The Alcohol Industry - Excise Technical Guidelines (current to 30 June 2006)

Chapter 2 - Alcohol Licensing

This document has been archived. It is current only to 30 June 2006.

Section 1 Introduction

1.1 Acronyms used in this chapter

ABN Australian Business Number

AIG Alcohol Industry Group

BOPS Brew-on-premises shops

EIN Excise indentification number

ETI Excise tariff item

WET Wine Equalisation Tax

1.2 Foreword

If you want to know more about Excise go to our website at www.ato.gov.au .

Section 2 Licences

2.1 Overview

A person is required to be licensed if they wish to manufacture excisable alcoholic products, store excisable alcoholic products, distil spirits or make and sell methylated spirits.

In accordance with the Excise Act, manufacture includes all processes in the manufacture of excisable goods and, in relation to beer, includes the provision to the public at particular premises of commercial facilities and equipment for use in the production of beer at those premises - Brew-on-premises shops (BOPS) ¹ . Activities which require an excise manufacturer licence are covered at section 2.2 in this chapter.

Parts III and IV of the Excise Act deal with excise licences for the manufacture and storage of excisable goods ² .

Part III of the Distillation Act deals with licences for the distillation of spirits.

Section 20 of the Spirits Act deals with licences to make and sell methylated spirits.

A licensed manufacturer may only manufacture or store the goods specified in the licence, and only at the premises specified in the licence ³ . A licensed manufacturer must hold a separate licence in respect of each separate premises where manufacturing or storage is to take place.

In the Excise Acts, the word 'Collector' means the Commissioner of Taxation or an officer authorised under the Excise Act ⁴ .

Apart from applying for an excise manufacturer or storage licence, a distiller licence, or a methylator licence , an applicant needs to register with the Tax Office in order to establish an appropriate excise account with the Tax Office. An applicant needs to register for excise activities only once, irrespective of how many other licences or permits they may subsequently apply for. The excise registration form may be found on our website at www.ato.gov.au .

This is a separate procedure from applying for an Australian Business Number (ABN) which you may have previously obtained.

An ABN is a unique identifying number issued to a client when they register their business in the Australian Business Register. If a client does not have an ABN they will be provided with an EIN when they register for excise purposes.

A client account number is used to identify an excise account. Clients will be advised of their client number when they are licensed for excise.

2.2 Excise manufacturer licences

For administrative purposes, excise manufacturer licences for the manufacture of excisable alcoholic beverages are divided into three categories: Beer, Brew-on-premises shops (BOPS), and Liqueurs and other excisable beverages. Separate licences are issued for each of the three manufacturing categories. (Note: Distillers licences and methylators licences are dealt with separately in section 2.3 and 2.4.)

BOPS are premises which are licensed to produce beer for non-commercial purposes using commercial facilities or equipment that is the operators supply the facilities, machinery, ingredients and advice to enable the public to make beer for their own consumption. For more information regarding BOPS see chapter 6 section 6 .

An excise manufacturer licence ⁵ granted under Part IV of the Excise Act only authorises the licensee to manufacture and store the excisable goods which they manufacture. It does not authorise the licensee to distil spirits ⁶ .

Other activities for which an excise manufacturer licence is required include:

• fermentation (excluding alcoholic products that are covered by WET)
• adding flavours, colours
• reduction (adding water)
• blending
• packaging (in bottles, cans, kegs) - involving in-line mixing (that is where the addition of syrup forms part of the packaging process), and
• maturation of spirits in wood during which the storage has imparted flavour characteristics and possibly some colour from the wood.

The Excise Act provides that the Tax Office may refuse to grant a licence where, among other reasons, refusal is necessary to protect the revenue ⁷ .

2.3 Excise storage licences (including duty free shops)

2.3.1 General

A storage licence ⁸ issued under Part IV of the Excise Act authorises the licensee to carry out the following activities at the premises specified in the licence:

• storage only of packaged product
• storage only of bulk product in steel, glass, plastic (see section 2.2 for storage in wood)
• packaging (in bottles, cans, kegs) - not involving in-line mixing
• repacking (outer cartons only), and
• filtering (except when filtering is combined with other procedures and becomes a part of the manufacturing process).

The licensee must apply for a manufacturer licence if they wish to carry out further activities at their premises, for example, blending, brewing, or a distiller's licence for distillation ⁹ .

The Excise Act provides that the Tax Office may refuse to grant a licence where, among other reasons, refusal is necessary to protect the revenue ¹⁰ .

Goods that are not excisable goods, for example wine, may be stored in the premises specified in a storage licence. However the non-excisable goods must be readily identifiable from the excisable goods, to ensure that excisable goods may be accounted for to the satisfaction of the Tax Office.

2.3.2 Duty free shops

Duty free shops are regulated by the Tobacco Industry Group (TIG).

A duty free shop is a warehouse where the licence authorises the sale in the warehouse of goods to relevant travellers. In the first instance, a Customs warehouse licence, issued under section 79 of the Customs Act 1901 , is required. The Customs warehouse licence is conditioned to authorise the duty free sale of imported goods. Secondly, an excise storage licence, issued under Part IV of the Excise Act, is required. The excise storage licence is similarly conditioned to authorise the duty free sale of excisable goods.

Single or continuing movement permissions ( see chapter 4 ) are required to authorise the under bond movement of goods.

2.4 Distillers' licences

Licences to distil spirits are issued under the Distillation Act for the following classes:

• spirit makers' licences
  • general licences authorising the licensee to distil spirits from any material
  • wine distillers' licences authorising the licensee to distil spirits from wine or lees of wine
• vignerons' licences authorising the licensee to distil spirits from wine or lees of wine for the purpose of fortifying wine, or
• experimenters' licences authorising the licensee to distil spirits from any material for the purpose of research into the production or use of fuel ethanol. including research relating to the development of technology for such production or use 11 .

Spirits is defined in section 6 of the Distillation Act and 'includes any liquor on which, under the name of spirits, any duty of Excise is imposed by the Parliament, whether the liquor is distilled or made or in any stage of distillation or making'. The Distillation Act and Regulations provide administrative provisions relating to excisable spirits.

Spirit is defined in section 4 of the Excise Act by reference to the Excise Tariff Act and includes neutral spirit and brandy, whisky, rum and liqueurs.

A person must hold an excise manufacturer licence if they wish to manufacture beer (Excise Tariff Item (ETI) 1C), Liqueurs (ETI 2G) or other excisable beverages (ETI 1D for beverages with an alcoholic strength not exceeding 10%, or ETI 2H for beverages with an alcoholic strength exceeding 10%) using spirit which they acquire for that purpose. However if they wish to distil the spirit to manufacture ETI 2G, 1D or 2H, they also must hold a distiller's licence .

For further information on distillation see chapter 7 section 3 legislation and licences.

The holder of a general spirit maker's licence may distil spirits from any material ¹² . The three main groups of raw materials are grain (for the production of whisky and neutral spirits), cane sugar (for the production of rum and neutral spirits) and fruit (for the production of brandy, where grapes are the raw material, and neutral spirits ¹³ ).

The holder of a wine distiller's licence may only distil spirits from wine or lees of wine ¹⁴ .

The holder of a vigneron's licence may distil spirits from wine or lees of wine for use as fortifying spirit ¹⁵ only ¹⁶ .

The holder of an experimenter's licence may distil spirits from any material for research into production or use of fuel ethanol, including research relating to the development of technology for such production ¹⁷ . There are currently no experimenter's licences issued.

Manufacturers of spirit which will be used as fuel ethanol are currently issued with general spirit maker's licences in addition to an excise manufacturer's licence, issued by the Fuel Industry Group, to cover the blending of ethanol and petrol (see further discussion at chapter 9, section 9 in this manual).

2.5 Methylator's licences

A person must hold a methylator's licence to make and sell methylated spirits ¹⁸ . A distiller who holds a general spirit maker's licence is not required to hold a separate methylator's licence ¹⁹ .

2.6 Granting of manufacturer and storage licences

Subsection 39A(1) of the Excise Act provides that the Tax Office may grant, or refuse to grant a licence. This power will be exercised giving due consideration to the principles of relevance, reasonableness and natural justice.

The Tax Office may refuse to grant a licence in specified circumstances. However the Tax Office may decline to exercise this power as it is not mandatory. Essentially the prescribed circumstances include ²⁰ :

• where the applicant is not a fit and proper person or company, including where the applicant is:
  • a person
  • a partner in a partnership
  • a company
• where the applicant is an associate ²¹ of a person or company who is not fit and proper, or
• where a director, officer or shareholder of a company who would participate in the management or control ²² of the company is not a fit and proper person , or
• where an employee of the applicant who would participate in the management or control of the premises in relation to which the licence is sought is not a fit and proper person, or
• where the physical security of the premises in relation to which the licence is sought is not up to acceptable business standards having regard to:
  • the nature of the premises, or
  • the kinds and quantity of the goods that would be kept at the premises, or
  • the procedures and methods that would be adopted by the applicant to ensure the security of goods at the premises, or
• where the plant and equipment that would be used in relation to goods at the premises in relation to which the licence is sought are not suitable having regard to the nature of those goods and the premises, or
• where the books of account or records are inadequate for ATO audit purposes, or
• where refusal to grant the licence is necessary to protect the revenue ²³ .

It should be noted that subsection 39A(2) creates a specific power of refusal alone that is separate to the general power to grant or refuse conferred by subsection 39A(1). A licence can be granted only under subsection 39A(1), but a licence may be refused under either subsection 39A(1)or subsection 39A(2).

The power to refuse to grant a licence under subsection 39A(2) is a restricted power. It requires the formation of a particular opinion before it can be properly exercised. However as the power to refuse in subsection 39A(1) is not fettered by any such precondition, it supports the argument that the two powers are separate in nature.

Subsection 39A(2) does not limit the grounds for refusal under subsection 39A(1) to only those listed there, as it does not use the words 'shall have regard only to the following' or similar, leaving open the matters which may be considered for the purposes of a refusal under subsection 39A(1).

2.7 Fit and proper persons (for manufacturer and storage licences)

In determining whether a natural person is fit and proper ²⁴ , the Tax Office may have regard to ²⁵ :

• whether within one year before making the application, the person has been charged with
  • an offence against a provision of the Excise Acts, or
  • an offence against a law of the Commonwealth, a State or a Territory that is punishable by imprisonment for a period of one year or longer or by a specified fine, and
• whether within ten years before making the application, the person was convicted of
  • an offence against a provision of the Excise Acts, or
  • an offence against a law of the Commonwealth, of a State or of a Territory that is punishable by imprisonment for a period one year or longer or by a specified fine, and
• whether the person has held a licence which has been cancelled or has participated in the management or control of a company that has had its licence cancelled, and
• whether the person is an undischarged bankrupt, and
• any misleading statement made in the application by the person, and
• whether the person knew that any statement made by the person in the application was false.

2.8 Fit and proper companies (for manufacturer and storage licences)

In considering whether a company is a fit and proper ²⁶ company, the Tax Office may consider ²⁷ :

• whether within one year before making the application the company has been charged with
  • an offence against the Excise Acts, or
  • an offence against a law of the Commonwealth, a State or a Territory that is punishable by a specified fine, and
• whether within ten years before making the application the company was convicted of:
  • an offence against a provision of the Excise Acts, or
  • an offence against a law of the Commonwealth, a state or a territory that is punishable by a specified fine, and
• whether the company has held a licence that has been cancelled, and
• whether the company has been placed into receivership, is under external administration, has executed a deed of company arrangement that has not yet terminated, has been placed under official management, or is being wound up.

2.9 Conditions on manufacturer and storage licences

Conditions attached to licences are as follows ²⁸ :

• a licensee must advise the Tax Office in writing, within 30 days after one of the following matter occurs

0. the licence holder, a partner, a person who participates in the management or control of the licensed company or a person who participates in the management or control of the premises specified in the licence, is charged with an offence of the kind referred to in paragraph 39B(a) of the Excise Act (see first dot point at section 2.7 )
0. a person referred to in paragraph (i) is convicted of an offence of the kind referred to in paragraph 39B(a) of the Excise Act or becomes bankrupt
0. where the licence holder is a company, a person not listed in the application for the licence as participating in the management or control of the premises commences to participate
0. a person not listed in the application for the licence as participating in the management or control of the premises commences to participate
0. where the licence holder is a partnership, there is a change in the membership of the partnership
0. where the licence holder is a company, the company is charged with an offence of a kind referred to in paragraph 39C(a) of the Excise Act (see first dot point at section 2.8) or the company is convicted of an offence of a kind referred to in paragraph 39C(b) of the Excise Act (see second dot point at section 2.8) or a receiver or administrator of the company is appointed or the company executes a deed of company arrangement or the company begins to be wound up
0. in relation to a manufacturer licence or storage licence, there is a substantial change in a matter affecting the physical security of the premises specified in the licence, or the plant and equipment used in relation to the goods at the premises specified in the licence
0. the licence holder has ceased to manufacture excisable goods, and/or
0. the licence holder has ceased to keep and store goods at the premises specified in the licence

• a licence is subject to any other conditions which are prescribed, and
• a licence is also subject to any other conditions which may be specified in the licence, being conditions which the CEO considers necessary for the protection of the revenue or for ensuring compliance with the Excise Acts.

Conditions which are specified in the licence (as distinct from the conditions which are imposed or prescribed by law) may be varied or revoked by the Tax Office and the Tax Office may impose one or more additional conditions, either on application by the licence holder or on the Tax Office's own initiative ²⁹ .

The above conditions do not apply to licences issued under the Distillation Act or the Spirits Act as Part IV of the Excise Act, which includes section 39D, is not incorporated into those other Acts ³⁰ .

2.10 Applications for licences - (under Excise Act, Distillation Act, or Spirits Act provisions)

Section 39 of the Excise Act provides that a person must make an application for a licence to manufacture excisable goods in a form approved by the Tax Office. Section 17 of the Distillation Act makes similar provision in respect of licences to distil, and subsection 20(1) of the Spirits Act for licences to make methylated spirits. If a person holds a spirit maker's general licence under the Distillation Act they do not need to obtain a licence under the Spirits Act to make methylated spirits ³¹ .

Application forms for the various excise licences are available by contacting the Client Services Section, Alcohol Industry Group (AIG), GPO Box 2318, Adelaide 5001 or online at the Tax Office website www.ato.gov.au . A person must lodge the application with the AIG.

Each application must be accompanied by an accurate plan, or sketch to scale, of the premises clearly identifying the proposed licensed area (outlined in red). The applicant, or an authorised official of the business, must endorse the plan or sketch as follows:

'I hereby certify that this is a correct plan/sketch of the premises at (insert address) operated by (insert name of business) and referred to in the application for an Excise Manufacturing Licence dated (the date of the application). I also certify that the area outlined in red is proposed to be licensed for manufacturing.'

Along with the application, the applicant must provide details of their record keeping system. Where the applicant intends to use a manual record keeping system they must forward copies of the intended records for assessment. On receipt of the completed application, the AIG will assess whether the applicant has complied with the requirements necessary for the issue of a licence. For further information see chapter 5 - Record keeping.

2.11 Issue of a licence

Before a person can be licensed to manufacture, store or otherwise deal with excisable alcohol product, they must register with the Tax Office for excise activities in order to establish an excise account. An application for excise registration - alcohol ( form number 7102 ) may be obtained by contacting the AIG at GPO Box 2318, Adelaide SA 5001 or online at the Tax Office website www.ato.gov.au .

An applicant for registration for excise purposes does not have to be conducting a business or an enterprise.

Before a person can be issued with a licence, they must:

• lodge a security ³² if required by the Tax Office
• establish to the satisfaction of the Tax Office that they will maintain adequate records. ³³ . See also chapter 9 section 11.5 and chapter 6 section 3.2
• satisfy the Tax Office that their premises have adequate physical security, to manufacture or store alcoholic goods/products ³⁴
• provide calibration certificates for storage tanks ³⁵ , and
• provide a consent to obtain information - individual form for each person involved in the management or control of the business ³⁶

A person must not commence manufacturing excisable goods before they have been issued a licence ³⁷ .

A manufacturer's licence issued under the Excise Act, or any licence issued under the Distillation Act or Spirits Act comes into force on the day the licence is granted and remains in force, unless cancelled earlier, until 31 December after the day on which it was granted, or the day of renewal or last renewal ³⁸ . These licences must be renewed annually from 1 January. A letter advising of the impending expiry of the licence incorporating an application for renewal form will be sent to licensees well before the licence expiry date.

Licences are subject to conditions as per section 39D of the Excise Act. Conditions may be changed at any time, and are subject to objection rights. Where a manufacturer licence is renewed, the Tax Office may specify conditions different from those specified in the original licence. Furthermore the Tax Office may refuse to renew a manufacturer licence if the Tax Office is of the opinion that if the licence were renewed there would be an entitlement to cancel the licence.

2.12 Right to require security

Section 16 of the Excise Act gives the Tax Office the right to require and take securities for compliance with the Excise Acts and for the protection of the revenue. (Both the Distillation Act and the Spirits Act have similar provisions.) Section 17 of the Excise Act provides that securities may be in the form of a bond, documentary guarantee, cash deposit or any other method or combination of methods. In cases where the Tax Office assesses the risk to the revenue as being high, the Tax Office may require that a security should be backed up by a surety (a pledge from a financial institution or other third party to guarantee payment of the security amount should it be called up).

The Tax Office's power to require and take securities under section 16A of the Excise Act is a discretionary power therefore for the purposes of the Excise Act securities are not mandatory. However when a security is required by the Tax Office, the Excise Regulations may specify the amount required. For example, Regulation 214 of the Excise Regulations sets out that in the case of a manufacturer (beer) licence, the amount of security involved depends on the quantity of beer which the licensee manufactures in a year. Regulation 227 sets out the amount of security involved in the case of a manufacturer of liqueurs or other excisable beverages licence. In the case of an excise storage licence, the amount of security, if necessary, is not specified in the regulations. Therefore, any security for a storage licence is at the discretion of the Tax Office. The security for a storage licence is based on the estimated average monthly excise applicable to goods delivered from those premises if excise were payable.

Section 20 of the Excise Act provides that the Tax Office may require a new security at any time. There is no limit to the amount of a new security.

In compliance with section 19 of the Excise Act, the Tax Office reviews Excise Act securities on a three-yearly basis at which time they may be extended, revised or cancelled.

Unlike the security provisions of the Excise Act, Section 18 of the Distillation Act makes it mandatory for a security to be taken from an applicant in respect of any licence issued under that Act. However the Tax Office may use its discretion as to whether a surety is required. The specified amount of documentary security (without surety) for a spirit maker's or vigneron's licence is presently not less than $1000 and not more than $10,000 ³⁹ . For an experimenter's licence the security is presently not less than $10 and not more than $1000 ⁴⁰ .

Section 23 of the Distillation Act provides that the Tax Office may require a new security for the renewal of a licence to distil.

Similarly Regulation 11 of the Spirits Regulations makes it mandatory for a security with surety, to be taken from an applicant for a licence to make methylated spirits. Regulation 14 of the Spirits Regulations enables the Tax Office to require a new security at any time.

Section 3 Licence Suspensions and Cancellations

3.1 Background

The Excise Amendment (Compliance Improvement) Act 2000 was introduced in September 2000 and for the first time gave the Tax Office the discretion to grant, or refuse to grant a licence. It also provided for the cancellation and suspension of licences under certain conditions other than for offences against the Excise Acts.

3.2 Policy application

The Excise Act provides for the suspension or cancellation of manufacturer and storage licences in a range of circumstances.

It should be noted that the comprehensive suspension and cancellation provisions of Part IV of the Excise Act discussed in this section apply only to licences issued under the Excise Act and do not apply to licences issued under the Distillation Act or Spirits Act, each of which have their own provisions as set out below.

It would not fit with the Tax Office's Compliance Model (see Excise overview in chapter 1 - Excise in the Tax Office) if the Tax Office contemplated the suspension or cancellation of a licence simply as a result of one event, such as poor record keeping or a minor breach of licence conditions. The Tax Office will generally encourage the licensee to comply with legislation through a range of initiatives including education. The Tax Office will generally provide the licensee with formal written warning before recommending any suspension or cancellation action.

The cancellation of a licence issued under the Distillation Act is covered by section 24 of that Act as follows:

If the licensee is convicted of any offence against the Distillation Act, the licence may be cancelled by the Tax Office placing a notice in the Commonwealth Gazette .

The Tax Office may cancel an experimenter's licence by placing a notice in the Commonwealth Gazette if the licensee has not complied with time restrictions imposed for the completion of the distillation or the licensee is convicted of an offence against the Distillation Act.

The cancellation of a licence issued under the Spirits Act is covered by Regulation 16 of the Spirit Regulations. The Tax Office may cancel a licence to make methylated spirits if the holder of the licence is convicted of any contravention of the Spirits Act or Spirits Regulations.

3.3 Grounds for Excise Act licence suspension

The Tax Office may suspend a manufacturer or storage licence if the Tax Office has reasonable grounds for believing that ⁴¹ :

• the licensee, a partner, a director, officer, shareholder or employee of the company who participates in the management or control of the company or premises, is not a fit and proper person, or
• an employee of the licence holder who participates in the management or control of the premises specified in the licence is not a fit and proper person, or
• where the licence holder is a company, the company is not a fit and proper company, or
• the licence holder is an associate ⁴² of a person who is not a fit and proper person or a fit and proper company, or
• the physical security of the licensed premises is no longer adequate, or
• the plant and equipment used at the licensed premises are such that the protection of the revenue is inadequate, or
• the records of account are inadequate, or
• a condition of the licence has been breached, or
• the licence holder has made a false or misleading statement to the Tax Office; or
• suspension is necessary for the protection of the revenue, or
• suspension is necessary for ensuring compliance with the Excise Acts.

3.4 Fit and proper persons

In considering whether a person is fit and proper ⁴³ in the context of manufacturer or storage licence suspensions ⁴⁴ , the Tax Office may take into account ⁴⁵ :

• whether within one year of that consideration, the person has been charged with an offence against a provision of the Excise Acts or against a law of the Commonwealth, a State or a Territory that is punishable by imprisonment for a period of one year or longer or by a specified fine, and
• whether within ten years of that consideration, the person has been convicted of an offence against the above laws, and
• whether the person has held another licence which has been cancelled or has participated in the management or control of a company that has had its licence cancelled, and
• whether the person is an undischarged bankrupt.

3.5 Fit and proper companies

In considering whether a company is a fit and proper company in the context of manufacturer or storage licence suspensions ⁴⁶ , the Tax Office may take into account ⁴⁷ :

• whether within one year of that consideration, the company has been charged with an offence against a provision of the Excise Acts or against a law of the Commonwealth, a State or a Territory that is punishable by imprisonment for a period of one year or longer or by a specified fine, and
• whether within ten years of that consideration, the company is convicted of an offence against a provision the above laws, and
• whether the company has been placed into receivership, is under external administration, has executed a deed of company arrangement, has been placed under official management, or is being wound up.

3.6 Method of suspension

If the Tax Office decides to suspend a licence, the Tax Office must give a written notice to the licence holder ⁴⁸ . This notice must be served either personally or by post on the licensee, or personally on a person who, at the time of service, apparently participates in the management of the licensed premises.

The Tax Office may suspend the licence immediately if it appears to the Tax Office to be necessary for the protection of the revenue, or for ensuring compliance with the Excise Acts. To do so the notice must state that the licence is suspended on and from the service of the notice. It must also state that the licensee may, within 7 days of the date of service, give to the Tax Office a written statement showing cause why the licence should not be cancelled.

The Tax Office may revoke the suspension at any time, but if the licence is not cancelled within 28 days of the date of suspension then the Tax Office must revoke the suspension.

At the time of suspension of the licence, Tax Office field staff will carry out a stock take at the licensed premises so that the total excise liability is known.

If the Tax Office does not see the need to suspend the licence immediately, the notice will not state that the licence is suspended. Instead the notice must state that if the licensee wishes to prevent the cancellation of the licence the licensee may, within 7 days of the date of service of the notice, give to the Tax Office a written statement showing cause why the licence should not be cancelled. In the meantime the licence continues in force without restriction but may be cancelled if the licensee does not make a submission against cancellation.

3.7 Consequences of suspension

If the notice ⁴⁹ states that the licence is suspended, during the period in which the licence is suspended, a licensee must not without the Tax Office's permission ⁵⁰ :

• manufacture excisable alcoholic goods (if the holder of a manufacturer licence) ⁵¹ , or
• keep or store excisable alcoholic goods at the premises specified in the licence (if the holder of a storage licence) ⁵² .

During the period of suspension the Tax Office may give written permission ⁵³ for:

• goods to be kept or stored at the premises specified in the licence
• a process to be carried out at the premises specified in the licence, and
• the movement of the goods from the premises specified in the licence to another place.

During the period of suspension the Tax Office may also ⁵⁴ :

• by written notice to the owner of the goods at the premises specified in the licence require the owner to move those goods to another approved place
• take control of the premises specified in the licence and of any goods at the premises as may be necessary for the protection of the revenue or for ensuring compliance with the Excise Acts, and
• by written notice to the licence holder, require them to pay any costs incurred by the Tax Office as a result of the suspension.

3.8 Cancellation of licences

The Tax Office may cancel a licence, but only if it is entitled to suspend the licence under section 39G of the Excise Act ⁵⁵ . It is not necessary for a licence to be suspended before it is cancelled. It is only necessary that the grounds for suspension exist.

However the Tax Office must cancel the licence if it receives a request from a licensee in writing to do so, and there are no excisable goods in the licensee's possession, custody or control.

In the event of a licensee wishing to close or sell their business, it is highly desirable that they give the Tax Office sufficient warning so that the Tax Office can arrange a final audit of goods at the licensed premises to calculate any excise liability. Depending on the circumstances, the licensee has the following options:

• pay any outstanding excise duty on goods which are held at the premises specified in the licence and which are still under the Tax Office's control. The licensee may then dispose of the duty paid goods as they wish
• obtain permission from the Tax Office to sell to another excise licensee any goods which are held at the premises specified in the licence, and which are still under the Tax Office's control. The licensee may then move the goods under bond to the new licensee's premises where they must be taken up in the stock records of the new owner
• if the licensee is selling the business with the stock included, the Tax Office will arrange to cancel the current licence and issue a licence to the new owner (if they have applied, and are eligible, for a licence) on the same day, so that a seamless transfer takes place. A new licence must be issued as excise licences are not transferable. If a seamless transfer of ownership cannot take place, the Tax Office will require the licensee to pay any outstanding excise duty or arrange the under bond movement of the goods to another licensed premises prior to the cancellation of the licence ⁵⁶ .

3.9 Method of cancellation

When a decision to cancel a licence has been made by the Tax Office rather than the licence holder, the Tax Office will in most cases, first suspend the licence. Refer to sections 3.6 and 3.7 for details of licence suspension.

When the Tax Office has made a decision to proceed with the cancellation of a licence, either with or without a prior period of suspension, the Tax Office must cancel the licence in writing. This notice must be served on the licensee either personally or by post, or personally served on a person who appears to participate in the management of the licensed premises ⁵⁷ .

The Tax Office must also give a notice to the owner of excisable goods at the licensed premises (who may be someone other than the manufacturer) requiring that owner, within a specified time, either pays the excise duty owing on the goods, or with Tax Office permission, removes them to another place ⁵⁸ . This notice must also state that if the owner does not comply with this requirement, the goods will be sold or disposed of ⁵⁹ . The notice must be served either personally or by post on the owner, or personally on a person who appears to participate in the management of the licensed premises ⁶⁰ .

If the owner of the goods fails to comply with the requirements of a duly served notice within the time specified in the notice, the Tax Office may sell or dispose of the goods ⁶¹ . This provision stands alone and should not be confused with the forfeiture and seizure provisions elsewhere in the Excise Act.

3.10 Consequences of cancellation.

The cancellation of a manufacturer licence results in the permanent cessation of the manufacture of excisable alcoholic goods. Although the licence has been cancelled there remains a possibility that the licensee may have excisable goods stored at the premises.

Subsection 39M(1) of the Excise Act prohibits the movement of excisable goods on which duty has not been paid without permission from the premises where a licence has been cancelled or has expired and has not been renewed.

If a licence other than a manufacturer (beer) licence has been cancelled or has expired and has not been renewed, subsection 39N(1) of the Excise Act provides for the Tax Office to have the goods moved from the licensed premises to another place approved of by the Tax Office.

Subsection 39N(2) of the Excise Act authorises the Tax Office to sell the goods if, six months after they have been moved as per subsection 39N(1), the owner has not claimed ⁶² them in writing, or the duty, removal, storage and other charges on them have not been paid.

This means that in instances where a claim is made in writing by the owner the Tax office would not be authorised to sell the goods. If a claim has not been made by the owner within six months and the storage and other charges have not been paid, the Tax Office would be authorised to sell the goods.

The Excise Act allows for special (but similar) provisions in relation to a manufacturer (beer) licence:

• when a manufacturer (beer) licence has been cancelled or has expired and has not been renewed, the licensee must not remove or cause the removal of, any beer on which duty has not been paid without Tax Office permission from the premises to which the licence related ⁶³
• where at the end of a month after a licence has been cancelled or has expired and not been renewed, beer on which duty has not been paid remains on the premises to which the licence related, the Tax Office may sell the beer and any containers and packages in which it is contained ⁶⁴ ,
• if the Tax Office considers that any such beer is unsaleable or is likely to sell for an amount less than the duty payable together with the expenses of its removal, storage and sale, the Tax Office may destroy it ⁶⁵ , and
• at the end of a month after a licence has been cancelled or has expired and has not been renewed, the Tax Office may for the purposes of selling the beer and any containers or packages or for the purposes of destroying the beer, arrange the removal of the beer and any containers and packages in which it is contained, to another Tax Office approved location ⁶⁶ .

3.11 Delegation of power to suspend

The Assistant Commissioner, Compliance Management, is the current delegate for the suspension of excise licences.

The Tax Office will place all of the relevant issues for suspension before the delegate who will then decide whether or not to suspend a manufacturer or storage licence. The delegate must act to ensure that the principles of procedural fairness are adhered to. adhered to.

3.12 Considerations for suspension and cancellation

In considering whether to suspend or cancel a licence, the Tax Office will have regard to:

• whether any breaches by the licensee of the 'fit and proper person' criteria of sections 39B and 39C of the Excise Act are relevant to the licensee's future compliance with excise legislation (those sections of the Act state that the Tax Office may have regard to certain considerations, not that the Tax Office will or must have regard to those considerations)
  • for example, the conviction of a licensee under a law of the Commonwealth for assault may not be relevant to that person's holding a licence under the Excise Act, whereas that person's conviction for dishonesty or fraud may very well be relevant
• whether any or all of the reasons for suspension of a manufacturer or storage licence listed in section 39G of the Excise Act are relevant to the licensee's future compliance with excise legislation. (The section provides that the Tax Office may suspend a licence, not that it will suspend a licence)
• perceptions of community confidence which may be affected by action or lack of action by the Tax Office may affect the future likelihood of others complying with the Excise law
• any of the issues that have individually or cumulatively led to the licensee being assessed with a risk rating which may warrant suspension or cancellation of their licence.

The recommendation for the suspension or cancellation of a licence will not normally be based on any single event, but rather on a series of events which have led to a high risk rating. Before this high risk stage is reached intervention by senior management by way of counselling should take place. This should be done in an effort to bring the licensee voluntarily to an acceptable level of compliance.

However there may be circumstances where counselling is considered inappropriate because of the seriousness of a particular event which might trigger suspension action. The Tax Office would only consider recommending action to suspend prior to counselling where there are compelling reasons to do so.

The provision for suspension and cancellation of licences should be seen within the context of being only one of a range of possible tools designed to improve compliance and to treat risk. Other options are:

• modification of a Section 50 Direction (which may include, amongst other things records to be kept and provision of returns) ⁶⁷
• increasing the amount of security and/or requiring one or more sureties ⁶⁸
• issuing Infringement Notices ⁶⁹
• increasing the extent or frequency of audits
• intervention by senior management
• placing additional conditions on a licence ⁷⁰ or permission ⁷¹ , or
• cancellation of periodic settlement permission ⁷² .
• The selection of the appropriate tools will depend on the particular circumstances at the time, the extent of the risk to the revenue and the willingness of the licensee to voluntarily comply with Tax Office requirements.

Section 4 Disputing Decisions

4.1 Reviewable decisions

A client who is not satisfied with certain decisions or actions of the Tax Office has the right, under Part IVC of the Taxation Administration Act (TAA), to lodge an objection. An objection may be lodged against a wide range of decisions made by the Excise Business Line including, but not limited to, the following:

• Reviewable decisions under section 39Q of the Excise Act 1901 which include all decisions made under Part IV of the Excise Act including
  • refusal to grant, suspension or cancellation of a manufacturer or storage licence
  • imposing conditions on a manufacturer or storage licence, and
  • refusal to renew a manufacturer's licence.
• Reviewable decisions under section 82B of the Distillation Act 1901 including:
  • refusing to grant a licence under section 20
  • refusing to renew a licence under section 22
  • requesting a new security under section 23, and
  • cancellation of a licence by the CEO, under section 24.
• Reviewable decisions under section 20 of the Spirits Act 1906 including:
  • refusal to grant a licence to a person to make or sell methylated spirits.

4.2 Objection process

The process of review begins with the receipt of an objection from the client:

• If they wish to have the decision reviewed under the Taxpayers' Charter they may contact the tax officer handling their case or the Tax Office where the decision was made. A tax officer who was not involved in making the original decision will carry out a review
• If a person wishes to have the decision formally reviewed under the law, section 162 provides that they may object to the decision in the manner set out in Part IVC of the Taxation Administration Act 1953 as follows
  • within 60 days of the receipt of our decision they must lodge their objection in writing with Excise - Objections and Appeals, Australian Taxation Office, PO Box 9100, Wollongong, telling us what they object to and why
  • within 60 days of receiving the objection the Tax Office is obliged to make a decision about the objection and advise the person in writing of that decision
  • if that person is dissatisfied with the Tax Office decision they may apply to the Administrative Appeals Tribunal (AAT) for review or appeal to the Federal Court. The letter that accompanies the Tax Office notice of decision on the objection will explain the steps the person needs to follow to exercise their rights of review or appeal.

If the period of time within which an objection may be lodged has passed, a person may lodge the objection together with a written request asking the Commissioner to treat the objection as properly lodged (see subsection 14ZW(2) of the TAA). The request must state fully and in detail the circumstances concerning the reasons for the delay in lodging the objection.

If the Tax Office refuses to allow additional time to lodge an objection, the taxpayer may ask that this decision be reviewed by the AAT.

4.3 Taxpayers' Charter

Generally, under the terms of the Taxpayers' Charter , the following service standards will be adhered to when dealing with an objection:

• an acknowledgement letter will be sent to the client within 3 days
• if the client has not provided all the information we need to make an informed decision, we'll aim to contact them within 14 days to ask for the further information
• a decision regarding an objection should be made within 56 days of the receipt of the required information.
• If we find that the client's request raises particularly complex matters that will take more than 56 days to resolve after receiving all the required information, we will aim to contact them within 14 days to negotiate an extended reply date.

4.4 Further review

If the client is dissatisfied with the outcome of the review they have the right to lodge an appeal with either the AAT or the Federal Court.

Section 5 Glossary

5.1 Associates

Within sections 39A and 39G, the Excise Act makes reference to an 'associate within the meaning of the Income Tax Assessment Act 1997 '. In turn, section 995-1 of the Income Tax Assessment Act 1997 (ITAA97) defines 'associate' as having the meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA36).

The following subsections are quoted for convenience. For certainty, reference should be made to the current version of the relevant legislation. At the time of writing subsections 318(1) and 318(2) of the ITAA36 provided as follows:

318(1) [Associates of a natural person]

For the purposes of this Part, the following are associates of an entity (in this subsection called the 'primary entity') that is a natural person (otherwise than in the capacity of trustee):

(a) a relative of the primary entity

(b) a partner of the primary entity or a partnership in which the primary entity is a partner

(c) if a partner of the primary entity is a natural person otherwise than in the capacity of trustee - the spouse or a child of that partner

(d) a trustee of a trust where the primary entity, or another entity that is an associate of the primary entity because of another paragraph of this subsection, benefits under the trust

(e) a company where

(i) the company is sufficiently influenced by:

(A) the primary entity; or

(B) another entity that is an associate of the primary entity because of another paragraph of this subsection. or

(C) another company that is an associate of the primary entity because of another application of this paragraph, or

(D) two or more entities covered by the preceding sub-subparagraphs, or

(ii) a majority voting interest in the company is held by

(A) the primary entity, or

(B) the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the preceding paragraphs of this subsection, or

(C) the primary entity and the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and because of the preceding paragraphs of this subsection.

318(2) [Associates of a company]

For the purposes of this Part, the following are associates of a company (in this subsection called the 'primary entity'):

(a) a partner of the primary entity or a partnership in which the primary entity is a partner

(b) if a partner of the primary entity is a natural person otherwise than in the capacity of trustee - the spouse or a child of that partner

(c) a trustee of a trust where the primary entity, or another entity that is an associate of the primary entity because of another paragraph of this subsection, benefits under the trust

(d) another entity (in this paragraph called the 'controlling entity') where

(i) the primary entity is sufficiently influenced by

(A) the controlling entity, or

(B) the controlling entity and another entity or entities, or

(ii) a majority voting interest in the primary entity is held by

(A) the controlling entity, or

(B) the controlling entity and the entities that, if the controlling entity were the primary entity, would be associates of the controlling entity because of subsection (1), because of subparagraph (i) of this paragraph, because of another paragraph of this subsection or because of subsection (3)

(e) another company (in this paragraph called the 'controlled company') where:

(i) the controlled company is sufficiently influenced by

(A) the primary entity, or

(B) another entity that is an associate of the primary entity because of another paragraph of this subsection or

(C) a company that is an associate of the primary entity because of another application of this paragraph, or

(D) 2 or more entities covered by the preceding sub-subparagraphs; or

(ii) a majority voting interest in the controlled company is held by

(A) the primary entity, or

(B) the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection, or

(C) the primary entity and the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection;

(f) any other entity that, if a third entity that is an associate of the primary entity because of paragraph (d) of this subsection were the primary entity, would be an associate of that third entity because of subsection (1), because of another paragraph of this subsection or because of subsection (3).

5.2 Fit and proper person or company

Sections 39B and 39H of the Excise Act list a number of matters that the Tax Office may have regard to when considering whether a natural person is a fit and proper person for the purposes of the granting or suspending a licence, respectively.

In the same way, sections 39C and 39I list a number of matters that the Tax Office may have regard to when considering whether a company is a fit and proper company for the purposes of granting or suspending a licence, respectively.

However the matters listed there are clearly not the only matters that the Tax Office may have regard to, as these provisions use the word 'may', not 'may only' or 'must only'. The list of matters that the Tax Office 'may' have regard to is therefore a non-exhaustive list, and logically it leaves the way open for the Tax Office to have regard to any other relevant matters which may not be listed.

The question of what is a fit and proper person for the purposes of the Excise Act was addressed in the Administrative Appeals Tribunal by Deputy President Forgie in Martino v Australian Taxation Office ([2002] AATA 1242). In her judgement she relied in part on the reasoning applied by the High Court of Australia in Australian Broadcasting Tribunal v Bond and Others (1990) 94 ALR 11, specifically by Mason CJ, and Toohey and Gaudron JJ, and also the earlier case of Hughes and Vale Pty Ltd and Anor v State of New South Wales and Ors (No. 2) (Dixon CJ, McTiernan, Williams, Webb, Fullugar, Kitto and Taylor JJ) (1955) 93CLR 127.

The following passages appear at the paragraphs specified of Martino (per Forgie DP).

(At 38.) 'In an earlier case of Hughes and Vale Pty Ltd and Anor v State of New South Wales and Ors [No.2] (Dixon CJ, McTiernan, Williams, Webb, Fullugar, Kitto and Taylor JJ) (1955) 93 CLR 127, it was said:

" The expression 'fit and proper person' is of course familiar enough as traditional words when used with reference to offices and perhaps vocations. But their very purpose is to give the widest scope for judgment and indeed for rejection. 'Fit' (or 'idoneus') with respect to an office is said to involve three things, honesty, knowledge and ability: 'honesty to execute it truly, without malice affection or partiality; knowledge to know what he ought duly to do; and ability as well in estate as in body, that he may intend and execute his office, when need is, diligently, and not for impotency or poverty neglect it. " (page 156) '

(At 43, after quoting Dixon CJ and Toohey and Gaudron JJ.) 'What is apparent from these passages from the High Court's judgement in the Bond case, is that the matters we must take into account in determining what is a fit and proper person depends upon the context in which those words appear.'

and

' ... it seems to me that the privileges, obligations and responsibilities of a licence holder under the Act must have some hand in shaping the matters to which regard must be had ...'

(At 46.) 'Given the nature of the privileges, obligations and responsibilities of the holder of a production licence, qualities of diligence, honesty and the likelihood of his or her observing the law would seem to be pivotal characteristics to be taken into account ... '.

5.3 Protection of (or to protect) the revenue

The expressions 'protect the revenue' and 'protection of the revenue' appear at several places in the Excise Acts, but there is no definition of them. The meaning of 'protect the revenue' was considered by Deputy President Forgie in Martino v Australian Taxation Office ([2002] AATA 1242). Commencing in paragraph 50 she said:

' ... The expression " protect the revenue " is not defined in the Act and I am not aware of any authorities that have considered it. The word " revenue " has been considered in Stephens v Abrahams (1902) 27 VLR 753 by Hodges J in the context of an appeal against a conviction for, in essence, presenting a false document with intent to defraud the revenue contrary to the Customs Act 1901 ( " Customs Act " ). Hodges J took:

" ... the 'revenue' to be moneys which belong to the Crown, or moneys to which the Crown has a right, or moneys which are due to the Crown, as indicated by sec. 153 of the Customs Act 1901, which says:-All duties shall constitute Crown debts charged upon the goods in respect of which the same are payable and payable by the owner of the goods and recoverable at any time in any Court of competent jurisdiction by proceedings in the name of the Collector.' I would include those duties as part of the revenue, and the question is, Was there evidence of an intent to defraud the revenue-that is, to get out of the revenue something that was already in it, or to prevent something from getting into the revenue which the revenue was entitled to get? That, I think, would be defrauding the revenue. " (page 767 and see also Parker v Churchill (1986) 9 FCR 334 at 348, per Jackson J)

51. The ordinary meanings of the word " protect " include " keep safe, take care of " (The New Shorter Oxford English Dictionary, 3rd edition, 1993) and they would seem to be the senses in which the word is used in the expression " protect the revenue " . Mr Martino's licence may only be cancelled if it is necessary to take care of the money belonging to the Crown in right of the Commonwealth. That has the aspect of ensuring that the Commonwealth receives all that it should in the form of any excise that is ultimately payable in respect of tobacco originally grown on Mr   Martino's farm and keeps all that it receives. It also has the aspect of not spending more of the Commonwealth's money than need be spent in carrying out its supervisory duties and responsibilities under the Act and in ensuring that the tobacco is not marketed illegally in Australia, and so avoid the payment of excise duty, if it cannot be marketed legally.

52. What is meant by the word " necessary " ? I have taken the view that the meaning adopted by Allen J in State Drug Crime Commission of NSW v Chapman (1987) 12 NSWLR 447:

" As to the word 'necessary' it does not have, in my judgment, the meaning of 'essential'. The word is to be subjected to the touchstone of reasonableness. The concept is one as to what reasonably is necessary in a commonsense way. As Pollock CB said in Attorney General V Walker (1849) 3 Ex 242; 154 ER 833:

'It may be stated as a general rule that those things are necessary for the doing of a thing which are reasonably required or which are legally ancillary to its accomplishment.' " (page 452) '

1 Section 4 of the Excise Act.

2 Section 4 of the Excise Act - definition of `excisable goods'.

3 Sections 26 & 27 of the Excise Act, sections 34 & 36 of the Distillation Act, sections 20 & 26 of the Spirits Act, regulation 12 of the Spirits Regulations.

4 Section 4 of the Excise Act - definitions of `Collector' and `CEO'.

5 Section 4 of the Excise Act - definition of `manufacturer licence'.

6 Section 12 Distillation Act - a person shall not distil spirits unless licensed under this Act.

7 Section 39A of the Excise Act.

8 Section 4 of the Excise Act - definition of `storage licence'.

9 Section 26 of the Excise Act.

10 Section 39A of the Excise Act.

11 Section 13 Distillation Act.

12 Paragraph 13(a)(1) Distillation Act.

13 Paragraph 13(a)(1) Distillation Act.

14 Paragraph 13(a)(2) Distillation Act.

15 See section 57B Distillation Act for a definition of `fortifying spirit'.

16 Subsection 13(b) Distillation Act.

17 Subsection13(c) Distillation Act.

18 Section 20 of the Spirits Act.

19 Subsection 20(1) of the Spirits Act.

20 Subsection 39A(2) of the Excise Act

21 See glossary

22 Persons who participate in the management or control of an entity include directors and any other persons engaged in the professional administration of, or who are in charge of running the entity.

23 For an explanation of `protect the revenue', see glossary.

24 See also the glossary.

25 Section 39B of the Excise Act.

26 See also the glossary

27 Section 39C of the Excise Act.

28 Section 39D of the Excise Act.

29 Section 39DA of the Excise Act.

30 Section 8 of the Distillation Act; section 4 of the Spirits Act.

31 Subsection 20(1) of the Spirits Act.

32 Section 16 of the Excise Act; section 18 of the Distillation Act.

33 Paragraph 39A(2)(j) of the Excise Act.

34 Paragraph 39A(2)(h) of the Excise Act.

35 Paragraph 39A(2)(i) of the Excise Act.

36 The Privacy Act 1988.

37 Section 25 of the Excise Act.

38 Section 39E; section 21 of the Distillation Act.

39 Sub regulations 4(2) and 96(2) respectively of the Distillation Regulations

40 Regulation 117 of the Distillation Regulations

41 Section 39G of the Excise Act.

42 See glossary for definition

43 See glossary for further discussion of `fit and proper'.

44 That is, for the purposes of paragraphs 39G(1)(a), (b), (c), (d) and (f) of the Excise Act.

45 Scetion 39H of the Excise Act.

46 That is, for the purposes of paragraphs 39G(1)(e) and (f) of the Excise Act.

47 Section 39I of the Excise Act

48 Section 39J of the Excise Act.

49 Issued under section 39J of the Excise Act

50 Section 39K of the Excise Act

51 Paragraph 39K(1)(a) of the Excise Act.

52 Paragraph 39K(1)(b) of the Excise Act.

53 Subsection 39K(6) of the Excise Act.

54 Subsection 39K(6) of the Excise Act.

55 Section 39L of the Excise Act.

56 Subsection 39L(4) of the Excise Act.

57 Subsection 39L(3) of the Excise Act.

58 Subsection 39L(4) of the Excise Act.

59 Paragraph 39L(4)(b) of the Excise Act.

60 Subsection 39L(5) of the Excise Act.

61 Subsection 39L(6) of the Excise Act.

62 Essentially, writing to assert rightful ownership, and a lawful entitlement to possession, of the goods.

63 Section 77E of the Excise Act.

64 Subsection 77F(1) of the Excise Act.

65 Subsection 77F(2) of the Excise Act.

66 Subsection 77F(3) of the Excise Act.

67 Paragraph 50(1)(a) of the Excise Act.

68 See discussion at paragraph 1.12.

69 Part XA. An Infringement Notice provides for the payment of a penalty as an alternative to prosecution of certain offences.

70 Subsection 39D(3) and section 39DA of the Excise Act.

71 Sections 61A and 61C of the Excise Act.

72 Subsection 61C(1) of the Excise Act.

ATO references:
NO NAT 14790-04.2006