Tobacco Producer Licence: conditions that relate to transportation of bales

Can the Collector impose conditions on a tobacco producer licence under sections 39D and 39DA of the Excise Act 1901 that relate to the transportation of baled tobacco leaf from the tobacco producer's property to the relevant 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 transportation of baled tobacco leaf from the tobacco producer's property to the relevant 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 the transportation of tobacco leaf bales from the tobacco producer's property to the tobacco co-operative in their State.

The tobacco producer grows, harvests and cures tobacco leaf at their licensed premises, or at premises approved by the Collector. Once cured, the producer bales the tobacco leaf in hessian.

Each bale has a bar coded tobacco bale label attached to it which has the grower's identification number and the bale number.

The tobacco producer's tobacco leaf is sold to licensed manufacturers. The tobacco co-operative in the producer's State facilitates the sale of the tobacco leaf from the producer to manufacturers. The tobacco leaf is inspected, graded and sold at the co-operative's premises. On occasion, there can be considerable delays between the baling of tobacco leaf and the ultimate sale of the tobacco leaf to licensed manufacturers.

Both the tobacco producer and the tobacco co-operative have storage facilities. However, the premises at the co-operative are more secure than those of the producer, which are only suitable for short term storage.

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

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 person. Section 4 states that the term '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.

Although excise duty is not payable on tobacco leaf, it is payable on excisable products manufactured from tobacco leaf. Therefore the Collector needs to ensure that all tobacco leaf either finds its way to licensed manufacturers who will pay duty on the resultant goods, or is destroyed if it is not of a standard suitable for excise manufacture.

If tobacco leaf goes missing, it is likely to find its way into the illegal market and the revenue will suffer accordingly. Therefore it is essential that tobacco leaf is stored in a secure environment.

As there can be considerable delays between the baling of tobacco and its eventual sale to licensed manufacturers, the tobacco leaf may be kept in storage for extended periods.

Although the tobacco producer has storage facilities on their licensed premises, those facilities are only suitable for short term storage. The longer tobacco leaf is held in storage, the greater the chances of the tobacco finding its way into the illegal market.

The premises of a tobacco co-operative include facilities that are purpose built for the long term storage of baled tobacco leaf. The level of security at those premises is higher than at the tobacco producer's licensed premises.

Given the increased risk to the tobacco leaf from long term storage, it is essential that the tobacco leaf is transported from the tobacco producer's premises to the tobacco co-operative in a timely manner.

In addition, the continued storage of baled tobacco leaf increases the risk that the tobacco producer will not be able to account for the tobacco leaf to the satisfaction of the Collector. Under section 77AA, 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, the person is required to pay, on demand made in writing by the Collector, an amount equivalent to the excise duty that would have been payable if the tobacco leaf had been used to manufacture excisable goods. The amounts potentially payable under this provision may be well beyond the means of most producers. By transporting the tobacco leaf to the relatively secure facilities at the tobacco co-operative, the producer's exposure to potential liability under this provision is minimised, and the likelihood of the Commonwealth receiving all the monies to which it is entitled are maximised.

Accordingly, the Collector can impose conditions on a tobacco producer licence under sections 39D and 39DA that relate to the transportation of baled tobacco leaf 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.