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XXXXX
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August 21, 200241570
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Dear XXXXX:
I refer to your letter to XXXXX of XXXXX, a copy of which you forwarded to my attention. A copy of XXXXX response of XXXXX was also forwarded to me. Your letter dealt with several issues that were discussed at a meeting with tobacco company officials on XXXXX, and for which you have requested written responses.
Since XXXXX's response dealt with questions XXXXX of your letter, we are responding only to the other questions you raised:
(1) Paragraph 28(2)(b) of the Excise Act, 2001 and removals of partially manufactured tobacco for delivery to another tobacco licensee.
For XXXXX, the removals would be from one separately incorporated company - XXXXX. in XXXXX to XXXXX at XXXXX, as understood from your telephone conversation with Steve Mosher on XXXXX. Therefore, the provisions of paragraph 28(2)(b) of the Excise Act, 2001 ("new Act") would permit the removal of partially manufactured tobacco from XXXXX. to XXXXX, since both companies would become tobacco licensees under the new legislation.
For the terms "cut filler" or cut rag", no legislated definitions appear in the new Act. In the absence of such definitions, we will accept dictionary definitions for these terms, namely the ones found in the Voges Tobacco Encylopedia, since we understand they are widely accepted in the tobacco industry. Those definitions are set out below:
filler (also known as cut filler) Blended, cased, cut and flavoured tobacco ready for cigarette manufacture.
cut rag Type of cut tobacco which has been blended, normally cased and cut prior to roasting. It has a moisture content of roughly 20%.
As well, we regard the above definitions as applying to products that are shipped in bulk for the manufacture of finished tobacco products. Therefore, they would not apply to any product that has been prepared and packaged for sale to consumers.
(2) Written guidelines for duty rates applicable on dry or damaged stock returned to manufacturers for destruction.
In order to develop guidelines on the appropriate duty rates applicable to refunds on tobacco products destroyed or reworked following excise duty rate increases, we have asked our regional managers XXXXX to survey tobacco manufacturers in their areas in order to determine the normal inventory turnaround times and age of returned stocks. We hope to have sufficient information by the end of the summer, so that we can prepare the guidelines shortly after that.
(3) Returns of dry or damaged stocks just prior to implementation of Excise Act, 2001.
Returns to your company of dry or damaged tobacco products just prior to the implementation date, but that are not destroyed until on or after that date, will be subject to refund based upon the excise duty and excise tax rates applicable under the current Excise Act and Excise Tax Act during the months preceding the return date. If the products returned are both excise duty and excise tax paid, the transitional rules under section 316 of the new Act would not be applicable.
If, however, the tobacco products returned for destruction are damaged goods on which duty had been paid but excise tax had not yet become payable, the provisions of subsection 316(2) of the new Act would allow for a refund of the "old" excise duty and simultaneously grant relief from payment of the excise tax.
(4) Reason for no change to the requirement for the sealing of trucks exported by land.
We understand that the current requirements of form E-60 will continue under the new legislation. The excise officer who signs the form must be able to verify the seals he or she has placed on the truck in order that proof of the export can subsequently be confirmed by the customs officer at the point of export. This evidence assists the foreign importer (and, where applicable, the Canadian tobacco manufacturer) in providing evidence that the same tobacco products exported from Canada have been properly tax and/or duty paid to a foreign national government, thus enabling the claimant(s) to obtain the refund of the special duty imposed by paragraph 56(1)(a) of the new Act.
Truck sealing by an excise officer is not required where an entire shipment of duty paid tobacco product is destined for sale in foreign duty free shops or for use as foreign ships' stores. However, a mixed load involving a shipment of duty paid tobacco products to foreign duty free shops or for use as foreign ships' stores along with a shipment of tobacco products subject only to the refundable special duty (currently a rebatable or refundable excise tax under the Excise Tax Act) would require an E-60 for part of the load. Therefore, the entire load in such an instance would be subject to sealing by an excise officer.
Also, for purposes of monitoring and ensuring that exports of tobacco products from Canada destined for foreign duty paid markets are indeed exported, we expect that it will be necessary to continue with the truck sealing procedures under the new Act.
(8) Implementation of Excise Act, 2001.
We anticipate that the Act will be proclaimed to be fully in force as of July 1, 2003, subject to the approval of the proclamation order by the Governor General in Council.
The foregoing comments represent our general views with respect to the subject matter of your letter. Any future amendments to the new Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and do not bind the Canada Customs and Revenue Agency with respect to any particular situation or transaction.
If you have any other questions with respect to the application of the new Act, please do not hesitate to contact me, at (613) 954-4208, or Steve Mosher at (613) 941-1497.
Yours truly,
Preston Gallant, CGA
Manager
Excise Duty Operations
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
XXXXX
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