Excise: Licensing conditions - restrictions on production of excisable goods for the protection of the revenue.

Can the Collector impose a condition on a licence under subsection 39D(3) of the Excise Act 1901 (Excise Act) that restricts the quantity of excisable goods that a licensed manufacturer may manufacture?

Yes. The Collector may impose a condition on a licence under subsection 39D(3) of the Excise Act that restricts the quantity of excisable goods that a licensed manufacturer may manufacture.

An entity applies for a licence to manufacture excisable goods.

The entity intends manufacturing excisable goods on a small scale (relative to other manufacturers in the industry) and on an intermittent, irregular basis.

All legislative references which follow are to the Excise Act.

Section 25 provides that it is an offence to manufacture excisable goods without a manufacturer licence.

Section 39A provides that the Collector may grant, or refuse to grant, a licence.

A licence is subject to the conditions set out in subsection 39D(1), any conditions prescribed under subsection 39D(2) and any other conditions that are specified in the licence under subsection 39D(3), being conditions considered by the Collector to be necessary or desirable for the protection of the revenue or for the purpose of ensuring compliance with the Excise Acts.

The term 'necessary for the protection of the revenue' was considered in Re Francesco Martino Applicant v. Australian Taxation Office Respondent (2002) AATA 1242 (unreported, Deputy President Forgie, 29 November 2002).

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 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 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 judgement, 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 three elements for the protection of the revenue may be drawn from Deputy President Forgie's judgement: • the need to ensure the Commonwealth receives all that it should in the form of any excise duty that is ultimately payable. • that the Commonwealth does not have to incur excessive expenditure in ensuring the client's compliance with their excise responsibilities. • that the word 'necessary' in the phrase 'necessary for the protection of the revenue' should be understood to mean 'reasonably' necessary as opposed to essential.

The Excise Act specifically provides that a licensed person must keep excisable goods safely, satisfactorily account for those goods when requested by a Collector to do so, and pay the amount of excise duty properly payable on those goods. The Collector is not able to have officers check all activities in real time. The Collector relies upon licence holders to correctly record their activities and to pay the correct amount of duty.

Checks are conducted based upon an assessment of risk. In assessing risks and determining an appropriate compliance strategy, the Collector considers the quantities of excisable goods a manufacturer intends to manufacture. As such, it is considered reasonable for the Collector to limit the manufacture of excisable goods to an amount commensurate with the quantity the licensed person has stated they intend to manufacture.

Therefore, the Collector may impose a condition on a licence restricting the amount of excisable goods a licensed manufacturer may manufacture on the basis that it is necessary or desirable for the protection of the revenue or for the purpose of ensuring compliance with the Excise Acts. Note: if the licensed manufacturer wishes to increase the quantity of excisable goods they manufacture, the condition may be varied on application by the licence holder under subsection 39D(4).