ATO Interpretative Decision

ATO ID 2004/173

Excise

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the Collector able to suspend a licence to produce tobacco seed, tobacco plant and tobacco leaf pursuant to paragraph 39G(1)(m) of the Excise Act 1901 if the licence holder does not have a legitimate market for any tobacco leaf produced?

Decision

Yes. The Collector is able to suspend a licence to produce tobacco seed, tobacco plant and tobacco leaf pursuant to paragraph 39G(1)(m) of the Excise Act if the licence holder does not have a legitimate market for any tobacco leaf produced.

Facts

A person holds a licence under Part IV of the Excise Act which authorises the person to produce tobacco seed, tobacco plant and tobacco leaf.

The licence holder does not have a legitimate Australian market or established export market for their tobacco leaf.

Licensed tobacco manufacturers have informed the Tax Office that they will not buy tobacco leaf from the licence holder.

Reasons for Decision

Subsection 39G(1) of the Excise Act provides that, subject to subsection 39G(2), the Collector may suspend a licence in a number of circumstances. One circumstance (set out in paragraph 39G(1)(m) of the Excise Act) is where it is necessary to protect the revenue.

The expression 'protect the revenue' is not defined in the Excise Act. In an unreported decision, Re Francesco Martino Applicant v. Australian Taxation Office Respondent [2002] AATA 1242 (unreported, Deputy President Forgie, 29 November 2002) (the Martino Case), the tribunal referred to the judgment of Hodges J. in Stephens v. Abrahams (1902) 23 ALT 233; (1902) 27 VLR 753; (1902) 8 ALR 112 where he defined the term 'revenue' as '...moneys which belong to the Crown, or moneys to which the Crown has a right, or moneys which are due to the Crown...'

The Tribunal went on to state that the protection of the revenue has two aspects. Firstly, the Commonwealth must be certain of receiving all the excise duty that is ultimately payable in respect of the tobacco grown on a licence holder's farm.

The second aspect is that the Commonwealth should not have to spend more than would normally be necessary in carrying out its supervisory duties and responsibilities under the Excise Act and in ensuring that the tobacco is not marketed illegally in Australia, thus avoiding the payment of excise duty.

In the Martino Case, the Tribunal held that as the licence holder did not have a market for his product in Australia or overseas, the suspension of his licence was necessary for the protection of the revenue. In the absence of a market, there was a continuing need to supervise the crop by the Collector. The longer the period of time the crop was stored for, the greater the likelihood that it could find its way to the illicit tobacco market. If tobacco did find its way to the illicit market, the revenue would suffer in that excise duty would not be recovered from its sale.

Continued storage of tobacco for which there is no market would mean a licence holder would become liable for substantial sums if any shortages were discovered in their stock for which they are unable to account to the satisfaction of the Collector. The Tribunal considered that such amounts could be substantial and are not amounts that a grower ever contemplates having to pay. Therefore, there is an increased risk of the Commonwealth not receiving all monies payable for this tobacco. The Tribunal also took this into account in forming the view that licence suspension is necessary for the protection of the revenue.

In this instance, like Martino, the licence holder does not have a legitimate Australian market or established export market for their tobacco leaf. Therefore, the principles outlined in Martino are equally applicable to the licence holder. In particular:

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Continuing to hold an Excise producer licence authorises the licence holder to produce tobacco leaf. The licence holder may have to store tobacco leaf produced for a considerable period in the hope of ultimately finding a market. This would create an undue risk of the tobacco leaf entering the illicit market, thereby depriving the Commonwealth of the appropriate amount of excise duty.

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The Collector would also incur additional costs in providing additional scrutiny to monitor the licence holder's activities.

Therefore, where the licence holder does not have a legitimate market for any tobacco produced, there is a risk to the revenue and the Commissioner is able to suspend the licence to produce tobacco seed, tobacco plant and tobacco leaf pursuant to paragraph 39G(1)(m) of the Excise Act.

Legislative References:
Excise Act 1901
   section 39G
   subsection 39G(1)
   paragraph 39G(1)(m)
   subsection 39G(2)

Case References:
Stephens v. Abrahams
   (1902) 23 ALT 233
   (1902) 27 VLR 753
   (1902) 8 ALR 112

Keywords
Excise
Excise collections
Licensed tobacco producer
Tobacco leaf
Tobacco producer licence

Business Line:  Excise

Date of publication:  24 February 2004

ISSN: 1445-2782