Tobacco Producer Licence: notification by tobacco producers of any loss of tobacco seed, tobacco plant or tobacco leaf

Can the Collector impose conditions on a tobacco producer licence under sections 39D and 39DA of the Excise Act 1901 in relation to the need for a tobacco producer to report any loss of tobacco seed, tobacco plant or tobacco leaf to the Collector, 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 in relation to the need for a tobacco producer to report any loss of tobacco seed, tobacco plant or tobacco leaf to the Collector, 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 the need for the tobacco producer to report any loss of tobacco seed, tobacco plant or tobacco leaf to the Collector.

There are several stages in the production of tobacco leaf, including the production of seedlings, transplanting of the seedlings to a field and the harvesting of the tobacco leaf.

Once harvested, the tobacco leaf is cured and baled by the tobacco producer and may be stored on the tobacco producer's licensed premises prior to being transported to the local tobacco co-operative's licensed premises, where it is ultimately sold to licensed tobacco manufacturers.

All of the following legislative references are made to the Excise Act unless otherwise indicated.

Section 28 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. Subsection 39D(3) provides that a licence is subject to conditions that the Collector considers 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 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 provides that 'Collector' means the Commissioner of Taxation or an authorised officer. 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 v. Australian Taxation Office Respondent (2002) AATA 1242.

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 in 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 reasonable 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.

The amount of tobacco leaf produced during a season may be affected by several factors, for example, weather conditions and pests and diseases. Further, tobacco leaf may be stolen from the licensed premises and sold through the illegal market meaning that excise is not recoverable on the tobacco products that would have been made from the tobacco leaf.

Notification by the tobacco producer of any loss of tobacco seed, tobacco plant or tobacco leaf, either through seasonal conditions or other means, will assist the Collector in estimating the amount of tobacco leaf produced during a particular season. The Collector is then able to verify that the tobacco producer has accurately accounted for their tobacco leaf and thus complied with the Excise Acts.

If the Collector asks a person who has or has had possession, custody or control of tobacco leaf to account for the tobacco leaf, and they are unable to do so to the Collector's satisfaction, section 77AA requires the person to pay, on demand made in writing by a Collector, an amount equivalent to the excise duty that would have been payable if the tobacco leaf had been used to manufacture excisable tobacco goods.

Where tobacco leaf has been lost through theft, timely notification will enable the Collector to review the security measures adopted by the tobacco producer and ensure additional security measures are implemented where appropriate, thereby reducing the risk of future theft.

Accordingly, the Collector can impose conditions on a tobacco producer licence in relation to the need for a tobacco producer to report any loss of tobacco seed, tobacco plant or tobacco leaf to the Collector 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.