Excise: molasses tobacco

Is molasses tobacco, the product of adding molasses and other ingredients to cut tobacco, an excisable good under section 4 of the Excise Act 1901 if the processes occur in Australia?

Yes. Molasses tobacco that is the product of adding molasses and other ingredients to cut tobacco is an excisable good if the processes occur in Australia.

An entity obtains duty paid cut tobacco.

The entity adds molasses and other ingredients to the tobacco.

Molasses tobacco is generally smoked through a water pipe or hookah.

The entity produces the molasses tobacco in Australia.

Reason for Decision

The Excise Act and the Excise Tariff Act 1921 must be read together and as one (see section 6 of the Excise Act and section 2 of the Excise Tariff Act).

Subsection 4(1) of the Excise Act defines excisable goods as: Goods in respect of which excise duty is imposed by the Parliament, and includes goods the subject of an Excise Tariff or Excise Tariff alteration proposed in the Parliament.

Section 5 of the Excise Tariff Act imposes excise duty on goods listed in the Schedule to the Excise Tariff Act (the Schedule) that are manufactured or produced in Australia.

If the product is classifiable to the Schedule, the test that must be satisfied in order for the good to be considered an excisable good under section 5 of the Excise Tariff Act is that it is manufactured or produced in Australia.

Section 4 of the Excise Act defines 'manufacture' as follows: Manufacture includes all processes in the manufacture of excisable goods and, in relation to beer, includes the provision to the public at a particular premises of commercial facilities and equipment for use in the production of beer at those premises.

The Commissioner accepts that manufacture in an excise context generally requires that what is made is a different thing from that out of which it is made.

Whether a thing that is made is a different thing from that out of which it was made will be a question of fact and degree in relation to which an exercise in judgment is involved.

The factors to be taken into consideration in determining whether a thing is different from that out of which it was made were discussed by Windeyer J in M.P. Metals Pty Ltd v. Federal Commissioner of Taxation (1967-1968) 117 CLR 631; (1968) 14 ATD 407: Identity and difference, as concepts, must always be related to some quality of the thing or things in respect of which identity or difference is to be determined. It may be colour, shape, chemical composition or any other quality. To speak of 'substantial differences', as distinct from small differences, means little or nothing, unless some quality of the thing is postulated as its essential. And whether a thing is so different a thing from the thing or things out of which it is made as to be properly described as a new commodity may depend not only upon physical characteristics but also on differences in its utility for some purpose.

The Commissioner also accepts that manufacture in an excise context generally requires the application of skills.

Harvey CJ in Re Searls Ltd (1932) 33 SR (NSW) 7 discussed the notion that manufacture involves the application of skill to the component elements of a thing in order to bring a new and saleable entity into existence, stating at 11: In my opinion the fact that a new saleable entity is brought into existence by means of skill applied to the component elements of that new entity goes a long way to establish that the result is a manufactured article and if to that new entity people would in every day language apply the words "made" or "manufactured" and that entity is purchased for its own sake by reason of the skill which has been exhibited in putting the component parts into combination, I think it is proper to call the completed article a manufactured article.

In this case, the issue is whether molasses tobacco is tobacco and therefore an excisable good under the excise system (having regard to the Excise Act and Excise Tariff Act).

Item 5 of the Schedule refers to tobacco, cigars, cigarettes and snuff: Item Subitem Description of goods Rate of Duty 5 Tobacco, cigars, cigarettes and snuff 5.1 In stick form not exceeding in weight 0.8 grams per stick actual tobacco content $0.32775 per stick 5.5 Other $409.71 per kilogram of tobacco content

Item | Subitem | Description of goods | Rate of Duty

5 | Tobacco, cigars, cigarettes and snuff

5.1 | In stick form not exceeding in weight 0.8 grams per stick actual tobacco content | $0.32775 per stick

5.5 | Other | $409.71 per kilogram of tobacco content

The Schedule defines the term 'tobacco' as meaning tobacco leaf subjected to any process other than curing the leaf as stripped from the plant.

It is considered that this definition of tobacco means tobacco leaf that is subjected to an action or series of actions to produce a product (tobacco product for ease of reference). The action or actions must be actions that are other than curing the leaf as stripped from the plant.

This means that cured tobacco leaf that is chopped up meets the definition of tobacco. Also, because that cut tobacco is by definition tobacco leaf that has been subject to processes other than curing, if the cut tobacco is subjected to a further process to produce another tobacco product (for example, plain tobacco to produce a flavoured tobacco) the end product also meets the definition of tobacco.

As such, if cured tobacco leaf is chopped up and then has molasses added to it, the definition of tobacco extends to the end product. Put another way the cured tobacco leaf has been subjected to a series of actions that is chopping it up and adding molasses). Another way of producing molasses tobacco is to cure the tobacco leaves with molasses.

Having regard to the meaning of manufacture in the Excise Act, producing molasses tobacco by curing tobacco leaf with molasses and then chopping the leaves or by adding molasses to cut tobacco would both result in tobacco. They both result in products that are different from that out of which they are made through the application of skill.

As such, molasses tobacco however it is produced is an excisable good if the processes occur in Australia.