Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 20th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 129295
November 4, 2010
Dear [Client]:
Subject:
EXCISE INTERPRETATION
Purchase of imported, unpackaged partially manufactured tobacco
Thank you for your email of October 21, 2010, concerning the application of the Excise Act, 2001 to the purchase of partially manufactured tobacco that is imported by a tobacco licensee for further manufacture.
All legislative references are to the Excise Act, 2001 (Act) and the regulations therein, unless otherwise specified.
Partially manufactured tobacco (PMT) is defined in the Act and means manufactured tobacco that is cut filler or cut rag or that is manufactured less fully than cut filler or cut rag. When PMT is imported by a tobacco licensee for further manufacture it is not packaged in accordance with the Act and it is not "stamped", meaning that an excise stamp and prescribed information are not stamped, impressed, printed or marked on, indented into or affixed to the product or its container in the prescribed manner to indicate that duty, other than special duty, has been paid on the product. To simplify our interpretation, we will refer to PMT that is not packaged and stamped as "bulk PMT".
A tobacco licence (TL) under the Act authorizes a person to manufacture tobacco productsi; [...] [the Corporation] holds a current tobacco licence issued under the Act.
We understand that [the Corporation] intends to purchase bulk PMT from a non-resident supplier located in [...] [Country X] and to subsequently import the bulk PMT into Canada for further manufacture.
Interpretation Requested
You would like to know how the Act applies in the following general scenario:
A tobacco licensee in Canada (TL1) places a purchase order with a non-resident supplier (the NR) for a certain volume of bulk PMT.
The NR then places a purchase order with another tobacco licensee in Canada (TL2) for the same volume of bulk PMT.
TL2 manufactures the requested volume of bulk PMT and exports and sells the bulk PMT to the NR.
TL1 purchases the bulk PMT from the NR and imports the bulk PMT into Canada for further manufacture.
Interpretation Given
Export and sale
The Act provides for extensive control of unstamped tobacco products in Canada, which includes bulk PMT.
Subsection 32(1) of the Act states that no person shall sell, offer for sale or have in their possession a tobacco product unless it is stamped. Subsections 32(2) and 32(3) provide specific exceptions to the prohibitions in subsection 32(1).
More specifically, paragraph 32(3)(a) allows a tobacco licensee to sell or offer to sell unstamped manufactured tobacco, which includes bulk PMT, that is exported by the licensee in accordance with the Act.
Therefore, a tobacco licensee in Canada may sell bulk PMT that is exported by the licensee in accordance with the Act.
Importation and purchase
According to paragraph 42(2)(a) of the Act, manufactured tobacco, which includes bulk PMT, that is imported by a tobacco licensee for further manufacture by the tobacco licensee is deemed to be manufactured in Canada by the licensee for purposes of the Act. Paragraph 42(2)(b) of the Act provides that duty is not payable on the manufactured tobacco, which includes bulk PMT, at the time of importation but is payable by the tobacco licensee that imported it at the time that it is packaged in accordance with the Act.
Therefore, bulk PMT may be imported by a tobacco licensee for further manufacture by the tobacco licensee without the payment of duty at the time of importation.
The Act includes prohibitions on the purchase of certain tobacco products, which includes bulk PMT. Section 29 provides, in part, that no person shall purchase a tobacco product
(a) from a manufacturer who the person knows, or ought to know, is not a tobacco licensee;
(b) that is required under the Act to be packaged and stamped unless it is so packaged and stamped; or
(c) that the person knows, or ought to know, is fraudulently stamped.
If any of the provisions in section 29 apply, the purchase is prohibited. Therefore, it is important to address each provision individually.
With respect to paragraph 29(a), where a tobacco product is outside of Canada and is purchased from a non-resident supplier, paragraph 29(a) will not apply.
Where the tobacco product being purchased is PMT that is outside of Canada and will be imported into Canada by a tobacco licensee for further manufacture, the Act does not require the tobacco product to be packaged and stamped; therefore, paragraph 29(b) would not apply to prohibit the purchase.
Finally, where a tobacco product is not stamped or required to be stamped under the Act, the issue of fraudulent stamping is not a concern; therefore, paragraph 29(c) would not apply to prohibit the purchase.
In conclusion, to the extent that the prohibitions in section 29 do not apply, the Act allows a tobacco licensee to purchase bulk PMT that is outside of Canada from a non-resident supplier.
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.
For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Goods and Services Tax Rulings.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-5897.
Yours truly,
Susan Tonolini
Litigation, Information Management and Tobacco Initiatives
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
i "Tobacco product" is a defined term in the Excise Act, 2001 and means manufactured tobacco, packaged raw leaf tobacco or cigars. Partially manufactured tobacco is both a "tobacco product" and "manufactured tobacco"
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