Excise guidelines for the tobacco industry

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07 - REMISSIONS, REFUNDS, DRAWBACKS & EXEMPTIONS.

7.1 PURPOSE

This chapter deals with:

  • when you can apply for a remission, refund or drawback of excise duty
  • what happens if you are overpaid a refund or drawback of excise duty
  • when tobacco products are exempt from excise duty
  • who can access tobacco products free of excise duty
  • how to apply for a remission, refund or drawback of excise duty, and
  • penalties that can apply to offences in relation to remissions, refunds, drawbacks and exemptions.

7.2 INTRODUCTION

A remission of excise duty extinguishes the liability for duty that was created at the point of manufacture.

A refund is the repayment of duty that has already been paid.

A drawback is a repayment of duty already paid. It is similar to a refund, but applies where duty-paid goods are exported.

In some circumstances the duty you pay on goods may be subject to a complete or partial refund or drawback. [214]

7.3 POLICY AND PRACTICE

7.3.1 WHEN CAN I APPLY FOR A REMISSION OF EXCISE DUTY?

You can apply for a remission of excise duty payable on your excisable tobacco products if the following circumstances apply while the goods are subject to excise control :

  1. Where excisable tobacco products have deteriorated, been damaged, lost or destroyed, or become unfit for human consumption, while they were subject to excise control, they may be subject to a remission [215]
    • 'Lost' in this context does not simply mean can not be found.

Example 7A:

Cigarettes become stale, at the manufacturer's premises, after remaining unsold and the manufacturer wants to destroy them. The manufacturer applies for a remission of duty on the cigarettes. On receiving approval, the manufacturer destroys the unsaleable stock and retains records of the destruction (e.g. date, volume and type of goods destroyed).

  1. Where the goods are not worth the amount of excise duty payable on the goods. [216]

Example 7B:

The goods have become unsaleable, due to changed packaging requirements, and they cannot be sold (but are not unfit for human consumption).

  1. The excisable tobacco products are for sale to diplomatic or consular missions and the goods are to be delivered under your PSP. [217]

Example 7C:

A manufacturer receives an order from a diplomatic mission for cigarettes, for official use. The manufacturer delivers the cigarettes, into home consumption (to the diplomatic mission), under the terms of their PSP. (The terms of the PSP may require the manufacturer to submit an Excise remission (NAT 4289) to us, after delivery of the cigarettes.)

Automatic remission can also apply to tobacco products delivered into home consumption in limited circumstances including tobacco products:

  • to be used for medical, scientific, horticultural or agricultural purposes [218]
  • for the official, use of the Governor General [219]
  • for consumption by Australian Defence Force personnel while on duty on a sea going vessel in full commission [220]

7.3.2 WHEN CAN I APPLY FOR A REFUND OF EXCISE DUTY?

You can apply for a refund of excise duty paid on excisable tobacco products if the following circumstances apply:

  1. Duty has been paid on excisable tobacco products, however it is later found that, while the goods were still subject to excise control (i.e. while they were at the licensed site), they deteriorated or had been damaged, pillaged, lost or destroyed, or become unfit for human consumption. [221]

Example 7D:

A storage licence holder who does not have a PSP pays the excise duty on tobacco products in accordance with a pre-payment return. They receive a delivery authority. Before the tobacco products are removed from the licensed premises they are destroyed by fire. As the tobacco products were still subject to excise control when they were destroyed, the licence holder can apply for a refund of duty on the tobacco products.

  1. Duty-paid tobacco products, while the goods are subject to excise control, are not worth the amount of excise duty paid. [222]

Example 7E:

A storage licence holder who does not have a PSP pays the excise duty on tobacco products in accordance with a pre-payment return. They receive a delivery authority. Before the tobacco products are removed from the licensed premises they become unsaleable, due to changed packaging requirements, and they cannot be sold (but are not unfit for human consumption). As the tobacco products were still subject to excise control when they became unsaleable, the licence holder can apply for a refund of duty on the tobacco products. In most cases these products would then be destroyed and a remission applied or repacked and duty paid when next delivered into home consumption.

  1. Duty has been paid through manifest error of fact or patent misconception of the law. [223]

This circumstance applies to an error that is evident, obvious or apparent and also in situations where duty has been paid in error for goods entering home consumption that are not excisable. In both cases a refund of the duty paid would be payable.

Example 7F:

A tobacco manufacturer calculates the excise on pouch tobacco on the basis that the packages contain 50 grams whereas they only contain 30 grams. Excess duty is paid through an obvious error of fact.

The manufacturer applies for a refund of the duty overpaid through manifest error of fact.

  1. Duty-paid goods have been taken up as ship's or aircraft's stores. [224]

    Ship's stores on overseas ships and aircraft's stores on international flights are not subject to excise duty. [225] Where duty has been paid and the excisable tobacco products are subsequently re-directed for use on ships or aircraft travelling overseas, this refund circumstance may apply.

  2. Duty paid tobacco products are returned, or are deemed to have been returned, to the manufacturer of those goods and the returned tobacco is destroyed or mixed with other tobacco products of a similar kind, i.e. loose tobacco with loose tobacco, cigarettes or cigars with tobacco that is to be used in the manufacture of cigarettes or cigars. [226]

Tobacco products that are returned to be mixed with other tobacco products do not need to be returned to the place of original manufacture. It is sufficient if goods are returned to storage premises licensed to the manufacturer or to premises licensed to an entity having contractual storage and distribution arrangements with the manufacturer.

Tobacco products that are to be destroyed are deemed to be returned to the manufacturer if they are returned to a person authorized by the manufacturer to receive the tobacco products on their behalf. This is generally a place where the goods will be destroyed (furnace or council tip).

Example 7G:

Cigarettes have gone stale at retailers' premises. The manufacturer's sales representative arranges for the return of the cigarettes to the manufacturer's distribution premises with a refund or credit to the retailer.

As the manufacturer intends to destroy the returned cigarettes, the manufacturer applies for a refund of duty using an approved form and stating the particulars of the claim. The manufacturer has to keep records to verify that the refund circumstance applies or applied in relation to the returned cigarettes.

Note: refund circumstance 1 does not apply in this instance because the goods have gone stale after they passed out of excise control.

 

Refunds for tobacco products returned to the manufacturer for remixing or destruction are almost exclusively claimed by the manufacturer who usually paid the excise duty on delivering the goods into home consumption. However, the manufacturer may also claim refunds where a retailer (usually holding a tobacco storage licence) paid duty on the subject tobacco products, where it is understood that this is the agreement between the two parties.

The historical experience has been that manufacturers replace returned tobacco goods or provide equivalent compensation by credit note on a 'like for like' basis. That is, they also compensate the party returning their goods in respect of duty paid by that other party, even though the manufacturer originally sold the goods to them underbond at a price that did not include the duty component. This is done in the context of agreement and understanding between them in those circumstances that the manufacturer should and will claim the relevant duty refund.

If the agreement between these two entities is that the retailer was not being compensated by the manufacturer in respect of the duty component and would be claiming the refund on its own behalf, then a refund may be paid to the retailer who paid the duty. To avoid duplicate claims in respect of the same goods, a refund would not be paid to a retailer before confirming that such an arrangement was in place with the manufacturer because it is not the prevailing practice in the industry.

When calculating the amount of refund for tobacco products returned to the manufacturer, we recognise that due to the nature of these returns (i.e. usually stale product that may have been duty paid at different times it is sometimes unrealistic to expect you to identify the actual rate of duty paid on each product when the goods were originally delivered into home consumption.

Therefore, when making claims in relation to returned tobacco products pursuant to item 7 of the table in subclause 1(1) of Schedule 1 to the Regulation a tobacco manufacturer may use the rate in force 6 months prior to the refund claim or where they have evidence of the excise duty paid on the returned goods then the claim can be calculated using that information.

  1. Duty has been paid on excisable tobacco products and they are sold to a diplomatic or consular mission. [227]

For refund circumstance 1, 2, 3 or 4 in section 7.3.2 above, your application must be submitted within 12 months of the date on which the excise duty was paid. [228] There are no time limitations for lodgement of a refund application under the other circumstances listed above.

7.3.3 WHEN CAN I APPLY FOR A DRAWBACK OF EXCISE DUTY?

You can apply for a drawback if you export tobacco products that have had excise duty paid on them. [229]

We will only pay a drawback if: [230]

  • prior to the exportation, you advise us that you intend to claim a drawback (We can exempt you from this requirement, in writing, either on all claims for drawback or any particular claim. [231] )
  • before exportation of the excisable tobacco products on which duty has been paid, the goods are available for inspection by us,
  • you have not claimed a refund of excise duty in relation to the exported excisable tobacco products
  • the excisable tobacco products have not and are not intended to be returned to Australia after they have been exported
  • you keep records showing:
    • that duty was paid on the tobacco products (for example invoice), and
    • the tobacco products were exported (for example, an export declaration number or bill of lading and evidence such as payment by the buyer)
  • you lodge a drawback claim in the approved form no later than 12 months after the tobacco products were exported, and
  • the amount of the claim is at least $50.

The amount of the drawback will not exceed the amount of excise duty that was paid. [232]

Example 7H:

A cigarette distributor purchases a quantity of duty-paid cigarettes. The distributor notifies us that they intend to export the cigarettes and makes them available for inspection by us. They then export them to Fiji.

The cigarette distributor applies for a drawback of the duty component of the cigarettes. To support the application, the company provides the Tax Office with copies of invoices of purchase and the Bills of Lading, which will include details of the export declaration notice (EDN) number.

7.3.4 WHAT HAPPENS IF I AM OVERPAID A REFUND OR DRAWBACK?

If we overpay you by way of a refund or drawback then you must pay the overpaid amount back. We can require that you pay back the amount and if you do not repay the amount within the time we specify we can recover the amount through the courts as a debt due to the Commonwealth. [233]

7.3.5 WHEN ARE EXCISABLE TOBACCO PRODUCTS EXEMPT FROM EXCISE DUTY?

Excisable tobacco products are not liable for duty if they are:

  • exported
  • sold for use as ship's or aircraft's stores [234]
  • with our approval, delivered as small samples, [235] or
  • subject to remission without application. [236]

What are ship's and aircraft's stores?

Ship's and aircraft's stores are goods for the use of passengers or crew on international journeys (e.g. cigarettes for sale to passengers on board a cruise liner).

There are limits on the quantities of excisable tobacco products that are not liable to excise duty as ship's stores: [237]

  • cigarettes must be sold to passengers or crew in individual packets or tins of not more than 50 sticks
  • loose tobacco (e.g. pipe or cigarette tobacco) must be sold in quantities of not more than 120 grams, or
  • cigars must be sold in individual packets, tins, or boxes of not more than 25 cigars.

If you supply ship's or aircraft's stores underbond , you must obtain a movement permission to move the goods from the licensed premises to the place of export.

Can I deliver samples without payment of duty?

Yes, you may be able to deliver small samples without payment of duty and without entry. You must apply to us for approval and your application must:

  • be in writing
  • specify who the sample is for
  • specify the quantity for approval, and
  • specify the purpose of the sample.

You do not include approved samples in your excise return ; however, you must keep records of any samples you deliver.

If you need more information on samples call us on:

  • phone 1300 137 290

Or to apply for approval, send your application to us by:

  • fax 1300 130 916
  • or posting to

Australian Taxation Office

PO Box 3514

ALBURY NSW 2640

When are excisable tobacco products subject to remission without application?

Excisable tobacco products are subject to remission without application (this effectively means they are exempt from duty) when they are for official use but not for trade by: [238]

  • parties that use tobacco for an approved medical, scientific, horticultural or agricultural purpose (the relevant approvals should be sought from us) [239]
  • the Governor-General or any member of the Governor-General's family
  • State Governors or any member of a State Governor's family
  • the Australian American Foundation (Australian-American Fulbright Commission)
  • the Government of another country, under an agreement between that Government and the Australian Government
  • persons covered by a Status of Forces Agreement, and
  • the personnel of sea-going vessels of the Australian Defence Force (see below for more detail).

If you are not certain whether someone falls into one of these categories, you should contact us by phone on 1300 137 290 .

Some restrictions apply to tobacco products for the Australian Defence Force. Tobacco, cigars and cigarettes may be supplied free of duty when:

  • the goods are for consumption by the personnel of sea-going vessels of the Australian Defence Force when:
    • such vessels are in full commission, and
    • the products are consumed on such vessels. [240]

To supply tobacco products under these circumstances, you must first ensure the receiver meets the relevant criteria. For example, you should only accept orders, stating that the goods are for official use, on the official stationery, or official order, of eligible people or organisations. You must keep a copy of this documentation.

You do not have to apply for a remission and you do not have to include these products on your excise return, but you must keep sufficient records of each transaction

7.4 PROCEDURES

7.4.1 HOW DO I APPLY FOR A REMISSION OR REFUND?

An application for a remission or refund must be submitted in the approved form. Records to substantiate your claims must be maintained and produced when requested. [241]

For refund circumstance 1, 2, 3 or 4 in section 7.3.2 above, your application must be submitted within 12 months of the date on which the excise duty was paid. [242]

To ensure the excisable tobacco products that are to be destroyed do not find their way into the Australian domestic market, we may wish to inspect or supervise the disposal of the goods. If underbond goods must be destroyed off site, you must apply for a movement permission to move them from the licensed premises to the place of destruction.

You should contact us before moving or destroying any tobacco products subject to remission or refund. We will provide you with direction and advise you if the goods are to be inspected or the destruction supervised.

For more information about movement permissions refer to chapter 4 - Movement permissions .

You can elect to have a refund credited to your excise account or paid directly into your bank account.

To apply for a remission, send us a completed Excise remission (NAT 4289). You can use the Excise remission instructions (NAT 15769) to help you complete this form.

To apply for a refund, send us a completed Excise refund (NAT 4288). You can use the Excise refund instructions (NAT 15771) to help you complete this form. Applications can also be made on company letterhead as long as all the relevant information is provided.

If you are not satisfied with our decision to refuse your refund or remission, you can request a review of our decision by lodging an objection within 60 days.

For more information about your review rights refer to chapter 8 - Reviews and objections .

7.4.2 HOW DO I APPLY FOR A DRAWBACK?

An application for a drawback must be submitted in the approved form. Records to substantiate your claims must be maintained and produced when requested. [243]

Your drawback application must be submitted no later than 12 months after the goods are exported. [244]

To apply for a drawback of duty, send us a completed Excise drawback (NAT 4287) or an application on your business letterhead. You can use the Excise drawback instructions (NAT 15688) to help you complete NAT 4287.

If we refuse to pay your drawback and you are not satisfied with our decision you can request a review of our decision by lodging an objection within 60 days.

For more information about your review rights refer to chapter 8 - Reviews and objections .

7.4.3 WHAT DO I DO IF I NEED MORE INFORMATION?

If you need more information on remissions, refunds, drawbacks and exemptions contact us as follows:

Australian Taxation Office

PO Box 3514

ALBURY NSW 2640

We will ordinarily respond to written information requests within 28 days. If we cannot respond within 28 days, we will contact you within 14 days to obtain more information or negotiate an extended response date.

7.5 WHAT PENALTIES CAN APPLY TO OFFENCES IN RELATION TO REMISSIONS, REFUNDS, DRAWBACKS AND EXEMPTIONS?

The following are the penalties that may apply after conviction for an offence.

Evade

If you evade payment of any duty which is payable the maximum penalty is 5 times the amount of duty on the excisable tobacco products. [245]

False or misleading statements

If you make a false or misleading statement or an omission from a statement in respect of duty payable on particular goods, to us, the maximum penalty is a penalty not exceeding the sum of 50 penalty units and twice the amount of duty payable on those goods. [246]

7.6 TERMS USED

Excisable tobacco products

Excisable goods are goods on which excise duty is imposed. Excise duty is imposed on goods that are manufactured or produced in Australia and listed in the Schedule to the Excise Tariff Act.

As these guidelines deal with tobacco products, we have used the term excisable tobacco products.

Excisable tobacco products include:

  • tobacco
  • cigars
  • cigarettes, and
  • snuff.

Excise control

Goods are subject to excise control from the point of manufacture until they have been delivered into the Australian domestic market or for export.

Goods subject to excise control cannot be moved, altered or interfered with except as authorised by the Excise Act.

Excise return

An excise return [247] is the document that you use to advise us the volume of excisable tobacco products that you:

  • have delivered into home consumption during the period designated on your PSP, or
  • wish to deliver into home consumption following approval.

Penalty units

A penalty unit is specified in section 4AA of the Crimes Act 1914 and, at the time of writing, is $170.

Underbond

This is an expression not found in excise legislation but it is widely used to describe goods that are subject to excise control. Excisable goods that are subject to excise control are commonly referred to as 'underbond goods' or as being 'underbond'. This includes goods that have not yet been delivered into home consumption and goods moving between premises under a movement permission.

7.7 LEGISLATION (quick reference guide)

In this chapter we have referred to the following legislation:

7.7.1 Excise Act 1901

Section 58 - Entry for home consumption etc.

Section 64 - Delivery of samples free of duty

Section 78 - Remissions, rebates and refunds

Section 79 - Drawbacks

Section 80 - Recovery of overpayments of refunds, rebates, and drawbacks

Section 120 - Offences

Section 160A - Ship's stores and aircraft's stores

7.7.2 Excise Regulation 2015

Section 10 - Application for remission, rebate or refund of excise duty

Section 11 - Period for making an application for refund or rebate of excise duty

Section 14 - Drawback of excise duty on goods

Section 16 - Conditions relating to drawback of excise duty - general

Section 20 - Delivery of Australian tobacco leaf

Section 55 - Ship's stores liable to excise duty

Schedule 1, subclause 1(1) - Circumstances in which remission, rebate or refund may be allowed on application

Schedule 1, clause 2 - Circumstances in which remission, rebate or refund may be allowed without an application

7.7.3 Excise Tariff Act 1921

The Schedule

7.7.4 Crimes Act 1914

Section 4AA - Penalty units

Excise guidelines for the tobacco industry
  Date: Version:
  1 July 2006 Original document
  1 September 2014 Updated document
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