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Is a licensed tobacco producer liable to pay excise duty under the Schedule to the Excise Tariff Act 1921 (Tariff Act) on the tobacco leaf that he or she produces?

Providing that a tobacco producer does not subject tobacco leaf to any manufacturing process following curing he or she will not be liable to pay excise duty under the Schedule to the Tariff Act, on the tobacco which he produces.

The taxpayer is a licensed producer of tobacco under section 39A of the Excise Act 1901 (EA).

An excise producer licence permits the licensee (the producer) to grow and store tobacco seed, tobacco plant and tobacco leaf at the premises specified in the licence.

When the crop of tobacco plants is mature, the producer strips the leaves from the plants and cures them. The cured leaf is then sorted and packed in bales for transportation to a licensed dealer in accordance with a permission granted under section 44 of the EA to move tobacco.

Ultimately the cured tobacco is sold to a licensed tobacco manufacturer for processing into consumable tobacco products.

The producer requested advice as to whether, and in what circumstances, he would become liable to pay excise duty on the tobacco leaf that he produced.

The EA and the Tariff Act must be read together and as one (see section 6 of the EA and section 2 of the Tariff Act). .

It is necessarily implicit in the excise legislation that excisable tobacco, like other excisable goods, is a product that is manufactured.

The term 'manufacture' is relevantly defined in subsection 4(1) of the EA as including 'all processes in the manufacture of excisable goods'. This definition is merely inclusive and, in relation to tobacco, does not alter the fact that a process must result in some change in a product before it can be said that it has been manufactured (see, for example, McNicol v. Pinch [1906] 2 KB 352).

Ordinarily, the curing of tobacco leaf would probably result in the manufacture of something - a process is applied to produce cured tobacco leaf. However, because of section 68 of the EA, it is clear that the simple curing of tobacco leaf does not involve the manufacture of anything for the purposes of the EA and the Tariff Act.

Duties of excise are payable on excisable goods and the relevant duties are imposed by the Tariff Act (see section 54, and the definition of 'excisable goods' in subsection 4(1) of the EA).

For the purpose of imposing duty on tobacco, the Schedule to the Tariff Act defines 'tobacco' as meaning 'tobacco leaf subjected to any process other than curing the leaf as stripped from the plant'.

It is clear from both section 68 of the EA and the definition of 'tobacco' in the Schedule to the Tariff Act that the process of curing leaf as stripped from the plant is deemed not to be a manufacturing process which brings tobacco into an excisable state. It is any manufacturing process that follows curing which brings tobacco to an excisable state.

Providing that a tobacco producer does not subject tobacco leaf to any manufacturing process following curing he will not be liable to pay excise duty on the tobacco which he produces. Note: It should be noted that in the event that the producer is unable to account for a deficiency in his or her tobacco leaf stock, he or she will be liable to pay an amount equal to the duty which would have been payable if the missing tobacco had been manufactured into excisable goods by the producer (section 105 of the EA). Note: Even though section 105 of the Excise Act has been repealed, from 1 July 2006 section 77AA of the Excise Act provides a similar outcome for tobacco leaf that cannot be accounted for.