ATO Interpretative Decision

ATO ID 2006/299 (Withdrawn)

Excise

• While the view expressed within the ATO ID is technically correct there are no licenced tobacco producers in Australia.
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Issue

Can the Collector impose conditions on a tobacco producer licence under sections 39D and 39DA of the Excise Act 1901 that relate to the control and security that the tobacco producer maintains over the tobacco seed, tobacco plant or tobacco leaf on the basis that they are necessary or desirable for the protection of the revenue or for the purposes of ensuring compliance with the Excise Acts?

Decision

Yes. The Collector can impose conditions on a tobacco producer licence under sections 39D and 39DA of the Excise Act that relate to the control and security that the tobacco producer maintains over the tobacco seed, tobacco plant or tobacco leaf on the basis that they are necessary or desirable for the protection of the revenue or for the purposes of ensuring compliance with the Excise Acts.

Facts

The Collector is considering imposing conditions on a tobacco producer licence that relate to the control and security the tobacco producer maintains over their tobacco seed, tobacco plant or tobacco leaf.

A tobacco producer is required to complete an application for a licence to produce tobacco. As part of the application process they are required to provide details of the premises at which the tobacco seed, tobacco plant and tobacco leaf will be produced.

Reasons for Decision

Section 28 of the Excise Act provides that a person cannot produce material that is tobacco seed, tobacco plant or tobacco leaf unless they hold a producer licence.

Producer licences are issued under section 39A of the Excise Act. A producer licence may be subject to three types of condition. The first two types of condition are set out in subsections 39D(1) and 39D(2) of the Excise Act.

The third type of condition may be imposed by the Collector under subsection 39D(3) of the Excise Act where he considers the condition to be necessary or desirable for the protection of the revenue or for the purpose of ensuring compliance with the Excise Acts. Under section 39DA of the Excise Act, the Collector may, on his or her own initiative, vary or revoke a condition of a licence that was specified under subsection 39D(3) of the Excise Act. The Collector may also impose an additional condition.

Section 4 of the Excise Act provides that 'Collector' means the Commissioner of Taxation or an authorised person. Section 4 states that 'Excise Acts' means the Excise Act and any instruments (including rules, regulations or by-laws) made under the Excise Act, or any other Act and any instruments (including rules, regulations or by-laws) made under that Act relating to excise in force within the Commonwealth or any part of the Commonwealth.

The term 'necessary for the protection of the revenue' was considered in Re Francesco Martino Applicant v. Australian Taxation Office Respondent [2002] AATA 1242.

At paragraphs 51 and 52 of the judgement in that case Deputy President Forgie stated:

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)

The following two elements for the protection of the revenue may be drawn from Deputy President Forgie's judgement:

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firstly, the need to ensure that the Commonwealth receives all that it should in the form of any excise that is ultimately payable, and

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secondly, that the Commonwealth does not have to incur excessive expenditure in ensuring clients' compliance with their excise responsibilities.

Section 39A of the Excise Act gives the Collector a discretion to grant or refuse to grant a producer licence. Paragraph 39A(2)(h) of the Excise Act provides that the Collector may refuse to grant a producer licence if, in the Collector's opinion, the physical security of the storage place on the premises stipulated on the licence is not adequate, having regard to the following factors.

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the nature of the storage place

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the quantity of tobacco leaf that would be kept at the storage place, and

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the procedures and methods that would be adopted by the applicant to ensure the security of tobacco leaf at the storage place.

Therefore, in exercising his discretion whether to issue a tobacco producer licence, the Collector must consider the suitability of premises at which the tobacco seed, tobacco plant and tobacco leaf will be produced and/or stored and the means by which the security of the tobacco leaf will be maintained.

Hence, when the Collector issues a tobacco producer licence to a particular applicant, the Collector has taken into account the security measures, or proposed security measures, at the premises.

However, a change to the tobacco producer's rights and obligations over the premises may affect the suitability of the premises for the production of tobacco products. For example, a change to a lease arrangement entered into by the producer for the use of the licensed premises may affect their control over the premises, or the Collector's access to the premises. Similarly, a change to the security measures at the premises may increase the risk of theft and therefore the likelihood that the tobacco product may be sold through the illegitimate market.

Therefore, placing conditions on a tobacco producer licence that are relevant to the control and security the licence holder has over the licensed premises will go towards ensuring that tobacco leaf is sold through the legitimate market.

It follows that the Collector can impose conditions on a tobacco producer licence under sections 39D and 39DA of the Excise Act that relate to the control and security that the tobacco producer maintains over the tobacco seed, tobacco plant or tobacco leaf on the basis that they are necessary or desirable for the protection of the revenue or for the purposes of ensuring compliance with the Excise Acts.

Legislative References:
Excise Act 1901
   section 4
   section 28
   section 30
   section 31
   section 39A
   section 39DA
   paragraph 39A(2)(h)
   subsection 39D(1)
   subsection 39D(2)
   subsection 39D(3)

Case References:
Re Francesco Martino Applicant v. Australian Taxation Office Respondent
   [2002] AATA 1242

Related ATO Interpretative Decisions
ATO ID 2006/300

Keywords
Excise acts
Excise Licensing
Licensed tobacco premises
Licensed tobacco producer
Tobacco producer
Tobacco producer licence

Siebel/TDMS Reference Number:  5362994

Business Line:  Indirect Tax

Date of publication:  3 November 2006

ISSN: 1445-2782