Excise guidelines for the tobacco industry
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03 - LICENSING: Assessing applications
- licensing criteria
- licence conditions
- assessing your application to renew your licence
- what happens if your licence is not granted
- what will happen if your licence is granted
- records you need to keep
- how to renew your licence, and
- penalties that can apply to offences in relation to making an application.
- whether you or an associate are not 'fit and proper'
- whether you do not have, or have available to you, the skills and experience required to carry out the activity that would be authorised by the licence
- the physical security of the premises is not adequate
- the plant and equipment to be used at the premises is not suitable
- you will not have a market for the goods
- you would not be able to keep proper books of account for audit purposes
- the grant of a storage licence would delay liability for duty, or
- it is necessary to refuse to grant the licence to protect the revenue.
- you are not 'fit and proper'
- existence of a market, and
- protection of the revenue.
- if an individual, the individual is assessed
- if a partnership, each partner is assessed, and
- if a company, the company is assessed.
- another person who would participate in the management or control of the premises that is the subject of the licence application
- if the applicant is a company, then any director, officer, or shareholder of the company that would participate in the management or control of the company, and
- certain associates of the applicant (associates can be people or companies).
What does fit and proper mean?The term 'fit and proper' is not defined in the Excise Act or Excise Regulations. Fit and proper is dependant on the purpose of the legislation and the proposed activities of the person concerned. In general qualities of diligence, honesty and the likelihood of observance of the law are pivotal characteristics to be taken into account in considering fitness and propriety. In an Excise context we are assessing the suitability of the person applying for a licence to have access and control over tobacco seed, plant or leaf and excisable tobacco products . The Excise Act provides a definitive list of factors that we will take into account in determining whether a person or company is fit and proper. These factors generally relate to:
- any prosecution history
- the honesty of information provided by the applicant
- compliance with tax obligations, and
- licensing history.
- whether, within a year of lodging the application, the person or company has been
- an offence under the excise legislation, or
- whether, within 10 years of lodging the application, the person or company has been
- an offence under the excise legislation, or
- the extent of the person's or company's compliance, within 4 years of lodging the application, with any law administered by us (e.g. income tax, GST)
- whether the person has held an excise licence which has been cancelled, or
- the person's or company's financial resources.
- whether the person has participated in the management or control of a company that has had its excise licence cancelled
- whether the person is an undischarged bankrupt
- any misleading statement made in the application by the person, or
- where any false statement was made in the application- whether the person knew it was false.
|False and misleading statements are discussed below in ' Where a person makes false or misleading statements in their application '.|
- whether a receiver has been appointed over the property, or part of the property, of the company
- whether the company is under administration under the Corporations Act 2001 (Corporations Act)
- whether there is a current deed of company arrangement in place under Part 5.3A of the Corporations Act, or
- whether the company is being wound up.
Where a person makes false or misleading statements in their application It is important that you provide information that is accurate and complete. If your application (i.e. your completed application form, any supporting documentation and any oral statements made), contains false or misleading statements we will take this into account. Misleading statements. With regard to this element, the term 'mislead' is not defined in the Excise Act. The Australian Oxford Dictionary , 2004, 2 nd edn, Oxford University Press, Melbourne defines 'mislead' as follows:
- cause (a person) to go wrong, in conduct, belief, etc.
- lead astray or in the wrong direction.
|Example You advise us that you have installed a state of the art security system at your premises. While true, you failed to advise us that a design fault has resulted in repeated false alarms to the point where you have switched off the security system and have no intention of re-engaging it. The design fault cannot be remedied. The only security actually in operation at the premises is a rusty padlock. The information you provided, whilst not false, could lead us to believe that your premises are secure. This is misleading.|
False statementsWe can only take false statements into account if you knew they were false.  In essence, a statement is false if it is not true. A false statement may be made expressly, or via omission. An example of the former is where you state you have no criminal convictions when in fact you have been convicted. An example of the latter would be to leave the question on your application form in relation to criminal convictions blank when in fact you have been convicted. In both instances, a false statement has been made.
Who are the associates that can be assessed for fit and proper? To avoid situations where people with a high risk of non-compliance are able to exercise control over licence holders, certain associates can be assessed under the fit and proper person test. The word associate effectively takes it meaning from the Income Tax Assessment Act 1936 and is summarised below:
- An associate of a natural person (otherwise than in the capacity of trustee) includes:
- a relative  of the individual, for example, their spouse, parent, sibling, uncle, aunt
- a partner of the individual or a partnership in which the individual is a partner
- if a partner of the individual is a natural person otherwise than in the capacity of trustee, the spouse or child of the partner
- a trustee of a trust under which the individual or their associate benefits, or
- a company under the control of the individual or their associate. 
- An associate of a company includes:
- a partner of the company or a partnership in which the company is a partner
- if a partner of the company is an individual, the spouse or child of the partner
- a trustee of a trust under which the company or their associate benefits
- another entity (a company, partnership, trustee or an individual), or its associate(s) who controls the company, or
- another company which is under the control of the company or the company's associate. 
- has sufficient influence over the company, or
- holds a majority voting interest in the company.
- An associate of a trustee includes an entity or an associate of the entity that benefits or is capable of benefiting either directly or indirectly under the trust. 
- For a partnership an associate includes each partner of the partnership or associate of the partner. 
- carry out the activity requiring a licence
- conduct a business, and
- comply with excise obligations.
|Example Mr X, as a Director of Z Transport and Logistics Pty Ltd, applies for a storage licence. Neither Mr X nor any of his staff have the skills and experience to comply with the company's excise obligations. This poses a risk that excisable tobacco products may be sold without adequate record keeping, and may adversely affect revenue and compliance. Therefore, when assessing this element of subsection 39A(2) in isolation, Z Transport and Logistics Pty Ltd would fail the requirements of skills and experience. However, a decision on granting a licence is made based on an assessment of all elements of subsection 39A(2) . Z Transport and Logistics Pty Ltd may choose to address the deficiency in skills and experience by such measures as appointing a Manager who has the relevant skills and experience.|
- the nature of the site
- the kinds and quantities of goods to be kept, and
- the procedures and methods adopted to ensure the security of goods.
- construction (for example floor, walls, ceiling, windows and doors) and whether material is difficult to penetrate or remove
- barriers (for example fences or wire) to a standard that would prevent unauthorised access
- locks and bars
- alarms, security lighting, security guard patrols or closed-circuit TV cameras
- physical security of all warehouse facilities within the site, and
- fire alarms, smoke detectors, sprinklers etc.
- the ease with which goods can be handled, for example, cartons of cigarettes are easier to move than fuel in a large refinery tank
- the rate of excise duty applicable to the goods (goods that attract a greater rate of excise duty represent a greater revenue risk), and
- the greater the quantity of excisable goods to be dealt with, the higher the level of physical security that would be required.
- gate security system that would identify all people entering and leaving the site, and confirm their right to do so
- gate security system that would identify the type and quantity of all goods entering and leaving the site
- surveillance system
- procedures to handle and retain information from surveillance system (if there is one)
- access control, for example by limited distribution of keys and access swipe cards or codes
- security responses when breaches are detected, for example back to base system, and
- an independent security audit function to oversee all of the above.
- manufacturing machines
- packing machines
- weighing equipment for determining tobacco content, and
- counting equipment to determine numbers of sticks/packs/cartons/shippers.
- evidence of contracts (including 'in principle' contracts) you have negotiated, or
- a business plan which outlines the market you have identified.
- the recording systems you intend to use, whether they are manual or electronic
- where an electronic record keeping system is used, systems documentation showing details such as screens, reports available and security controls, and
- the internal documentation supporting the recording systems, ensuring that the recording systems will record sufficient detail.
This criterion only relates to an application for a storage licence where the granting of the licence would delay liability for the duty.The liability for Excise is imposed on goods at the time of manufacture.  However, it is not actually paid until a later point. The wording in paragraph 39A(2)(k) " ...delay the liability for duty " suggests that one is able to delay the point in time in which the liability arises. However, this is not possible as the imposition of excise, and therefore the time at which the liability arises, is not dependent on any further dealings or processes on those goods. It is only the payment of the liability, the duty, which can be delayed depending on how the goods are dealt with. We consider that the only possible interpretation of section 39A(2)(k) is that it operates to delay the time the liability must be paid. A storage licence allows for the storage of excisable goods on which duty has not been paid. It effectively allows a manufacturer to defer the payment or transfer the liability to a storage licence holder. The question then arises as to how far down the distribution chain payment of an excise liability may be deferred. It is our view that we may refuse to grant a storage licence where the grant of the licence would delay payment of duty beyond the point of storage occurring in the normal wholesale distribution of the goods. Using a different perspective, we may refuse to grant a storage licence when refusal is necessary to ensure that excise duty is paid before goods reach the retail level in the distribution chain. In forming an opinion as to whether the granting of an excise storage licence would delay liability for duty, we will consider:
- the purpose for which the goods are to be stored, and
- whether the premises in question are for storage occurring in the normal wholesale distribution of the goods, or for storage beyond the normal wholesale distribution of the goods (for example, storage for a retail premises).
The meaning of 'protect the revenue' was considered by Deputy President Forgie in Martino v Australian Taxation Office .  She said:
'Protect the revenue' therefore means ensuring that the Commonwealth receives the full amount of excise duty that is ultimately payable and we do not spend more Commonwealth funds than necessary to carry out our responsibilities. 3.3.2 WHAT ARE LICENCE CONDITIONS? Licence conditions form part of your licence. They are restrictions, limitations or modifying circumstances. They may define permissible activities and require you to take certain actions if defined circumstances arise. If you fail to comply with a condition, we may suspend or cancel your licence.  All excise licences are subject to certain conditions imposed by:
' 50. ... 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. ...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,
51. The ordinary meanings of the word " protect " include " keep safe, take care of " ... 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.'
- the Excise Act, and
- us ('special conditions').
- you or any person participating in the management or control of a licensed company or premises is charged with or convicted of:
- an offence against a provision of the Excise Act, 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 fine of 50 penalty units or more
- you become bankrupt
- a person not listed in the licence application starts to participate in the management or control of the licensed premises or company, as the case may be
- there is a change in the membership of a partnership that holds a licence
- a company that holds a licence comes under receivership, administration or begins to be wound up
- there is a change that substantially affects the physical security of the licensed premises or plant and equipment used in relation to excisable goods at the premises
- you hold a manufacturer licence and you cease to manufacture excisable goods at the licensed premises
- you hold a storage licence and you cease to keep and store goods at the licensed premises
- you hold a producer licence and you cease to produce tobacco seed, plant or leaf, or
- you hold a dealer licence and you cease to deal in tobacco seed, plant or leaf.
- the trustee for a trust to notify the Collector of the appointment of a new trustee in writing and prior to the appointment of the new trustee
- restrict the storage of excisable goods (by a storage licence holder) to ship's stores and aircraft's stores, and/or
- restrict the quantity of excisable goods that a licensed manufacturer may manufacture.
|For more information about your review rights refer to chapter 8 - Reviews and objections .|
|For information about your review rights refer to chapter 8 - Reviews and objections .|
|For more information about the criteria for cancelling a licence refer to chapter 4 - Licensing: Suspension & cancellation .|
|If you have applied before the date of expiration on your licence but we have not made a decision by this date, the licence remains in force until such time as we do make a decision.|
|For more information about your review rights refer to chapter 8 - Reviews and objections|
- alter existing conditions on your licence
- impose new conditions, or
- require you to provide a financial security.
|If you have not applied to renew your licence then the licence expires on 30 September and you can no longer carry out excise related activities.|
|For more information about your review rights refer to chapter 8 - Reviews and objections|
|Your existing licence will remain valid until we make a decision about your application for renewal. |
|Example: Your licence is due to expire on 30 September 2008 (the expiry day). On 1 September 2008 you apply to renew the licence. We have not decided the application by the end of 30 September 2008. The licence continues in force automatically past 30 September 2008 until we decide the application. On 15 October 2008 we decide to renew the licence. The renewed licence expires on 30 September 2011.|
|If you wish to renew your licence but you have not received an invitation to renew within four weeks of the date of expiry you need to contact us.|
- phone 1300 137 295
- fax (03) 9285 1168 , or
- write to us at
Australian Taxation Office
PO Box 3001
PENRITH, NSW, 2740
- cigarettes, and
A penalty unit is specified in section 4AA of the Crimes Act 1914 and, at the time of writing, is $110.Tobacco Tobacco means tobacco leaf subjected to any process other than curing the leaf as stripped from the plant.  This means that until tobacco leaf is subjected to processes after curing it is not excisable. The species of the Nicotiana genus that are generally used for smoking, chewing or snuff are considered to produce tobacco leaf. Those species are currently Nicotiana tabacum, Nicotiana rusticum and Nicotiana sylvestris. In this chapter we have referred to the following legislation: 3.7.1 Excise Act 1901 Section 16 - Right to require security Section 17 - Form of security Section 18 - General security may be given Section 19 - Cancellation of bonds Section 20 - New sureties Section 21 - Form of security Section 22 - Effect of security Section 39 - Applications for licences Section 39A - It is in the Collector's discretion whether to grant licence Section 39B - Determining whether a natural person is fit and proper Section 39C - Determining whether a company is fit and proper Section 39D - Conditions of licence Section 39DA - Changing licence conditions on own initiative Section 39F - Renewal of licences Section 39G - When the Collector may suspend a licence Section 39Q - Review of decisions Section 120 - Offences 3.7.2 Excise Tariff Act 1921 Section 5 - Duties of excise The Schedule 3.7.3 Income Tax Assessment Act 1997 Section 995-1 - Definitions 3.7.4 Income Tax Assessment Act 1936 Section 318 - Associates 3.7.5 Corporations Act 2001 Section 9 - Dictionary Part 5.3A - Administration of a company's affairs with a view to executing a deed of company arrangement 3.7.6 Crimes Act 1914 4AA - Penalty units
|OUR COMMITMENT TO YOU The information in this publication is current at August 2008. This publication is an expression of the Commissioner's opinion on the operation of tobacco excise legislation. This publication is not legally or administratively binding on the Commissioner and is not a 'public ruling' for the purposes of Section 105-60 or Division 358 of Schedule 1 to the Taxation Administration Act 1953 . The law does not provide for legally binding rulings on tobacco excise legislation. If you feel this publication does not fully cover your circumstances, please seek help from the Tax Office or a professional adviser. Since we regularly revise our publications to take account of any changes to the law, you should make sure this edition is the latest. The easiest way to do this is by checking for a more recent version on our website at www.ato.gov.au|