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Can the Collector impose conditions on a tobacco producer licence under sections 39D and 39DA of the Excise Act 1901 , that relate to the tobacco producer's shareholding with a tobacco co-operative, on the basis that the conditions are necessary or desirable for the protection of the revenue, or for the purpose of ensuring compliance with the Excise Acts?

Yes. The Collector can impose conditions on a tobacco producer licence under sections 39D and 39DA of the Excise Act, that relate to the tobacco producer's shareholding with a tobacco co-operative on the basis that the conditions are necessary or desirable for the protection of the revenue, or for the purpose of ensuring compliance with the Excise Acts.

The Collector is considering imposing conditions on a tobacco producer licence that relate to a tobacco producer's shareholding in a tobacco co-operative in their State.

The tobacco co-operative acts as selling, marketing and invoicing agent in the sale of tobacco leaf for tobacco producers in the relevant State of Australia. Tobacco producers must have an approved shareholding in the tobacco co-operative before it will act as their agent in the sale of their tobacco leaf.

Tobacco co-operatives facilitate the sale of the tobacco producer's tobacco leaf to licensed manufacturers.

Licensed manufacturers of tobacco goods enter into a contract with the relevant tobacco co-operative for the purchase of tobacco leaf. Licensed manufacturers purchase Australian grown tobacco leaf only through the tobacco co-operatives.

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 conditions 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). 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 and Australian Taxation Office Respondent [2002] AATA 1242 (Martino).

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: • firstly, the need to ensure that the Commonwealth receives all that it should in the form of any excise that is ultimately payable, and • secondly, that the Commonwealth does not have to incur excessive expenditure in ensuring clients' compliance with their excise responsibilities.

In Martino 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, the greater the likelihood that it could find its way to the illicit tobacco market. If tobacco leaf did find its way to the illicit market, the revenue would suffer as the excise duty would not be recovered from the eventual sale of the tobacco products made from the tobacco leaf.

Further, the Tribunal noted that continued storage of tobacco leaf for which there was no market would mean a licence holder would become liable for substantial sums (under the now repealed section 105 of the Excise Act) 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 were not amounts that a grower ever contemplates having to pay. Therefore, there was an increased risk of the Commonwealth suffering a revenue shortfall.

By ensuring tobacco producers have a market for their tobacco leaf, the risk to the revenue is decreased.

The existence of a market, and the need to obtain and maintain a shareholding in a tobacco co-operative are closely connected, as licensed manufacturers only purchase Australian tobacco leaf through a tobacco co-operative. A tobacco producer must hold a shareholding with the tobacco co-operative in order for the co-operative to act as their agent in the sale of their tobacco leaf to the licensed manufacturer. It follows that if a tobacco producer does not have an approved shareholding in a tobacco co-operative, the producer does not have a legitimate Australian market for their tobacco leaf. This increases the risk that the producer's tobacco leaf will find its way into the illicit market and that the excise payable on the sale of excisable goods manufactured from the tobacco leaf may not be collected.

The existence of a market, and the need to obtain and maintain a shareholding in a tobacco co-operative are closely connected, as licensed manufacturers only purchase Australian tobacco leaf through a tobacco co-operative. A tobacco producer must hold a shareholding with the tobacco co-operative in order for the co-operative to act as their agent in the sale of their tobacco leaf to the licensed manufacturer. It follows that if a tobacco producer does not have an approved shareholding in a tobacco co-operative, the producer does not have a legitimate Australian market for their tobacco leaf. This increases the risk that the producer's tobacco leaf will find its way into the illicit market and that the excise payable on the sale of excisable goods manufactured from the tobacco leaf may not be collected. The Collector would incur additional expenditure to monitor the stored tobacco to ensure that the relevant excise duty is paid on all tobacco leaf that is stored.

Therefore, placing conditions on a tobacco producer licence that are relevant to the tobacco producer's shareholding with a tobacco co-operative will go towards ensuring that tobacco leaf is sold through the legal market, thereby protecting the revenue. The timely sale of the tobacco leaf also minimises the cost to the Collector in ensuring that the tobacco producer complies with their obligations under the Excise Acts while the tobacco leaf is under the control of the tobacco grower.

Accordingly, the Collector can impose conditions on a tobacco producer licence under sections 39D and 39DA of the Excise Act that relate to the tobacco producer's shareholding with a tobacco co-operative, on the basis that they are necessary or desirable for the protection of the revenue, or for the purpose of ensuring compliance with the Excise Acts.