defines it simply by reference to item 11 of the Schedule.
Item 3 relates to whether 'excisable blended petroleum product' under section 80B(2) of the 1901 Act is considered to be diesel fuel for the purposes of the diesel fuel rebate scheme. Excisable blended petroleum product is currently defined by reference to subparagraph 11(H) and 11(J) of the Schedule to the Excise Tariff Act 1921. The amendment defines it simply by reference to item 11 of the Schedule.
Item 4 relates to whether 'stabilised crude petroleum oil' under section 80B(3) of the 1901 Act is considered to be diesel fuel for the purposes of the diesel fuel rebate scheme. Stabilised crude petroleum oil is currently defined by reference to subsection 11(F)(1) of the Schedule to the Excise Tariff Act 1921. The amendment defines it simply by reference to item 11 of the Schedule.
Items 5-10 relate to penalties for unlawfully obtaining excise rebates and like offences under section 120 of the 1901 Act. In line with items 1-4, references to specific sections of item 11 of the Schedule are replaced by a generic 'item 11' reference.
Schedule 3 (amendment of the Excise Tariff Act 1921) ('the 1921 Act')
Items 1-3 relate to how duty payable under the 1921 Act on an excisable blended petroleum product is calculated. In line with schedules 2 and 3, references to specific sections of item 11 of the Schedule are replaced by a generic 'item 11' reference.
Schedule 4 (amendment of various of Acts governing penalties for excise offences)
Item 5 amends the definition of fuel in subsection 4(1) of the Fuel (Penalty Surcharges) Administration Act 1997. The amendment eliminates the concept of entry into home consumption. In general terms, entry into home consumption is the point at which excise or customs duty is paid on the good in question, allowing it be released into the Australian economy for sale etc. The practical effect of the amendment that it is no longer necessary to trace the chain of possession / ownership of the fuel down to its entry into home consumption in order to prosecute an offence for unlawful evasion of duty, claiming of rebates etc. The new definition also catches a wider range of imported petroleum products, such as blended products, than the existing definition.
Item 12 inserts new sections 49A-49C into the Fuel (Penalty Surcharges) Administration Act 1997 so as to enable 'evidentiary certificates'(14) to be admissible in court in proving certain elements required to prosecute an offence for unlawful evasion of duty, claiming of rebates etc.
New section 49A allows the Chief Executive Officer of the Australian Customs Service to appoint a 'suitably qualified person' to be an analyst for the purposes of authoring new subsection 49B(3) 'analysts certificates'. There does not appear to be a definition of 'suitably qualified person' either in the existing legislation or proposed changes.
New section 49B allows 'custom's officers certificates' and 'analyst's certificates' to be admissible as prima facie evidence of elements necessary to prove an offence.
The purpose of 'customs officer's certificates' (subsection 49B(2)) is to provide evidence of the location and regulatory status of the substance (ie petroleum product) when the alleged offence took place - for example, that was not still in storage at a customs or excise place, or was not being transported under the auspices of Customs Act 1901 or Excise Act 1901.
The purpose of the 'analyst's certificates' (subsection 49B(3)) is to provide evidence that the substance is a particular type of petroleum product.
New subsections 49B(5)-(8) govern the use of the above certificates.
New subsection 49B(5) provides that either type of certificate will only be admitted if a copy is given to the defendant or their solicitor 14 days before the certificate is tendered as evidence in proceedings.
New subsections 49B(6)-(7) provide that the 'person giving the certificate' (presumably this means the customs officer or analyst nominated on the certificate) may also be required by the defendant to attend the court hearing into the offence and be cross- examined on the evidence contained in the certificate. The defence can only require this if it is ordered by the court or, the case of an analyst's certificate, the prosecution is given 4 days notice of the defence's intention to call the analyst as a witness.
New subsection 49B(8) provides that evidence can be given in support or rebuttal of a certificate and any such evidence must be considered on its merits.
New section 49C sets down the requirements for the taking and handling of petroleum samples. The person taking the sample must split the sample into 3 equal parts. These must be then be labelled and securely sealed and one part must be given to the owner of the sampled product 'in the presence of the person from whom the sample is taken'. One part is used for the analysis and the last part retained for further examination if necessary.
Angus Martyn
28 April 2000
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.
ISSN 1328-8091
© Commonwealth of Australia 2000
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Published by the Department of the Parliamentary Library, 2000.