Gull loses petrol tax fight

Last updated 12:53 06/12/2013

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Gull has lost its Supreme Court appeal against being found liable for $23 million in unpaid fuel duties and fines for mixing additives into petrol.

In August the fuel retailer took its "manufacturing" dispute to the Supreme Court, after Customs had challenged its practice of blending small amounts of butane into petrol.

Butane has an excise tax of 10 cents a litre, while petrol incurred a higher excise tax of 48c.

The practice, which Gull and subsidiary Terminals NZ have been using since 2003, is said to have saved the firm $10m.

Customs demanded payment for the shortfall as well as $13m in penalties.

The case rested on the definition of "manufacturing", which Customs deems as the process of blending chemicals to create motor spirits, or petrol, as is done at the fuel refinery at Marsden Point, incurring the petrol levy.

Similarly, any petrol supplies imported into the country are deemed to be manufactured product, and also incur the 48c levy.

Gull's lawyer Rodney Harrison, QC, argued in August that the process of adding butane to petrol, which already contained butane, was not manufacturing.

He said it was merely savvy business practice using already-taxed products.

"The fact it is then, that mixing with another fuel - also a dutiable product - does not create a gap, it is simply the taxpayer lawfully arranging his affairs in a way that is perfectly permissible," he told the court.

But today's Supreme Court judgment said the sole question was whether the blending process resulted in the "production" of motor spirit.

Expert evidence was given which said blended motor spirit was not chemically identical to pre-blended spirit, and as such was a different good altogether.

The judgment said the fact blending of butane and motor spirit was "manufacturing" was supported by excise duty being imposed on motor spirit on the basis of volume.

"Excise duty is an indirect tax on consumption," the court ruled.

"While it is imposed on the importer or the manufacturer, the consumer ultimately bears the economic burden of the duty as it will be passed on to the consumer in the form of a higher price."

Furthermore, the duty was used for roading projects, which together was a powerful indication the total volume of motor spirits resulting from Terminal New Zealand's operations should be subject to the full duty.

Gull general manager Dave Bodger has said the decision to add butane was originally undertaken under the assumption the company was operating under the letter of the law.

The issue had came to light after BP sought clarification about excise requirements for blending, and Customs advised that excise should be paid in such situations.

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