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.
Date
November 1, 2010
To:
[Client]
From:
Neil Varan
Technical Policy Advisor
Excise Duty Operations - Tobacco
Excise Duties and Taxes Division
Ottawa - HQ
Document Number:
129698
Subject:
Excise Interpretation
Interpretation of Excise Act, 2001, pertaining to refund of duty paid on delivery of imported stamped tobacco to duty free shop
Issue:
Whether stamped, imported cigarettes for sale in a Canadian Duty-Free Shop are eligible for a partial refund of the duty paid, and if so, whether it is the Duty-Free Shop itself that is entitled to the refund.
Applicable Law:
38. (1) Subject to subsections (3) and (4), no person shall enter into an excise warehouse a container of manufactured tobacco or cigars unless the container has printed on it or affixed to it tobacco markings and other prescribed information.
No delivery of imported tobacco without markings
(2) Subject to subsections (2.1) and (3), no person shall deliver a container of imported manufactured tobacco or cigars that does not have printed on it or affixed to it tobacco markings and other prescribed information to
(a) a duty free shop for sale or offer for sale in accordance with the Customs Act;
Delivery of imported stamped tobacco
(2.1) A container of imported manufactured tobacco that was manufactured outside Canada and is stamped may be delivered to
(a) a duty free shop for sale or offer for sale in accordance with the Customs Act; or
(b) a customs bonded warehouse.
42. (1) Duty is imposed on tobacco products manufactured in Canada or imported and on imported raw leaf tobacco at the rates set out in Schedule 1 and is payable
(b) in the case of imported tobacco products or raw leaf tobacco, by the importer, owner or other person who is liable under the Customs Act to pay duty levied under section 20 of the Customs Tariff or who would be liable to pay that duty on the tobacco or products if they were subject to that duty.
180.1 (1) The Minister may refund to a person who has imported manufactured tobacco an amount determined in accordance with subsection (2) in respect of the tobacco if
(a) the person provides evidence satisfactory to the Minister that
(i) duty was imposed on the tobacco under section 42 at a rate set out in paragraph 1(b), 2(b) or 3(b) of Schedule 1 and paid, and
(ii) the tobacco was black stock
(A) that was delivered to a duty free shop or customs bonded warehouse or to a person for use as ships' stores in accordance with the Ships' Stores Regulations, or
(b) the person applies to the Minister for the refund within two years after the tobacco was imported.
Analysis:
It is important to distinguish the treatment of marked imported tobacco intended for delivery to a duty free shop from the treatment of stamped imported tobacco intended for delivery to a duty free shop.
Marked imported manufactured tobacco intended for delivery to a duty free shop
Upon importation, such tobacco is not subject to the packaging and stamping requirements imposed under subsection 35(1) of the Excise Act 2001, as it is not "for entry into the duty-paid market" (see definition of "duty-paid market" and "duty" in section 2). Further, it is relieved of the duty imposed under subsection 42(1) by virtue of subsection 45(1). Nevertheless, in accordance with paragraph 38(2)(a), before a container of such tobacco may be delivered to a duty-free shop, the container must have printed on it or affixed to it tobacco markings and other prescribed information. As noted below, these marking and information requirements are set out in the Stamping and Marking of Tobacco Products Regulations (see also the definition of "tobacco markings" in section 2).
Upon delivery of the tobacco to the duty free shop, the special duty imposed under subsection 53(1) becomes payable by the duty free shop licensee in respect of the tobacco in accordance with subsection 53(2) (note that, according to the definition of "duty" in section 2, "special duty" is not "duty" for the purposes of Part 3 of the Excise Act, 2001). Information about duty free shop licensing requirements is contained in section 22.
The duty free shop licensee may be eligible under subsection 183(1) for a refund of the special duty paid on the tobacco. This refund is available to the extent that the tobacco is sold to non-resident persons leaving the country in quantities intended for personal use.
Stamped imported manufactured tobacco products intended for delivery to a duty free shop
Upon importation, such tobacco is subject to duty under subsection 42(1), which is payable under paragraph 42(1)(b) "by the importer, owner or other person who is liable under the Customs Act to pay duty levied under section 20 of the Customs Tariff or who would be liable to pay that duty on the tobacco or products if they were subject to that duty."
The stamped tobacco is permitted to be delivered to a duty free shop in accordance with paragraph 38(2.1)(a). [...].
A partial refund may be available under subsection 180.1(1) in respect of the duty paid on the imported tobacco that became payable under paragraph 42(1)(b). The purpose of the refund is to ensure that the duty paid on imported stamped manufactured tobacco delivered to a duty free shop is the same as the duty that would have been payable if the tobacco had been manufactured in Canada (black stock tobacco delivered to a duty free shop is subject to reduced rates of duty under Schedule 1 to the Act).
Application
In the instant case, according to [...] of Excise Duty in [...], [...] [the Company] imports tobacco from outside of Canada, stamps it, pays the applicable duty on imported tobacco products, and delivers it for sale in Canadian Duty-Free Shops.
Section 38 of the Excise Act 2001 mandates that the tobacco, in this instance, be stamped.
Further, the tobacco in this case is subject, under Subsection 42(1), to the duty enumerated in Schedule 1. Said duty is payable "by the importer, owner, or other person who is liable under the Customs Act to pay duty...". [...].
Subsequently, section 180.1 describes the scenario under which the importer, in this case [the Company], may be eligible for a partial refund of the duty it paid. The conditions are that the tobacco must be imported manufactured tobacco, that duty was imposed under section 42, that the tobacco was black stock, that it was delivered to a duty free shop, and that the applicant makes its application within two years of the tobacco being imported. Here, [the Company], because it was the entity that was liable for the duty and that paid the duty in question, may be entitled to a partial refund of the duty paid on the imported manufactured tobacco for sale in a Canadian Duty-Free Shop, provided it meets the enumerated conditions.
Conclusion:
[The Company] may be entitled to a partial refund, under section 180.1 of the Excise Act 2001, of the duty paid on imported manufactured tobacco for sale in Canadian Duty-Free Shops, as it is the entity that paid said duty. The Duty-Free Shop itself is not eligible for a partial refund in this case.
Neil Varan
(613) 957-1140
UNCLASSIFIED
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