Mulla v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (QT2004/234)
Judgment date: 6 October 2006
Date published: 6 December 2006

Summary of decision:

Overview of facts:
1. The Applicant held a licence under the Excise Act to produce tobacco leaf at a property at Mareeba in North Queensland; | 2. There only existed two Australian cigarette manufacturers that were legitimate purchasers of tobacco leaf produced in North Queensland. One of the manufacturers announced it would not purchase tobacco grown in North Queensland after the end of 2002. The other manufacturer announced it would cease purchasing tobacco leaf from North Queensland farmers after 2003. | 3. There is no other apparent legitimate Australian market for tobacco leaf produced in North Queensland; | 4. There is no established export market for Australian tobacco leaf; | 5. There is no evidence to indicate that there is a viable domestic or export market for any of the tobacco leaf the Applicant may produce in the future; | 6. The physical security of the storage facility on the Applicant's licensed premises is better than some other farmers and no worse than those on many other farms in North Queensland and Victoria; | 7. On or about 20 February 2004, a Notice of Suspension of tobacco producer licence was issued to the Applicant; | 8. On or about 12 March 2004, a Notice of Cancellation of tobacco producer licence was issued to the Applicant. | Issues decided by the court or tribunal | Senior Member Mr McCabe found that it was reasonably necessary to cancel the applicant's producer's licence to protect the revenue because it is not simply a matter of allowing the applicant to back his own commercial judgement. | SM McCabe accepted the approach taken by Deputy President Forgie in Martino v Commissioner of Taxation [2002] AATA 1242. [paragraph 50] | DP Forgie consideration of the word "revenue" in subsection 39G(2) of the Excise Act 1901 in paragraph 50 of Martino case - "It includes all of the monies the crown would be entitled to collect as excise duty under the Act. But there is more to it than that: revenue arguably means the amount to which the crown is entitled net of the costs of collecting those monies and operating the regulatory regime." | DP Forgie considered the word necessary at paragraph 52 of Martino case by adopting the analysis of Allen J in State Drug Crime Commission v Chapman (1987) 12 NSWLR 447, in that the word necessary did not mean essential. | In relation to the standard and onus of proof, here DP Forgie referred to the authorities and explained at paragraph 54 of Martino case : "All that is required is that the Collector, and so this Tribunal, is satisfied. Satisfaction, for all practical purposes, equates with the civil standard of proof which may be expressed as "the balance of probabilities". It equates with the interpretation of the expression "reasonable satisfaction" adopted by the Full Court of the Federal Court in Repatriation Commission v Smith (1987) 15 FCR 327 (Northrop, Beaumont and Spender JJ; and see page 335, per Beaumont J)." | With this approach SM McCabe considered the facts before him. | Unlike the facts in the decisions of Martino case and Hazim v Commissioner of Taxation [2005] AATA 1183, there was no suggestion that the Applicant would fail to carry out his obligations under the compliance regime. Further, there was no suggestion that the Applicant had acted unlawfully in the past, and there was no reason to believe he would divert tobacco leaf from his crop onto the chop chop market. Nor was there a suggestion that the Applicant would fail to co-operate with the Commissioner's officers in the execution of their duties [see paragraph 52] | Further the Applicant stated in evidence that "it will be impossible to develop an export market without the co-operation of other growers. He says at least 12 farmers from the district must grow a test crop." [see paragraph 59] | SM McCabe accepted that while it may be possible to achieve some economies in relation to the cost of supervision by the Commissioner, there was "no doubt that administering a compliance program for even a relatively small number of growers in North Queensland will cost a substantial amount". [paragraph 57] | SM McCabe further acknowledged that there was a possibility the tobacco leaf might languish in the storage facility for some time, if no sales for the product was found. These bales of tobacco would offer a tempting target for thieves. In turn what security arrangements that may exist may nonetheless prove inadequate given the growth in the chop chop market and reports of the involvement of organised criminal gangs. [paragraph 56] | Adopting the above approach, SM McCabe found it was "reasonably necessary to cancel the applicant's producer's licence to protect the revenue... As more growers produce crops, the risk to the revenue grows as a result of theft and other forms of leakage. The cost of supervision also grows." [paragraph 59] | However, SM McCabe did so on balance only. He was of the view that the applicant had put forward a strong case. SM McCabe stated that 'If the applicant were able to develop an export market from his own efforts, I would have restored his licence.' [paragraph 60] This is the single factor that tipped the decision in the ATO's favour.

Issues decided:
Senior Member Mr McCabe found that it was reasonably necessary to cancel the applicant's producer's licence to protect the revenue because it is not simply a matter of allowing the applicant to back his own commercial judgement. SM McCabe accepted the approach taken by Deputy President Forgie in Martino v Commissioner of Taxation [2002] AATA 1242. [paragraph 50] DP Forgie consideration of the word "revenue" in subsection 39G(2) of the Excise Act 1901 in paragraph 50 of Martino case - "It includes all of the monies the crown would be entitled to collect as excise duty under the Act. But there is more to it than that: revenue arguably means the amount to which the crown is entitled net of the costs of collecting those monies and operating the regulatory regime." DP Forgie considered the word necessary at paragraph 52 of Martino case by adopting the analysis of Allen J in State Drug Crime Commission v Chapman (1987) 12 NSWLR 447, in that the word necessary did not mean essential. In relation to the standard and onus of proof, here DP Forgie referred to the authorities and explained at paragraph 54 of Martino case : "All that is required is that the Collector, and so this Tribunal, is satisfied. Satisfaction, for all practical purposes, equates with the civil standard of proof which may be expressed as "the balance of probabilities". It equates with the interpretation of the expression "reasonable satisfaction" adopted by the Full Court of the Federal Court in Repatriation Commission v Smith (1987) 15 FCR 327 (Northrop, Beaumont and Spender JJ; and see page 335, per Beaumont J)." With this approach SM McCabe considered the facts before him. Unlike the facts in the decisions of Martino case and Hazim v Commissioner of Taxation [2005] AATA 1183, there was no suggestion that the Applicant would fail to carry out his obligations under the compliance regime. Further, there was no suggestion that the Applicant had acted unlawfully in the past, and there was no reason to believe he would divert tobacco leaf from his crop onto the chop chop market. Nor was there a suggestion that the Applicant would fail to co-operate with the Commissioner's officers in the execution of their duties [see paragraph 52] Further the Applicant stated in evidence that "it will be impossible to develop an export market without the co-operation of other growers. He says at least 12 farmers from the district must grow a test crop." [see paragraph 59] SM McCabe accepted that while it may be possible to achieve some economies in relation to the cost of supervision by the Commissioner, there was "no doubt that administering a compliance program for even a relatively small number of growers in North Queensland will cost a substantial amount". [paragraph 57] SM McCabe further acknowledged that there was a possibility the tobacco leaf might languish in the storage facility for some time, if no sales for the product was found. These bales of tobacco would offer a tempting target for thieves. In turn what security arrangements that may exist may nonetheless prove inadequate given the growth in the chop chop market and reports of the involvement of organised criminal gangs. [paragraph 56] Adopting the above approach, SM McCabe found it was "reasonably necessary to cancel the applicant's producer's licence to protect the revenue... As more growers produce crops, the risk to the revenue grows as a result of theft and other forms of leakage. The cost of supervision also grows." [paragraph 59] However, SM McCabe did so on balance only. He was of the view that the applicant had put forward a strong case. SM McCabe stated that 'If the applicant were able to develop an export market from his own efforts, I would have restored his licence.' [paragraph 60] This is the single factor that tipped the decision in the ATO's favour.

ATO view of decision:
This is a decision that related to legislation which has since been amended. The Excise Laws Amendment (Fuel Tax Reform and Other Measures) Act 2006 amended a number of provisions of the Excise Act . One of the amendments is the inclusion of a new ground for suspension (and thus cancellation) in subsection 39G(1) of the Excise Act . [New paragraph 39G(1)(ia) - "the licence holder does not have a market for goods of a kind the licence relates to"]. | The future utility of the support the case gives for the lack of a market being a grounds for suspending and cancelling licences to protect the revenue has been limited by this amendment as the existence of that specific ground means it is no longer necessary to solely rely on revenue protection as the basis for suspension/cancellation in these circumstances. | The decision reinforces the correct approach that should be taken in considering paragraph 39G(1)(m) of the Excise Act which permits suspension where " it is necessary for the protection of the revenue". The correct approach being that taken by Deputy President Forgie in Martino case , in that you must consider whether cancellation of the licence is reasonably necessary in light of the risks identified and the Commissioner's costs of supervision and in light of any other circumstances. | Further this is a decision that was made also on its facts, and the principles would apply in any case with similar facts.

Administrative treatment:
Implications on current Public Rulings & Determinations | None

Legislative references: Excise Act 1901 39G 39L 39Q 105
Case references: Ahmad Abdul Razzak Hazim and Commissioner of Taxation [2005] AATA 1183 Attorney General v Walker (1849) 154 ER 833 Martino and Australian Taxation Office [2002] AATA 1242 State Drug Crime Commission v Chapman (1987) 12 NSWLR 447
Subject references: Cancellation of tobacco producer licence