Excise: assessment of duty liability on imported tobacco products for excise manufacture

Does section 62 of the Excise Act 1901 enable the Commissioner to take into account the quantity of tobacco leaf received at a manufacturer's factory (and the amount of tobacco leaf on hand) in determining the quantity of excisable goods that should have been manufactured?

Yes. Section 62 of the Excise Act enables the Commissioner to take into account the quantity of tobacco leaf received at a manufacturer's factory (and the amount of tobacco leaf on hand) in determining the quantity of excisable goods that should have been manufactured.

An entity imports threshed and unthreshed tobacco leaf.

The threshed tobacco is entered for warehousing and moved to a Customs warehouse.

The unthreshed tobacco leaf is delivered to an excise factory.

The unthreshed tobacco leaf is cleared from Customs control on an entry for home consumption and is classified to subheading 2401.10.00 of Schedule 3 of the Customs Tariff Act 1995 (CTA).

The threshed tobacco leaf is moved, under Customs control, from the warehouse to another premise that is both a Customs warehouse and an excise factory.

The threshed tobacco leaf is then entered for home consumption and thereby delivered from Customs control. It is classified to subheading 2401.20.00 of Schedule 3 of the CTA and quotes Customs By-law No. 0140005.

Once the threshed and unthreshed tobacco leaf arrives at the factory it is taken up into the inventory of the factory and ultimately used to manufacture cigarettes. There may be a short time between the take up into inventory and manufacture but this factory is not generally used for long term storage.

The Excise Act imposes controls over the manufacture of excisable goods.

Section 4 of the Excise Act defines a 'factory' as 'the premises on which any person is licensed to manufacture excisable goods ...'

Subsection 86(1) of the Excise Act provides, among other things, that Tax Officers have access to any excise factory and may take account of all material and excisable goods in the factory. Material includes all the inputs to excise manufacturing. Thus it allows the Tax Office to determine whether the manufacturer has accounted for all of the excisable goods that ought to have been produced from the inputs.

Section 62 of the Excise Act imposes an obligation on a manufacturer to pay the amount of any deficiency in duty if the manufacturer cannot account for the deficiency to the satisfaction of the Tax Office. The obligation is imposed when a Tax Officer takes stock of the materials available for the manufacture of excisable goods and reconciles them against the actual excisable goods that have been produced and it appears to the Tax Officer there is a deficiency between the duty that has been paid and the duty that ought to have been paid.

The imported threshed and unthreshed tobacco leaf is an input to the manufacture of excisable tobacco products. Where a stocktake of the imported tobacco leaf and the manufactured tobacco product reveals a deficiency in the duty that has been paid, section 62 of the Excise Act requires the manufacturer to pay the amount of that deficiency. From the time the imported tobacco leaf arrives at the factory it can be taken into account in any stocktake. Any shortage in the imported tobacco leaf may represent a shortfall in the duty that ought to have been paid.

For example where: • the manufacturer has received 100 units of imported tobacco leaf at the manufacturer's factory and 100 units would normally produce 1,000 units of excisable tobacco product, and • a stocktake reveals duty has been paid on 800 units of excisable tobacco products; and • there is no excisable tobacco product remaining under the CEO's control, • there is a shortage of 200 units which equates to a deficiency in the duty calculated by multiplying 200 units by the excise rate for that product.

The Commissioner is thus able to take into account the quantity of tobacco leaf received at a manufacturer's factory (and the amount of tobacco leaf on hand) in determining the quantity of excisable goods that should have been manufactured.