Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
Case Number: 116671
Business Number: XXXXX
Attention: XXXXX
October 2nd, 2009
Dear XXXXX:
Subject:
EXCISE INTERPRETATION
Activities of a tobacco licensee
Thank you for your XXXXX of XXXXX, concerning the application of the Excise Act, 2001 to possible activities of a tobacco licensee. I apologize for the delay in providing a response.
All legislative references are to the Excise Act, 2001 and the regulations therein, unless otherwise specified.
A tobacco licence (TL) authorizes a person to manufacture1 tobacco products2; XXXXX is a tobacco licensee.
Interpretation Requested
You would like to know how the Act would apply in various situations.
Interpretation Given
The following situations and responses refer to raw leaf tobacco that is unpackaged and unstamped and to partially manufactured tobacco3 that is unpackaged and unstamped, unless otherwise stated.
Situation #1
A tobacco grower sells raw leaf tobacco to TL#1. TL#1 does not alter the raw leaf tobacco and
(a) sells the raw leaf tobacco to TL#2; or
(b) exports the raw leaf tobacco.
Response #1
TL#1 may purchase the raw leaf tobacco from a tobacco grower pursuant to paragraph 30(2)(a).
(a) TL#1 may sell the raw leaf tobacco to TL#2 pursuant to paragraph 30(2)(a). TL#1 may remove the raw leaf tobacco from its premise to be delivered to TL#2 pursuant to subparagraph 28(2)(a)(ii). Please note there could be concerns with the licence of TL#1 if its only activity is the sale of raw leaf tobacco. If the only activity is the sale of raw leaf tobacco, a tobacco dealer licence would be appropriate.
(b) TL#1 may export the raw leaf tobacco pursuant to subparagraph 28(2)(a)(iii).
Situation #2
A tobacco grower in Canada sells raw leaf tobacco to TL#1. TL#1 processes (manufactures) the raw leaf tobacco into partially manufactured tobacco and
(a) sells the partially manufactured tobacco to TL#2; or
(b) exports the partially manufactured tobacco.
Response #2
TL#1 may purchase the raw leaf tobacco from a tobacco grower pursuant to paragraph 30(2)(a). TL#1 is licensed to manufacture tobacco products pursuant to paragraph 14(1)(d), which includes raw leaf tobacco processed into partially manufactured tobacco.
(a) TL#1 sells the partially manufactured tobacco to TL#2. This is a contravention of section 32 and 34 and may be subject to offences and penalties. Section 32 restricts the sale of unstamped tobacco products; there is no exception that authorizes TL#1 to sell the partially manufactured tobacco to TL#2.
For TL#1 to sell the partially manufactured tobacco to TL#2 it must be packaged by TL#1, printed with prescribed information and stamped at the time of packaging pursuant to section 34. Duty is imposed on the partially manufactured tobacco at the time of packaging and is payable by TL#1 pursuant to paragraph 42(1)(a). The current rate of duty applicable to partially manufactured tobacco in this situation is $2.8925 per 50 gram increment or fraction thereof. Once the partially manufactured tobacco is packaged and stamped it may be removed for the premise of TL#1 pursuant to paragraph 28(1)(a).
(b) TL#1 may export the partially manufactured tobacco pursuant to paragraph 28(2)(b).
Situation #3
A tobacco grower in Canada sells raw leaf tobacco to TL#1. TL#1 exports the raw leaf tobacco from Canada and processes (manufactures) the raw leaf tobacco into partially manufactured tobacco outside of Canada and
(a) imports the partially manufactured tobacco into Canada for sale to TL#2; or
(b) sells the partially manufactured tobacco outside of Canada.
Response #3
TL#1 may purchase the raw leaf tobacco from a tobacco grower pursuant to paragraph 30(2)(a). TL#1 may export the raw leaf tobacco pursuant to subparagraph 28(2)(a)(iii). The raw leaf tobacco is processed into partially manufactured tobacco outside of Canada.
(a) TL#1 imports the partially manufactured tobacco into Canada for sale to TL#2. For the partially manufactured tobacco to be released under the Customs Act, it must be packaged and stamped pursuant to subsection 35(1). Duty would be imposed pursuant to paragraph 42(1)(b). The current rate of duty applicable to partially manufactured tobacco in this situation is $2.8925 per 50 gram increment or fraction thereof. The duty imposed under paragraph 42(1)(b) shall be paid and collected under the Customs Act pursuant to section 44.
(b) TL#1 sells the partially manufactured tobacco outside of Canada. This is outside the scope of the Act as the sale occurs outside of Canada.
Situation #4
TL#1 imports into Canada
(a) raw leaf tobacco; or
(b) partially manufactured tobacco.
Response #4
(a) TL#1 may import raw leaf tobacco into Canada relieved of duty pursuant to section 46.
(b) TL#1 imports
(i) partially manufactured tobacco into Canada. For the partially manufactured tobacco to be released under the Customs Act it must be packaged and stamped pursuant to subsection 35(1). Duty would be imposed pursuant to paragraph 42(1)(b). The current rate of duty applicable to partially manufactured tobacco in this situation is $2.8925 per 50 gram increment or fraction thereof. The duty imposed under paragraph 42(1)(b) shall be paid and collected under the Customs Act pursuant to section 44; or
(ii) partially manufactured tobacco into Canada for further manufactured by TL#1. The partially manufactured tobacco is relieved from duty pursuant to subsection 42(2) and is not subject to the packaging and stamping requirements and may be released under the Customs Act pursuant to paragraph 35(2)(a).
Situation #5
TL#1 is contracted by TL#2 to provide processing (manufacturing) services. TL#2 owns the raw leaf tobacco and contracts for it to be processed into partially manufactured tobacco by TL#1.
Response #5
TL#2 may deliver the raw leaf tobacco to TL#1 pursuant to paragraph 28(2)(a). TL#1may possess the raw leaf tobacco under paragraph 30(2)(a). After the raw leaf tobacco is processed, TL# 1 may deliver the resulting partially manufactured tobacco to TL#2 pursuant to paragraph 28(2)(b).
Please note that there may also be provincial and territorial tobacco control and taxation legislation that may be applicable to the above mentioned situations. In addition, for situations that may occur outside of Canada please consult with the other country for its tobacco control and taxation legislation that may be applicable.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the Excise Act, 2001, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at XXXXX.
Yours truly,
Karen Doell
Senior Rulings Officer
Excise Duty Operations - Tobacco
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
cc: XXXXX
encl: GST/HST Memorandum 1.4, Goods and Services Tax Rulings
1 "Manufacture", in respect of a tobacco product, includes any step in the preparation or working up of raw leaf tobacco into the tobacco product. It includes packing, stemming, reconstituting, converting or packaging the raw leaf tobacco or tobacco product.
2 "Tobacco product" means manufactured tobacco, packaged raw leaf tobacco or cigars.
3 "Partially manufactured tobacco" means manufactured tobacco that is cut filler or cut rag or that is manufactured less fully than cut filler or cut rag. "Manufactured tobacco" means every article, other than a cigar or packaged raw leaf tobacco, that is manufactured in whole or in part from raw leaf tobacco by any process.
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UNCLASSIFIED
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