CUSTOMS AND EXCISE LEGISLATION AMENDMENT BILL (NO. 2) 1997 Explanatory Memorandum

Commonwealth of Australia Explanatory Memoranda

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CUSTOMS AND EXCISE LEGISLATION AMENDMENT BILL (NO. 2) 1997

ARTHUR ROBINSON & HEDDERWICLS LIBRARY 1997 THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA SENATE CUSTOMS AND EXCISE LEGISLATION AMENDMENT BILL (NO. 2)1997 EXPLANATORY MEMORANDUM (Circulated by authority ofthe Minister for Customs and Consumer Affairs, Senator the Hon. Chris Ellison) THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY THE HOUSE OF REPRESENTATIVES TO THE BILL AS INTRODUCED 89444 Cat.No 969577 X ISBN 0644 50919 8

CUSTOMS AND EXCISELEGISLATION AMENDMENT BILL (NO.2)1997 OUTLINE The Bill is one in a package of7 Bills to implement the Government'sBudget decision to provide for the addition of chemical markers to concessional petroleum productsto combat revenue loss through the minimisation offuel substitution and to improve compliance in the payment ofCustoms and Excise duty. In accordance with long standing policy in relation to petroleum products, certain petroleum products are dutiable at varying rates of duty depending on the type of petroleum product. Generally, road transport fuels which are for use in internal combustion piston engines attract the highest rates ofexcise duty. Other petroleum productswhich are generally for use as burner fuels and are burnt to produce heat are dutiable at concessional rates of duty, for example the productsexcisable under sub- item 1 l(E)(3) ofthe Schedule. Petroleum products for non-fuel use are dutiable at a "Free" rate of duty. The specifications of the various petroleum products referred to above can be very similar, ifnot identical. From a historical point of view, the use to which certain types of petroleum products are put has been implied, for example heating oil. However, the ever increasing differentials in the rates of excise and customs duty on petroleum productshave encouraged the practice whereby a product on which a concessional rate ofduty has been paid is substituted for a product on which the highest rates of duty are payable in circumstances where the higher.duty product would normally be used. At present, however, no mechanism exists whereby this revenue leakage which results from these practice can be contained and the integrity of the policy in respect of petroleum products can be maintained. The proposed legislative package of 7 Bills will introduce measures which are designed to reduce the incidence ofthese practices and to minimise the associated revenue leakage. (1) The Excise Tariff (Fuel Rates Amendments) Bill 1997 This Bill contains the proposed amendments to the Excise Tar~ff 1921. This Bill Act contains a re-structure of item 11 of the Schedule to the Excise~ Tariff, which sets out the petroleum products which are subject to duties of excise. This Bill will also introduce the requirement that petroleum products on which a concessional rate or a "Free" rate of excise duty is payable must contain a chemical marker, which must be added to the product prior to its entry into home consumption. The addition of the chemical marker will be the cornerstone of the proposed regime. The re-structure of item 11 will also bring into the excise regime petroleum products which are currently not subject to the excise regime but which are potential fuel substitutes. 4 Page 2 Customs and Excise Legislation Amendment Bill (No. 2)1997

(2) The Customs Tariff(Fuel Rates Amendments) Bill 1997 This Bill contains the proposed amendments to the Customs Tar~ff 1995. Similar Act to the amendments to the Excise Tariff, this Bill contains a re-structure ofthose subheadings of Chapter 27 of Schedule 3 to the Customs Tariff which apply to petroleum products. This Bill will also introduce the requirement that petroleum productson which a concessional rate or a "Free" rate of customs duty is payable must eontain a chemical marker, which must be added to the product prior to its entry into home consumption. (3) Fuel Misuse (Penalty Surcharge) Bill 1997 This Bill imposes penalty surcharge on the use of marked fuel in an internal combustion engine. Marked fuel refers to those petroleum productswhich have been entered for home consumption ata concessional rate or a "Free" rate ofduty and which, in accordance with the proposed amendments to the Customs Tariff and the Excise Tariff, have the added chemical marker. The surcharge is payable by the person owning the fuel at the time of its use and is payable before the fuel is used. The rate ofthe penalty surcharge per litre is twice the rate applicable to diesel fuel for use as a fuel in an internal combustion engine. (4) Fuel Sale (Penalty Surcharge) Bill 1997 This Bill imposes penalty surcharge on the sale ofmarked fuel for use in an internal combustion engine. In this Bill, marked fuel also refers to those petroleum products which have been entered for home consumption at a concessional rate or a "Free" rate of duty and which, in accordance with the proposed amendments to the Customs Tariff and the Excise Tariff, have had added to them the chemical marker. The surcharge is to be paid by the person owning the fuel immediately before its sale. The penalty surcharge per litre is twice the rate applicable to diesel fuel for use as a fuel in an internal combustion engine. (5) Fuel Blending (Penalty Surcharge) Bill 1997 This Bill imposes penalty surcharge on the blending ofmarked fuel and unmarked fuel ` which results in a blend that is itselfmarked fuel. In this Bill, marked fuel also refers to those petroleum products which have been entered for home consumption at a concessional rate or a "Free" rate of duty and which, in accordance with the proposed amendments to the Customs Tariff and the Excise Tarifi have had added to them the chemical marker. Unmarked fuel refers to productswhich have been entered for home consumption and which are fully duty paid. The surcharge is to be imposed on all of the fuel in the blend. The surcharge is payable by the person owning the fuel immediately after that blending. The penalty surcharge per litre is twice the rate applicable to diesel fuel for use as a fuel in an internal combustion engine. Customs and Excise Legislation Amendment Bill (No. 2)1997 Page 3

(6) Fuel (Penalty Surcharges) Administration Bill 1997 This Bill contains the administration provisions incidental to the 3 penalty surcharge Acts. This Bill sets out: (a) the times at which the penalty surcharges will become payable; (b) the record creation and record keeping obligations which apply to all persons dealing in petroleum products. As proposed, these requirements will applyto persons who enter products for home consumption as well as to subsequent dealers in such products after they have entered into home consumption; (c) the notification requirements in relation to the sale or disposal of markedfuel; (d) the audit powers ofauthorised officers to ensure compliance with the requirements in the Administration Act and to obtain evidential material concerning any breaches of the provisions of the Administration Act, including the authority to obtain monitoring and search warrants. The Bill also includes a range of offences and appropriate penalties related to the failure to comply with the requirements of the Administration Act, including penalties for failing to pay the penalty surcharge when required and failing to comply with the record creation and keeping obligations. (7) THIS BILL Customs and Excise Legislation Amendment Bill (No 2)1997 - This Bill introduces offences and appropriate penalties that will apply to a person who enters marked fuel as unmarked fuel and to a person who enters unmarkedfuel as marked fuel. Identical offences will apply to the entry for home consumption under both the Customs Act 1901 and the Excise Act 1901. This Bill otherwise contains the consequential amendments to the Customs Act and Excise Act resulting from the proposed amendments to the Excise Tariffand the Customs Tariff. REGULATION IMPACT STATEMENT This Regulation Impact Statement (RIS) has been prepared in consultation with the Office ofRegulation Review. It conforms with the guidelines adopted for a modified MS for taxation measures. 1. Specification of policy objective(s) Transport fuels (gasoline and diesel) attract a far higher rate of duty than other petroleum products such as fuel oils, heating oils, kerosene and solvents. The duty is applied on the basis of the intended end-use ofthe product. Specifications of low duty and duty free products are very similar, or identical, to those for automotive diesel. Substitution of lower duty products for on road use is feasible and attractive given the difference in duty. Most of the productsbeing substituted are free of duty or dutiable Page 4 Customs and Excise Legislation Amendment Bill (No. 2)1997

at 7.2 cents per litre which results in a benefit of approximately 27 cents or 35 cents to the blender. The major participants in the Petroleum Industry have urged that action be taken to address and, if possible eradicate the problem of fuel substitution. The Government announced in the Budget on 13 May 1997 that it was going to clamp down on dangerous fuel substitution by introducing chemical tracers for concessional fuel. The Government announcement said that legislation would be introduced requiring the addition of the chemical markers to clarif~'the excise policy intent for a number of fuel products and to ensure that consumers were not exposed to considerable danger by the operators who avoided tax and sold dodgy fuel. 2, Identification of implementations option(s) Following full consideration of all the issues, the Government decided that the most cost effective option was to legislate to treat concessional petroleum products atthe time of entry into home consumption with chemical markers that allow detection of fuel substitution activities. It should be noted that the Government had available to it details ofthe use of similar legislative processes overseas which had proved to be very successful. 3. Assessment of impacts (costs and benefits) of each implementation option Impact group identification This measure will impact upon the major oil companies and the petroleum distribution industry (wholesale distributors and retailers). The Australian Customs Serviceis responsible for implementing and enforcing this measure. Assessment of costs Government outlays (running costs for the Australian Customs Service) in a full year are set at approximately $1 .5m which includes provision for 14 additional staff. Most (more than 95%) of the costs for adding the marker will fall to the Major oil companies who have agreed that it is their responsibility. Information available to the Government prior to the Budget announcement indicated the cost of the marker would be around 0.004 cents per litre. Industry estimates, which have not been documented, indicate a cost ofabout 0.15 cents a litre. Final costs will depend on which marker is chosen but costs will be kept to a minimum by using only one marker. Customs and Excise Legislation Amendment Bill (No. 2)1997 Page 5

Capital costs for equipment to add the marker have been estimated (not finalised) as low as $ im and up to $ 4 6 m. Final costs will depend upon the methods used by - each company to add the prescribed proportion ofthe marker to the products. Industry, during post-Budget consultation, have agreed to manage these costs. The proposed legislation requires manufacturers, importers, wholesale distributors and retailers to keep records ofmanufacture, storage, use and sale: These records are normal business records which already exist and should not cause any additional compliance costs. It should also be noted that records will not have to be kept by persons dealing in fuel below a threshold limit which will be set by regulation probably at a capacity to transport or store 1000 litres or more. This ensures that the arrangements relate to commercial transactions. Onshore crude oil producers and recyclers are required to be licensed and keep normal business records ofproduction. Any increases in compliance costs for these operators is negligible. Assessment of benefits The estimated revenue gain in a full year as announced in the Budget is $25 million. The Industry indicated, during the post-budget consultation, that the figures could be twice the Budget estimate. The chemical tracer will enable the Australian Customs Serviceto veri& that concessionallytaxed fuel is being used only for the purpose for iwhich the concession is intended. This will assist the Australian Customs Serviceto better collect excise properly due under the existing legislation. This measure also protects consumers from purchasing potentially dangerous blends of concessional and waste fuel products. Consultation Followingthe Government announcement there has been a very full consultation process across all States and all sectors ofthe Petroleum Industry. Groups consulted include the major oil companies; fuel recyclers; and peak bodies representing the interests ofpetroleum distributors, retailers, motorists and farming interests. Consultation has also taken place with State government revenue authorities and state and federal consumeraffairs bodies. There has been overwhelming support from all sectors for the Government's initiative. The Minister for Small Business and Consumer Affairs and Minister responsible for Customs has announced the formation of an Industry / Customs Technical Implementation Group to advise the Government on technical aspects. This body has already met and made important decisions to assist effective implementation and reduce compliance costs where no risks to revenue are seen to exist (eg. the exemption from marking of packaged products, jetfuel and aviation Page 6 Customs and Excise Legislation Amendment Bill (No. 2) 1997

gasoline). Costs will also be kept at a minimum by using only one marker to cover all concessional products. This group will determine the nature and proper use of the chemical marker during July 1997. The basic parameters are that the marker must be readily available, inexpensive, easily added to the products and simply tested. 4. Conclusion and recommended option Given the full support that has been provided by industry the Government is confident that adding a chemical tracer to concessionally taxed fuel and tax free products just - prior to their entering the petroleum distribution system- is the most cost effective solution to the problem of fuel substitution. It should be noted that the proposed legislation has no impact on the Diesel Fuel Rebate system. Diesel fuel is sold duty paid for both on and offroad purposes with a rebate when the fuel is used for eligible off-road purposes. The Government does not intend to introduce the use of chemical markers for diesel fuel which is fully duty paid at the time of entry for home consumption. FINANCIAL IMPACT STATEMENT The amendments set out in the legislative package are expected to result in increases to revenue of $25 million per annum as a result of increased compliance. The implementation will involved expenditure of $5.97 million over 4 years and $1.54 million per annum in additional running costs. Customs and Excise Legislation Amendment Bill (No. 2)1997 Page 7

CUSTOMS AND EXCISE LEGISLATION AMENDMENT BILL (NO. 2)1997 NOTES ON CLAUSES ( Clause 1 Short Title - Clause 1 provides for the Act to be cited as the Customs andExcise Legislation Amendment Bill (No.2) 1997. Clause 2- Commencement Clause 2 provides that the Act commences on the commencement ofthe Excise Tariff (Fuel Rates Amendments) Act 1997. Clause 3 Schedule(s) - This clause is the formal enabling provision for the Schedule to the Amendment Act, providing that each Act specified in the Schedule is amended in accordance with the applicable items ofthe Schedule. The clause also provides that the other items ofthe Schedules have effect according to their terms. This is a standard enabling clause for transitional, savings and applicationitems in amending legislation. 4 I PageS Customs and Excise Legislation Amendment Bill (No. 2)1997

SCHEDULE 1- AMENDMENTS OF CUSTOMS AND EXCISE LEGISLATION Customs Act 1901 Item 1 Subsection 4(1) - This item amends the Customs Act 1901 (the Customs Act) by inserting four new definitions into subsection 4(1) as follows: cleanfuel which means fuel that does not contain any marker at all or that contains marker below the thresholdproportion prescribed for the purposes of section 5D of the Excise TariffAct 1921 (the Excise Tariff) Section SD of the Excise Tariffis to be inserted by the Excise Tar~[f (FuelRates Amendments)Act 1997. A clean fuel basically equatesto fuels upon which the highest rates of customs duty are payable and which are for use as a fuel in an internal combustion engine, as well as aviation fuels. designatedfuel which means fuel that contains at least the proportion ofthe marker prescribed for the purposes of section SC of the Excise Tariff. Section 5C of the Excise Tariffis also to be inserted by the Excise Tariff(Fuel RatesAmendments) Act 1997. A designated fuel basically equates to fuels upon which concessional rates of customs duty are payable, or upon which the rate is "Free", and which are for use as a fuel otherwise thanin an internal combustion engine or for non-fuel uses. Such fuels are required to have the chemical marker added to them prior to entry for home consumption in order to attract the concessional or "Free" rateS of duty. fuel which means goods of a kind that fall within a classification in subheading 2707, 2709 or 2710 of Schedule 3 to the Customs Tariff marker which means the chemical additive of a kind prescribed for the purposes of section 5C ofthe Excise Tariffto be a fuel marker forthe purposes of that Tariff. These new definitions have been enacted for the purposes of the new offences under section 234 of the Customs Act which are to be inserted by item 2 below. Item 2 At the end of section 234 - This item adds new subsections (4), (5), (6) and (7) to the end of section 234 ofthe Customs Act 1901 (which provides for Customs offences). new subsection 234(4) provides that a person is guilty of an offence ifa person intentionally or recklessly enters designated fuel for home consumption as clean fuel. � Notwithstanding that this offence does not involve evasion ofduty upon entry of the fuel for home consumption, this is regarded as a most serious offence as it exposes subsequent buyers, users and sellers to penalty surcharge and penalties under the other Acts in the package. Customs and Excise Legislation Amendment Bill (No. 2)1997 Page 9

see: section 7, Fuel Sale (Penalty Surcharge) Act 1997 section 7, Fuel Misuse (Penalty Surcharge) Act 1997 section 7, Fuel Blending (Penalty Surcharge) Act 1997 section 9, Fuel (Penalty Surcharges) Administration Act 1997. The penalty for this offence will be 10 times the amount of customs duty that would be applicable to the fuel if it were fuel of a kind classified to subheading 2710.00.29 of Schedule 3 to the Customs Tarift~ 500 penalty units, whichever is the greater. or new subsection 234(5) provides that a person is guilty of an offenceifa person intentionally or recklessly enters clean fuel for home consumption as designated fuel. � this offence involves evasion of duty upon entry ofthe fuel for home consumption, and is regarded as a most serious offence. The penalty for this offencewill be 10 times the amount of customs duty that would be applicable to the fuel ifit were fuel of a kind classified to subheading 2710.00.29 of Schedule 3 to the Customs Tariff, or 500 penalty units, whichever is the greater. � the amount of the penalties prescribed by new subsections (4) and (5) equate to the formulation of the penalty provided under the 3 surcharge Acts (s9 ofthe Fuel (Penalty Surcharges) Administration Act 1997). Under those provisions, the penalty of "5 times the penalty surcharge" equates to 10 times the duty originally payable under the Customs TariffAct 1995, (ie since the rates ofthe surcharges are calculated at~j�~ that duty). new subsection 234(6) provides for a strict liability offence if a person enters designated fuel for home consumption as clean fuel. � once again, in similar vein to new subsection (4), this offence does not involve evasion of duty upon entry ofthe fuel for home consumption, but is regarded as a most serious offence as it exposes subsequent buyers, users,and sellers to penalty surcharge and penalties under the other Acts in the package. The penalty for this offence will be 2 times the amount of customs duty that would be applicable to the fuel ifit were fuel of a kind classified to subheading 2710.00.29 of Schedule 3 to the Customs Tariff, or 100 penalty units, whichever is the greater. new subsection 234(7) provides for a strict liability offenceif a person enters clean fuel for home consumption as designated fuel. 4 � this offence involves evasion of duty upon entry of the fuel for home consumption, and is regarded as a most serious offence. The penalty for this offence will be twice the amount of customs duty that would be applicable to the fuel if it were fuel of a kind classified to subheading 2710.00.29 of ( Schedule 3 to the Customs Tariff, or 100 penalty units, whichever is the greater. Page 10 Customs and Excise Legislation Amendment Bill (No. 2)1997

� the amount ofthe penalties prescribed by new subsections (6) and (7) equate to the formulation of the penalty provided under the 3 surcharge Acts (s9 ofthe Fuel (Penalty Surcharges) Administration Act 1997). Under those provisions, the penalty of"amount equal to the penalty surcharge" equates to twice the duty originally payable under the Customs Tar~ffAct 995, (ie since the rates ofthe 1 surcharges are calculated at t~ic~ duty). that subsection 243(8) provides that for the purposes of subsection (4) to (7), fuel is entered for home consumption when: The clause provides that fuel isenteredfor home consumption when: (a) the entry of fuel for home consumptionunder s7lA of the Customs Act is communicated to Customs within the meaning of that Act; paragraph (a) or (b) the fuel is delivered into home consumption in accordance with a permission granted under section 69 ofthe Customs Act paragraphs (b); or (c) the fuel is taken into home consumption in accordance with a permission granted under section 77D of the Customs Act paragraph (c). Excise Act 1901 Item 3 Subsection 4(1) - This item amends the Excise Act 1901 (the Excise Act) by inserting four new definitions into subsection 4(1) as follows: cleanfuel which means fuel that does not contain any marker at all or that contains marker below the thresholdproportion prescribed for the purposes of section 5D of the Excise Tariff. Section SD ofthe Excise Tariff is to be inserted by the Excise Tar~ff (Fuel Rates Amendments) Act 1997. Aclean fuel basically equates to fuels upon which the highest rates of excise duty are payable and which are for use as a fuel in an internal combustion engine, as well as aviation fuels. designatedfuel which means fuel that contains at least the proportion ofthe marker prescribed for the purposes of section SC of the Excise Tariff. Section 5C of the Excise Tariff is also to be inserted by the Excise Tariff(Fuel Rates Amendments) Act 1997. Adesignated fuel basically equate to fuels upon which concessional rates of excise duty are payable, or upon which the rate is "Free", and which are for use as a fuel otherwise than in an internal combustion engine or for non-fuel uses. Such fuels are required to have the chemical marker added to them prior t� entry for home consumption in order to attract the concessional or "Free" rates ofduty. fuel which means goods of a kind that fall within a classification in item II, 12 or 17 ofthe Schedule to the Excise Tariff Customs and Excise Legislation Amendment Bill (No. 2)1997 Page 11

marker which means the chemical additive of a kind prescribed for the purposes of section SC of the Excise Tariffto be a fuel marker for the purposes ofthat Tariff. These new definitions have been enacted for the purposes of the new offences under section 120 ofthe Excise Act which are to be inserted by item 14 below. Item 4- Section 77G (definition of blendedpetroleum product) This item amends section 77G ofthe Excise Act by repealing and substituting the definition of blendedpetroleumproduct. Section 77G of the Excise Act presently sets out definitions for the purposes of section 6G and item 12 of the Schedule to the Excise Tariff. Item 12 imposes excise duty on excisable blended petroleum product and section 6G governs the rate of duty that applies to such blends. Section 77G defines blendedpetroleum product and excisable blendedpetroleum product. Under the proposals to minimisefuel substitution practices, the blending of certain types of petroleum product will become subject to the imposition of a penalty surcharge under the Fuel Blending (Penalty Surcharge) Act 1997. However, aspects ofthe current blending legislation will need to be retained in order to: (a) permit the blending under licence of clean products which will not be required to contain a chemical marker under the new legislation, with excise duty on the blend being based on the differential ofthe rates that apply to these products, as in the current law; and (b) control the blending under licence of certain ofthe f~iels hich will be w required to contain a chemical marker under the proposed legislation. To reduce compliance costs, only one marker will be used for all concessional products. Provision, however, is needed to ensure that blending of a product on which a "Free" rate of duty is payable with another concessional product (other than the aviation fuels) does not occur and therefore cause revenue erosion. As a disincentive to such practice, the duty rate proposed on the blend is the rate applying to diesel fuel for use in an internal combustion engine. For the purposes ofthese proposals, the present definition of blendedpetroleum product is to be narrowed and will mean: (a) the product of the blending ofa clean petroleum product (including a product that is itself a blended petroleum product) with another substance or other substances if none ofthe other substances is: (i) the marker; or (ii) a marked fuel within the meaning of the Fuel (Penalty Surcharges) Administration Act 1997 whether or not any ofthe other substances is a clean petroleum product. This will, therefore, apply to a blend of two clean petroleum products such an aviation gasoline and gasoline or a blend of a clean petroleum product with Page 12 Customs and Excise Legislation AmendmentBill (No. 2)1997

another substance as long as that other substance is not the marker or is not markedfuel; and (b) the product of blending of a designated petroleum product that fall within the classification ofproducts in subparagraph 11 (B)(2)(b) ofthe Schedule to the Excise Tariff with a designated petroleum product that falls within the classification ofproducts in subparagraph 1 1(B)(2)(c) ofthat Schedule. This will apply to a blend of products classified to paragraph 11(B)(2) upon which a concessional rate of excise duty is payable and upon which a "Free" rate of duty is imposed. This provision will initially be limited to these products only as they have been identified as the products which are most likely to be blended in this manner. As previously referred to, however, the excise duty rate proposed on the blend is the rate applying to diesel fuel for use in an internal combustion engine. Items S and 6 Section 77G - These item amends section 77G by inserting two new definitions for the purposes of the new definition of blendedpetroleumproduct as follows: clean petroleumproduct is defined as a petroleum product that does not contain any marker at all or that contains marker below the threshold proportion prescribed for the purposes of section SD ofthe Excise Tariff. designatedpetroleum product is defined as a petroleum product that contains at least the proportion ofthe marker prescribed for the purposes of section SC of the Excise Tariff Item 7 Section 77J - This item amends the Excise Act by repealing and substituting section 77J. Section 77J presently sets out the circumstances in which an excisable blended petroleum product is an exempt blend and therefore not excisable under item 12 ofthe Excise Tariff. As a consequence of the proposed penalty surcharg� onblending, and the narrowing of the blending provisions outlined above, the circumstances in se~tion are now 77J redundant. It is therefore proposed to simplify the terms of section 77J to provide that the regulations may specify that a particular blended petroleum product be an exempt blended petroleum product. Item 7A Section 77K - This item amends the Excise Act by removing the term "condensate consisting of liquid petroleum" from section 77K ofthe Excise Act 1901 and replacing it with "condensate". This is a technical amendment to remove a drafting inconsistency in the Act iethe term "condensate" is defined in section 4 of the Excise Act 1901, so the term "condensate consisting ofliquid petroleum" is inconsistent to a minor degree. Customs and Excise Legislation Amendment Bill (No. 2)1997 Page 13

� section 4 of the Excise Act 1901 defines "condensate" as "condensate" means either: (a) liquid petroleum; or (b) a substance: (i) that is derived from gas associated with oil production; and (ii) that is liquid at standard temperature and pressure. Item 8 Subsections 78(3), (4) and (5) - S This item amends the Excise Act by repealing subsection 78(3), (4) and (5). Section 78 ofthe Excise Act contains the head of power under which circumstances for the remission, rebate or refunds of excise duty can be allowed in respect of excisable goods in such circumstances as are prescribed in the regulations. Currently, subsections 78(3), (4) and (5) contain specific remission circumstances which apply in respect ofgoods currently classified to paragraph 11(H) and 11(J) ofthe Schedule to the Excise Tariff Paragraph 11(H) imposes duty on stabilised crude for use as a fuel otherwise than in the recovery, production, transportation or refining of stabilised crude at the rate that applies to diesel fuel. Paragraph 1 1(J) imposes duty on condensate for use as a fuel otherwise than in the recovery, production, transportation or refining of condensate. Subsection 78(4) then sets out a remission circumstance for both these products where they are been produced for distributed for us otherwise than as a fuel in an internal combustion engine. The amount ofthe remission is worked out under subsection 78(5) and depends on whether the use is as a burner fuel (part remission) or for any other use (full remission). It is proposed to delete these subsections due to the terms ofthe proposed new sub- items 11(E) and 11(F) ofthe Schedule to the Excise Tariff Under these new items, which are consistent with all the other items in proposed item 11, crude oil and condensate will be liable to up-front concessional duty rates depending on the use to which they will be put and that they contain the chemical. Therefore, there will be no continuing need for the remission circumstances set out in subsections 78(3), (4) and (5) and they are to be repealed. Item 9 Transitional provision - This item sets out the transitional provision as a result ofthe repeal of subsections 78(3), (4) and (5). This provision continues the entitlement to the remission of duty under section 78 after the commencement ofthis Act because particular circumstances exist immediately before this Act commences. Item 10- Subsection 78AAAA(6) This item amends subsection 78AAAA(6) ofthe Excise Act by omitting the reference to "subparagraph 11(A)(3)(c)" and substituting "1 1(H)(2)(c)". This is a technical Page 14 Customs and Excise Legislation Amendment Bill (No. 2)1997

amendment only to correct a cross-reference as a result ofthe proposed new structure of item 11 of the Excise Tariff. $ Item 11 -Paragraph SOB(2)(a) This item amends subsection paragraph 80B(2)(a) ofthe Excise Act by omitting the reference to "paragraph 1 1(A)(3) or 1 1(C)(2)" and subitem "11(H) or 11(J)". This is a technical amendment only to correct a cross-reference as a result ofthe proposed new structure of item 11 ofthe Excise Tariff. Item 12 Subsection 80B(3) - This item amends subsection 80B(3) of the Excise Act by omitting the referenceto "paragraph 11 (H)(2)" and substituting "1 1(F)(1)". This is a technical amendment only to correct a cross-reference as a result of the proposed new structure of item 11 ofthe Excise Tariff. Item 13- Paragraph 80B(3)(b) This item amends the Excise Act by repealing paragraph 80B(3)(b). This paragraph presently contains a referenceto subsection 78(3). This paragraph can therefore be repealed as a consequence ofthe repeal of subsection 78(3) by item 8 above. Item 14 Application - This applicationclause provides that the amendments to sections 77G, 77J and 80B of the Excise Act apply only to blending of petroleum productsoccurring on and after the commencement of this Act. Item 15 At the end of section 120 - This item adds new subsections (4), (5), (6) and (7) to the end of section 120 ofthe Excise Act 1901 (which provides for Excise offences). ~~~bsectjQni.20(4 provides that a person is guilty of an offence ifa person intentionally or recklessly enters designated fuel for home consumption as clean fuel. notwithstanding that this offence does not involve evasion of duty upon entry of the fuel for home consumption, this is regarded as a most serious offence as it exposes subsequentbuyers, users and sellers to penalty surcharge and penalties under the other Acts in the package. see: section 7, Fuel Sale (Penalty Surcharge) Act 1997 section 7, Fuel Misuse (Penalty Surcharge) Act 1997 section 7, Fuel Blending (Penalty Surcharge) Act 1997 section 9, Fuel (Penalty Surcharges) Administration Act 1997. Customs and Excise Legislation Amendment Bill (No. 2)1997 Page 15

The penalty for this offence will be 10 times the amount of excise duty that would be applicable to the fuel ifit were fuel of a kind classified to subparagraph 11(C)(2)(a) of the Schedule to the Excise Tariffor S00 penalty units, whichever is the greater. New subsection 120(5) provides that a person is guilty of an offence ifa person intentionally or recklessly enters clean fuel for home consumption as designated fuel. � this offence involves evasion of duty upon entry ofthe fuel for home consumption, and is regarded as a most serious offence. The penalty for this offence will be 10 times the amount ofexcise duty that would be applicable to the fuel ifit were fuel of a kind classified to subparagraph 11(C)(2)(a) of the Schedule to the Excise Tariffor 500 penalty units, whichever is the greater. � The amount of the penalties prescribed by new subsections (4) and (5) equate to the formulation ofthe penalty provided under the 3 surcharge Acts (s9 ofthe Fuel (Penalty Surcharges) Administration Act 1997). Under those provisions, the penalty of "S times the penalty surcharge" equates to 10 times the duty originally payable under the Excise TariffAct 1921, (ie since the rates ofthe surcharges are calculated attwice that duty). New subsection 120(6) provides for a strict liability offence if a person enters designated fuel for home consumption as clean fuel. � Once again, in similar vein to new subsection (4), this offence does not involve evasion ofduty upon entry of the fuel for home consumption, but is regarded as a most serious offence as it exposes subsequent buyers, users and sellers to penalty surcharge and penalties under the other Acts in the package. The penalty for this offence will be twice the amount of excise duty that would be applicable to the fuel ifit were fuel of a kind classified to subparagraph 1 1(C)(2)(a) of the Schedule to the Excise Tariff or 100 penalty units, whichever is the greater. New subsection 120(7) provides for a strict liability offenceif a person enters clean fuel for home consumption as designated fuel. � this offence involves evasion of duty upon entry of the fuel for home consumption, and is regarded as a most serious offence. The penalty forthis offence will be twice the amount of excise duty that would be applicable to the fuel ifit were fuel ofa kind classified to subparagraph 11(C)(2)(a) of the Schedule to the Excise Tariff or 100 penalty units, whichever is the greater. � The amount of the penalties prescribed by new subsections (6) and (7) equate to the formulation of the penalty provided under the 3 surcharge Acts (s9 ofthe Fuel (Penalty Surcharges) Administration Act 1997). Under those provisions, the penalty of "amount equal to the penalty surcharge" equates to twice the duty originally payable under the Excise Tariff Act 1921, (ie since the rates ofthe surcharges are calculated at twice that duty). Page 16 Customs and ExciS~Legislation mendmenfBill (No. 2)1997 A

new subsection 120(8) provides that for the purposes of subsections (4) to (7), fuel is entered for home consumption when: (d) the entry ofthe fuel for home consumption under section 58 ofthe Excise Act is lodged under that Act p~ggi~p1i.(a), or (e) the fuel is delivered for home consumption in accordance with a permission given under section 61C of the Excise Act p~~g~phJb) Items 16 and 17 Paragraphs 165A(1)(a), 165A(1)(d), 165A(2)(c) and - 165A(2)(d) These items amend subsections 16SA(1) and (2) by omitting all references to exempt onshore field and substituting references to onshore field. These amendments are a consequence of the repeal ofthe definition of "exempt onshore field" in subsection 3(1) of the Excise TariffAct 1921 by the Excise Tariff(Fuel RatesAmendments) Act 1997 as part ofthe proposal to make exempt onshore oil subject to excise (items 1, 5, 16 and 17 ofthe Schedule to that Amendment Act). Customs and Excise Legislation Amendment Bill (No. 2)1997 Page 17

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